Time to get out of low growth and high inequality trap

Time to get out of low growth and high inequality trap

I reject with the contempt the narrative that the current financial and economic malaises our country is faced with should be blamed former President Hifikepunye Pohamba.

I believe that slogans and blanket statements of trying to shift the blame are a poor substitute for a careful analysis and facts. I am even surprised that no one came to the defence of the former president Pohamba. All we witnessed was absolute silence, including from those who served under him, except for the minister of economic planning, Tom Alweendo.

On the occasion of the launching of NDP4 in 2012, Pohamba said in order to achieve our national development objectives, our Government focused on strengthening the national economy by implementing initiatives aimed at broadening the industrial and manufacturing base; extending physical and communication infrastructure such as roads and railways; and improving the capacity of public institutions in order to effectively deliver public services and social amenities.

He then highlighted some accomplishments of the government such as peace and stability and how we have managed our economy saying over the years, we were able to achieve macroeconomic stability where, for example, inflation has been low and stable; fiscal policy has been prudent and sustainable; and our external balance has been healthy.

The former president then also admitted that our economy was still not growing at a sufficient rate in order to generate the necessary employment opportunities for our citizens.

He also lamented the level of the inequality in our society. Given these challenges, the main goals that were targeted in NDP4 were sustainable high economic growth, the creation of employment opportunities and the reduction of inequality in the distribution of economic benefits as well as addressing the issue of our economic competiveness by ensuring that we have the necessary skills.

As such, we cannot now come and shift the blame on former President Pohamba because of global economic turbulences and financial headwinds.

To corroborate what I am saying, look at an article that appeared in the South Africa’s City Press newspaper on 19 February 2017. The South African deputy minister of finance, Mcebisi Jonas, said the global growth model of 1980 to 2007 (often referred to as neo-liberalism), based on globalisation, liberalisation of trade and capital flows, financial sector deregulation, monetarism and fiscal austerity, has stopped generating inclusive economic growth.

The main global outcomes now are rising inequality, financialisation, de-industrialisation, stagnant household incomes and increasing social discontent. This is increasingly recognised, even by the enforcers of this global growth model themselves – the IMF.

Thus, many of the challenges we face are not peculiar to our countries in Southern Africa (although more negatively impacted because of high initial conditions of inequality and unemployment).

Globally, foreign-based big capital is driven by short term shareholder maximisation, and ownership traded in highly liquid markets. This seriously limits our ability to draw this capital into our national development project.

As highlighted at the 2017 World Economic Forum in Davos, a continued weak global economic outlook, rising global inequality, and the emergence of populism and economic nationalism (illustrated through Brexit and election of Donald Trump as US president), bring a number of risks for emerging economies. Economies such as ours which are highly dependent on external sources of capital and markets, and do not have the technology base to take advantage of the fourth industrial revolution.

According to Jonas, this is so because the social and political deal hammered out at the end of apartheid in the 1990s has collapsed, and leaders need to admit this as a first step to finding a “new social consensus” as the old consensus had run its course.

The 1990s bargain entailed a political and class compromise which (1) safe-guarded the interests of the existing (white) economic elite, (2) created a new black elite primarily through state employment and rents, but on the other hand it also (3) put in place a robust system of democratic accountability; (4) provided a more secure and regulated labour market for the organised working class, and (5) established a comprehensive system of fiscal redistribution for the poor (i.e. welfare).

I agree with the views of the South African deputy minister of finance that there is no doubt that the welfare spending component of the 1990s consensus brought significant social returns in reducing extreme poverty and vulnerability, and extending access to basic services. And there is also no question that the robust system of accountability and the democratic institutions we have established provide critical checks and balances to those entrusted with the means of state administration.

Notwithstanding, we should be bold enough to admit that inequality has not reduced, ownership of the economy remains highly concentrated, and higher economic returns continue to accrue to those already endowed with capital and skills, meaning the rich are getting richer and the poor are left out. Our education and training outcomes haven’t helped to bridge the gap between the haves and the have not, despite the significant per capita spending on education.

