- Typical of economic discourse, multiple groups are debating about the direction of policy for a post-Covid-19 economy.
- The reality is that the right solution needs to be nuanced and will incorporate aspects of proposals from all groups.
- Extremism displayed at times will not be the solution, rather, the solutions will be nuanced.
- Government needs to lead by establishing clear national priorities and private business need to see transformation as part and parcel of a growth agenda and not as an afterthought.
The state of economic policy debate is taking on an interesting and possibly disruptive turn. Typical of economic discourse, multiple groups are debating about the direction of policy for a post-Covid-19 economy.
Unfortunately, the majority of proposals present one alternative solution, the high road of what the group believes is the right remedy for the economy or no road at all.
The reality is that the right solution needs to be nuanced and will incorporate aspects of proposals from all groups.
The first group is the Economic Transformation Committee (ETC) of the governing African National Congress which has released a discussion document titled Reconstruction, Growth and Transformation: Building A New, Inclusive Economy.
Its stated objective is to build a new, inclusive economy, which is informed by the ideas from the Freedom Charter, with an overarching principle that the people shall share in the country’s wealth. This is presented in different parts of the document as inclusive growth and transformation; phrases that are used by other groups advancing proposals for a post-Covid-19 economy.
Ultimately, the targeted result is economic growth, and increased inclusion of black people in asset ownership and income distribution.
Find what’s broken
To reconstruct an economy implies to rebuild that which is broken in this economy. There is a need to clearly outline those aspects that are broken that need fixing so that society can agree on these.
Put differently, there is a need to spell out the ultimate desirable form of society that will result from the stated growth and transformational objectives. This should be followed by an implementation plan, implementation agents, and timelines.
In a recent discussion, a colleague asked where we are reconstructing the economy from; is it from the democratic transition in 1994 or from the remains of Covid-19 disruption? It appears the ETC discussion document pivots on the 1994 ambition, which was informed by the Freedom Charter but takes as a given the Covid-19 disruption.
There is an acceptance that economic growth alone is not enough to achieve the stated transformational objectives, which is captured by the accession that economic activity is not for its own sake.
The success of the stated objectives is hinged on a developmental state, that can lead, guide and mobilise social partners to implement the various pillars of the plan. Simply, the ETC appears to be advocating for increased state guidance to crucial sectors of the economy, which is at odds with the Business for South Africa (B4SA) position.
How much is new?
The core of the plan rests on structural reforms, which are not new, to boost economic growth with the state guiding the flow of economic benefits towards small and medium enterprises, women and youth to effect transformation.
Most of the structural reforms are in line with the National Treasury’s discussion document released in 2019, whose proposals are largely sectoral or microeconomic reforms extending across network industries (roads, rail, ports, and harbours, energy, telecommunications, water, and sanitation), agriculture and manufacturing, among others.
As far as macroeconomic framework is concerned, the ETC reaffirms the need to restore fiscal stability while deploying macroeconomic policy instruments that are compatible with economic reconstruction.
As far as the contentious issue of the role of the SARB goes, the ETC notes that monetary policy must be better coordinated with fiscal policy and that it must deploy pro-investment instruments that are compatible with the reconstruction of the economy.
It also affirms the current stance of the SARB to stabilise capital markets but adds yield curve control by depressing long term interest rates.
I will elaborate on the ability of monetary policy in depressing long-term interest rates in future columns; suffice to say it is not as clear cut as is normally believed as monetary policy can only impact portions of the interest rate while other drivers lie outside of it.
What about business?
The second group that is advancing proposals is the private sector businesses through the Business for South Africa (B4SA) which advocate for the state to enact a conducive and enabling legislation while leaving much of the job of growing the economy and transformation to the private sector. B4SA released a 111-page document with a litany of aspects.
As an aside, the document is too dense and likely indigestible for the common person, even for the more informed: the graphics and visuals make it more artistic than thought leadership. This is unfortunate.
The core of the proposals centres around structural economic reforms as presented in the National Treasury discussion document with a distinct difference with the ANC’s ETC as far as the role of the state is concerned.
It appears B4SA is advocating for the limited role of the state, which is one of ensuring regulatory framework while the job of generating economic growth and employment is left to the private sector.
The transformation aspects seem to be assumed to automatically flow from economic growth, as there are few practical suggestions that differ from the past two decades where transformation in the private sector has stalled. This will form part of the pushback from those on the left. The expected response will be that this is all talk with no action.
The academic factor
The third group, which is largely comprised of academics, with some calling themselves heterodox economists, who advocate for heavy state interventions financed by monetary printing by the SARB. This group advocates for heavy state intervention in the economy financed by outright financing of the government by the SARB.
What is assumed away is the efficacy of government spending, which is evident if one looks at the past decade where the outcomes do not exhibit a trillion rand of debt.
At times this particular group advances views that are experimental, which may lead to the undoing of the gains of the past while not advancing the cause of their narratives. One such aspect is the labelling of structural reforms per the Treasury document as “discredited and orthodox”. But nothing is orthodox about releasing spectrum, reducing the cost of importing and exporting goods, making the transport network less costly and more efficient, and reforming the energy sector to supply sufficient electricity while transitioning to clean energy. These measures exist in any form of developmental framework, they are the basics and foundations of development and a successful economy.
The last group is one that is largely aligned with the Treasury, the SARB, and B4SA except for the transformation aspects calls for prudent fiscal and monetary policy with long term sustainable debt and inflation within the SARB’s target band of 3-6%. They differ with B4SA on how to effect transformation, they contend that it’s not automatic from the attainment of economic growth and will need a more active role of the state to effect.
As the custodian of the national interest, the reconstruction of the economy and its social fabric will require the government to lead on establishing national priority areas on which various sectors of society – private business, labour, and civil society – will each have clear responsibilities, timed deliverables, and accountability. All need to agree and commit.
Perhaps from the different discussion documents produced by each, common areas need to be extracted and implemented while compromised are found on the uncommon areas.
The reality is that the extremism displayed at times will not be the solution, rather, the solutions will be nuanced and will incorporate aspects from the various groupings.
They all need to talk and government needs to lead by establishing clear national priorities and private business need to see transformation as part and parcel of a growth agenda and not as an afterthought.
This needs to be visible, not in documents but in how the benefits of the economy accrue to those that work the economy.
Isaah Mhlanga is chief economist of Alexander Forbes. Views expressed are his own.
