News Article : The state of South Africa’s political economy
|Category:|| Economy & Global : Local Economy|
|Posted:||22 Jun 2015|
A pragmatic rather than an ideological approach
Can South Africa form a smart, capable, effective, efficient, entrepreneurial, innovative, non-corrupt state?
The Q1 2015 edition of the African Communist contains an article by the Deputy Minister of Finance, Mr Mcebisi Jonas, which provides some useful insight into the present state of South Africa’s political economy (bearing in mind that as indicated by Mr Jonas he is expressing his personal views on this matter).
The title of the article (“Radical economic transformation: towards synthesis and praxis”) places it squarely within the context of the so-called “second phase of the national democratic revolution” in fact, the article is characterised by a realistic and sober assessment of South Africa’s current economic situation and the challenges it faces, and the constraints on policy options as a consequence of not only the global environment, but also domestic shortcomings.
The article argues strongly in favour of a pragmatic rather than an ideological approach to the search for solutions to South Africa’s challenges.
According to the author, the article should be seen as a call “to navigate the turbulent global and national currents requires a unique mix of pragmatism, opportunism and innovation, while remaining true to our ideological commitment to restore social justice”.
Although Mr Jonas argues for a strong role for the state in the economy, he also recognises the role played by markets and the private sector, even if it is for pragmatic rather than ideological reasons, for example, one is still confronted by the usual references to “monopoly capital”.
I must admit that I am a great supporter of pragmatism myself.
In my view, ideology encourages subjectivity and results in people being blinkered in their views.
In other words, ideology is a simplifying mechanism that allows one not to have to think too hard about the reality that confronts one and to deal selectively with the facts.
In the words of Nobel Prize-winning economist Douglass North, “the subjective and incomplete processing of information plays a critical role in decision making.
It accounts for ideology, based on subjective perceptions of reality, playing a major part in human beings’ choices.
By ideology I mean the subjective perceptions (models, theories) all people possess to explain the world around them.” Furthermore, “the theories individuals construct are colored by normative views of how the world should be organised”.
The five different understandings of what “radical economic transformation” means identified by the author bear ample evidence of North’s view, viz.
- Government-official as reflected in the Medium Term Strategic Framework (MTSF) for 2014-19 with rapid and inclusive growth as its stated objective, and nine pillars of implementation identified
- Labour (COSATU), with the emphasis on promoting the interests of organised labour but lacking a growth strategy to deal with low-skilled unemployment
- Populist (EFF), with its emphasis on changing ownership structures through nationalisation but devoid of any ideas to develop and grow the economy
- Mainstream left (SACP), with the emphasis on delinking the economy from global and financial forces, and downplaying the importance of GDP-measured economic growth
- Creative pragmatist (e.g. Joel Netshitenzhe), emphasising the “need to adopt innovative and pragmatic developmental solutions, and a shift away from fixed ideological positions”, for example by the diversification of South Africa’s international economic partnerships (with Africa and BRICS playing an important role) and the formation of a social pact (possibly through a “second Codesa”).
It does not come as a surprise that the Government-official understanding discards the populist understanding, nor that it regards the labour view as not comprehensive enough.
What is somewhat surprising is the critical view it takes of the mainstream left approach, describing it as “romantic” in various respects, given the large number of members of the cabinet who are also members of the SACP.
It bluntly states that the SACP’s “notion of the “GDP-myth is a distraction, and at worst feeds into an anti-growth logic that is potentially dangerous”.
On balance, Government’s own understanding is closest to the creative pragmatist understanding, although Mr Jonas (together with the SACP) believes that one must be careful not to overestimate the ability of Government to influence the private sector to assist it in reaching the “progressive outcomes” it is striving for.
The pragmatism of Government’s current economic policy philosophy is clear from a number of critical observations made by the author.
Firstly, the article acknowledges that the multi-class composition of the ruling party has resulted in policy contradiction and paralysis, with conflicting views of priorities and how they are to be achieved.
Although Government tends to publicly emphasise the National Development Plan (NDP) as the blueprint in accordance with which it acts, Mr Jonas points out that the MTSF has been informed by a combination of the NDP, the New Growth Path, and the Industrial Policy Action Plan.
In his opinion the result is that the MTSF “is not articulated as a clear strategy with the most highly prioritised and sequenced interventions, but rather as a smorgasbord of everything Government is doing in the economic space”.
Secondly, as pointed out by Mr Jonas, one of the main criticisms of the NDP has been its insufficient attention to industrial policy, while industrial policy is at the heart of South Africa’s attempt at achieving rapid and inclusive economic growth, changing the structure of the economy, reducing South Africa’s dependence on commodity markets, encouraging higher productivity, and improving competitiveness.
(Mainstream economists tend to shy away from industrial policy, dismissing it as the government trying to pick winners, which it is not qualified to do. They do so at the risk of ignoring a core aspect of current economic policy.)
Thirdly, Government is constrained in what it can achieve by currently available policy instruments, the implementation capacity of the state, and its ability to influence decision making in the private sector.
One should therefore be realistic about what results are achievable in the short term.
In short, the private sector will at times experience discomfort as a result of an activist government that is set on achieving its objectives.
However, if South Africa can succeed in forming a smart, capable, effective, efficient, entrepreneurial, innovative, non-corrupt state, it will greatly improve the possibilities for constructive partnering between the state and the private sector.
African Communist. Number 188. 1st Quarter 2015.
Douglass C. North: Institutions, Institutional Change and Economic Performance. Cambridge University Press. 1990.