True, fiscal redistribution programmes (progressive taxation, health, education, welfare and housing) play a critical role in reducing extreme poverty, and do have an inequality-reducing impact. Similarly asset redistribution programmes (such as land reform), and regulatory measures (such as the National Equitable, Economic Empowerment Framework (NEEEF), also have some inequality-reducing impact.

But these impacts are minimal if the causal determinants of inequality – rooted in the structures of the economy – are not simultaneously transformed. The ambitious project of creating a developmental state to transform the apartheid economy has been hamstrung by the absence of the necessary coherence and capability, as well as patronage and corruption.

There is growing restlessness of our people who are not blind to the obscene inequality that abounds and who are losing hope in a future of shared prosperity.

We thus need a paradigm shift, underpinned by a new consensus –around which the state, business, labour and civil society can cohere – to move us out of our low growth and high inequality trap, as suggested.

Against this background, Jonas examined our low growth-high inequality trap, and proposes a set of policy prescripts to escape the trap. Basically, he said, two elements of inclusive growth must be unlocked. Firstly, we need as a matter of urgency to more deliberately diversify the economy away from “fickle capital inflows and commodity booms” (to quote Rodrik, 2015), through identifying new sectors and industries in which we could be competitive, leverage investment, and rapidly grow output and jobs.

Provisionally, the following sectors and industries have been identified including through the HPP: The mining and energy sector (including downstream industries, renewables and gas); The infrastructure value chain (leveraging off Africa’s big build programme, and through accelerating the crowding-in of private investment into jointly financed economic infrastructure); The ocean economy value chain; The agriculture value chain (particularly export-intensive and labour-intensive horticulture); Advanced export manufacturing (anchored in local supply chains, new technological capabilities, and new logistics capabilities such as the extension and development of the port of Walvis Bay); Light manufacturing, including the clothing and footwear industry, both for export and domestic consumption; and International tourism (including health tourism), leveraging off our exchange rate advantage. The approach should be to identify and resolve broader constraints to competitiveness and investment (costs and reliable supply of electricity, port-handling and other logistics costs, costs of broadband etc), as well as specific obstacles to growth and investment in the seven sectors and industries identified above (skills, regulations, infrastructure, finance etc).
Secondly, we need a fresh approach and set of practical measures to combat exclusion. Our approach to inclusivity must move beyond just regulating inclusion ((NEEEF) and focusing on state sector markets (preferential procurement as it appears prominently under the HPP), towards addressing the actual productivity constraints faced by new entrant firms and start-ups owned by the previously dispossessed. Here the state (working with existing corporates) needs to level the playing fields by connecting these start-ups with productivity-enhancing inputs and networks. This includes access to capital (through DFIs, venture capital funds, investment partnerships with established players etc); access to technology (through innovation and technology transfer incentives with established players); access to efficient and cost effective logistics and ICT connectivity; access to cost-effective inputs (including technical skills); access to on-going business support and mentoring; and access to markets (export support, off-takes, competition reform).

All in all, Jonas argued that the current conjuncture is not about a choice between transformation or growth. Instead, we need growth with transformation. Jonas emphasized that “it is dangerous for organisations to evoke history and claim to be “a glorious movement” while neglecting the present challenges”.

In this regard, he warned against undermining public opinion by those in power, and called for an active citizenry, saying: “…Society must be free to speak.” For this reason, framing of the public opinion through newspapers must end and instead look for solutions. Policy responses to combat inequality have to move beyond the usual approaches of fiscal redistribution such as social grants and asset redistribution like the demand for land, to include measures that provide the poor and previously dispossessed with access to productivity enhancing capital, skills, technology and markets.

• Paul T. Shipale is a scholar and commentator of contemporary politics. The opinions expressed here do not necessarily reflect those of this newspaper but solely his personal views as a citizen.

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