South Africa, like China, cannot achieve adequate growth by relying on domestic consumption. China must aggressively subsidise exports to maintain GDP growth momentum. Suppressed investment yields and wages provide low-cost funding and labour for projects favoured by its authoritarian government.
Our national dialogue’s default position is that strong GDP growth will deliver trickle-down gains to low-income households, which will spur further GDP growth. But there isn’t a workable plan to induce meaningful GDP growth while ultra-elevated youth unemployment provokes much permanent marginalisation.
The pervasiveness of South Africa’s and China’s financially stressed households reflects policy choices. Taming South Africa’s entrenched poverty requires robust rural-urban migration and job creation through adding value to exports. Whereas China’s powerful export-led growth model has rewarded extraordinary urban migration, our urban poor are stymied and their rural counterparts are worse off.
People distant from seas, rivers, roads and rails must often exist as subsistence farmers, work as poorly paid farm labourers or migrate. Subsistence farming locks in poverty, whereas large, efficient farms are necessary to reliably and cost-effectively feed urbanites. Often this necessitates job-reducing mechanisation.
Unlike China’s low-income households, ours don’t save excessively; quite the opposite. China’s authorities suppress investment options, the value of the yuan, interest rates paid to savers and wages. This provides funding and labour at low cost to subsidise key export sectors, thus increasing China’s market share while unfairly undermining foreign competitors. Conversely, our regulations produce rampant unemployment alongside heavily indebted households.
The maximum permissible rates charged on South African consumer loans are consistent with lenders’ profitability, providing a high volume of such loans. The macro result is that household sector gains are repressed.
The perpetually poor have distinct political priorities. Our election campaigns would be quite different if the vast majority of South Africans enjoyed middle-class lifestyles.
Unlike China’s low-income households, ours don’t save excessively; quite the opposite. China’s authorities suppress investment options, the value of the yuan, interest rates paid to savers and wages. This provides funding and labour at low cost to subsidise key export sectors, thus increasing China’s market share while unfairly undermining foreign competitors.
We have been distracted by blatant governance shortcomings to the point where we ignore development fundamentals. Our persistently rampant poverty and youth unemployment are now as extreme as our political journey.
Consider how the cost to South African consumers of housing bonds, the spread of the interest rate charged over inflation, is almost twice what US borrowers pay — and there, lenders routinely bear the risk of rates rising. Borrowers paying 5% over inflation on a housing bond versus 2.5% greatly limits upliftment and middle-class growth. GDP growth spurts often trigger higher interest rates, further diminishing trickle-down prospects.
Despite our domestic economy having failed to support adequate job creation for nearly two decades, our policymakers still expect increased consumer spending to spur growth. This ignores how the already worrisome financial trajectory for South Africa’s households has been further depressed by our youth unemployment crisis.
Is South Africa now closer to being a broadly prosperous country than in 1994? While many previously disadvantaged households are far better off, this was achieved with policies and practices that pulled the ladder up behind them. Policies matter. Our national debt is far higher, while youth unemployment and household financial health choke growth.
A prudent balance needed to be maintained between redistribution and growth. Instead, patronage became central to ANC decision-making. But this does not explain why our national discourse lacks a workable plan for high-volume job creation.
Two misperceptions must be transcended. We must pivot from unrealistic reliance on South Africa’s consumers to grow the economy to prioritise exports instead.
We must also jettison the idea that employment gains require sharply upgraded education outcomes. Competitive companies in countries without racial quotas routinely hire poorly educated people. So long as they are good team players, they can start by doing a modest number of tasks and then acquire a range of skills on the job.
By degrading collaboration, race-based policies undermine competitiveness. Policies matter. Collaborative teams achieve competitiveness through specialisation and this reduces reliance on formal education outcomes. China’s economic gains have largely preceded its education gains.
Most South African voters are poor and poorly educated. Yet, like their Chinese counterparts — and unlike their affluent compatriots — they know trickle-down economics won’t help them.
• Hagedorn is an independent strategy adviser.
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