CLAIRE BISSEKER: A dash of Coleman’s mustard fires up the orthodoxy

The spat between Colin Coleman, the former Goldman Sachs CEO for Sub-Saharan Africa, and a clutch of local economists has been entertaining. After all, it’s not every day that young, black economists call a scion of white monopoly capital “populist”.

However, the issues being ventilated are deeply serious and critical to whether SA embarks on a sustainable growth path or spirals ever downwards.

Coleman has annoyed the orthodoxy by punting a R100bn basic income grant (BIG) of R800 a month for SA’s 12-million unemployed, funded partly through higher taxes, more debt and hoped-for receipts from an unending commodity boom.

(Incidentally, his brother, former Cosatu strategist, Neil Coleman, is SA’s foremost BIG proponent through the Institute for Economic Justice at Wits University, which he cofounded. Having the brothers singing from the same page must make for happier dinner times in the Coleman household, but I digress.)

Colin Coleman’s central argument is that while SA does face fiscal pressures, its real problem is that it is locked in a low-growth trap (it suffers from a growth problem rather than a debt problem). It follows that austerity alone won’t kick-start the economy, says Coleman: what’s needed — in addition to R100bn more in income support — is a fresh round of economic stimulus as well as a package of bold, pro-growth structural reforms.

Apart from his endorsement of a BIG and additional stimulus measures, Coleman’s proposals accord broadly with the consensus view that SA will never get on top of its debt mountain if it doesn’t achieve rapid, sustainable growth. And that the way to achieve this is to accelerate pro-growth structural reforms.

Only, most of the reforms he suggests are already included in the president’s economic recovery plan. They range from fixing Eskom to facilitating skilled immigration, securing faster internet, and encouraging public-private partnerships in building infrastructure.

The problem is that the smattering of reform the government has achieved over the past few years has been too tentative to fire up business confidence or come anywhere close to placing the country on a new growth path. Meanwhile, corruption has proved deeply entrenched, local government is collapsing, and SA’s social fabric is fraying in alarming new ways.

As tempting as it is to think a R100bn welfare cheque will insure against further social instability, it would merely paper over the cracks as long as the government’s commitment to enacting structural reform, improving service delivery and eradicating corruption remains half-baked.

The only way SA gets back to 3% growth (a prerequisite for fiscal sustainability) is if the government changes its entire approach to managing the economy. A decade of inefficient consumption spending by a bloated, inept bureaucracy is a major reason for both SA’s looming fiscal crisis and its inability to grow. This is why other economists are getting so hot under the collar at Coleman’s suggestion that SA needs more debt-fuelled state spending to escape its growth trap.

The solution has always been to jettison the developmental state concept and reject further deficit spending in favour of accelerating private sector participation in everything from running rail and ports networks to generating electricity and building infrastructure. A minority in the government is groping towards this understanding; the rest frustrate investment with every new policy utterance and new act of corruption.

For Coleman to endorse R100bn more in annual state spending in the hopes there will finally be action on reforms like “the professionalisation of the public service”, which everyone knows will never happen under this government, is hardly helpful.

The problem with his proposal is that it fails to acknowledge that the reform card has been played and has largely failed to deliver. To argue that SA can afford his proposed stimulus package because it will succeed at structural reform, allowing it to also meet its fiscal consolidation targets, seems hopelessly unrealistic. On the contrary, opening the welfare taps in the current environment would be fiscal suicide.

• Bisseker is a Financial Mail assistant editor.