Informal sector support has joined our list of favoured economic fixes, which includes mobilising investments, education and skills development, supporting entrepreneurs and small and medium enterprises (SMEs), less corrupt and more competent governance and scrapping BEE regulations.
While each of these merits support, significant progress in all of these areas would not meaningfully mitigate the primary threat to our political economy. Policies have entrenched the world’s most severe youth unemployment crisis. We can’t remedy this without far greater global integration.
As patronage unites the ANC’s disparate elements, the party is dismissive of economic development basics. The rest of us must become better informed.
Humankind’s earliest gains were sparked by fire. Much later, domesticated animals and sown fields cultivated cities and leaps in learning. Yet the pace of economic development was barely discernible until open-ocean shipping connected distant ports a half millennium ago.
It wasn’t until the industrial era began a quarter of a millennium ago that economic development triggered a steep upward trajectory. Over the past half-century those gains surged, and prosperity became more equitably distributed. Container shipping, communication technologies and a favourable geopolitical environment supported humans’ most extraordinary accomplishment, perhaps, the rapid rise of Asia.
As we presume that we can rely on exporting commodities while bootstrapping our domestic economy, our governing elites enrich themselves while framing our politics around inequality themes. Elsewhere, healthy growth is sustained through intense global integration leveraging the efficiency gains provoked by disruptive technologies.
Whereas growth through supporting our informal economy is a domestic bootstrapping approach to economic development, the rise of Asia exploited market access to affluent markets. In effect, Western pioneers had led development through crossing chasms and scaling cliffs while leaving behind rickety bridges and rope ladders. Asians and Westerners then overcame geographic and economic separateness by building sturdy bridges and high-volume escalators to create a far more affluent global economy. Isolationism entrenches SA’s domestic separateness.
Domestic bootstrapping ensures inferior results. Today, countries in other regions routinely pursue economic development through global integration.
About 50 years ago an Opec oil embargo severely constrained the global economy. A similar move today would speed the transition to electric vehicles. Most countries that are still reliant on commodity exporting are poor. What delivers broad prosperity is the adoption of technology and market access to affluent consumers.
Billions of people have been uplifted in recent decades through commercial access to affluent markets. Our leaders ignore how global growth reliant on efficiency gains precludes meaningful upliftment through domestic bootstrapping. The global economy is so dynamic, and the benefits of global integration so extreme, that isolation leads to stagnation, if not decline.
In the early 1970s bank managers’ career prospects relied on making many car and home loans that were repaid on time. They lent to those who exuded integrity while managing their finances responsibly — and this encouraged such characteristics.
Credit scoring arrived in the late ’70s, encouraging a depersonalised, portfolio approach to lending. Low-income borrowers tolerant of high rates outnumber those who are likely to default. If regulators allow banks to charge excessively high rates, they will profit while undermining household wealth building among the many who pay promptly.
The rise of Asia was so rapid because its version of bootstrapping was fuelled through adding value to exports while households saved prudently. Within three decades this had created tremendous wealth.
Johann Rupert, probably SA’s most exceptional investor, began his career as a credit analyst at a large international bank in the ’70s, before desktop computers blurred reliance on fundamentals. His wealth mostly reflects bets on global luxury brands that have benefited from the worldwide surge in discretionary income in recent decades. This has been far more remunerative than betting on SA’s commodity exporting or its consumer spending.
Overreliance on domestic bootstrapping has left a majority of our households poor, overindebted or both. We must look beyond our informal communities, and our borders, to achieve broad upliftment.
• Hagedorn (@shawnhagedorn) is an independent strategy adviser.
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