Come together, right now: SA growth needs both market and state
The failure of Thabo Mbeki’s Gear revealed that market-led development is not the solution. That’s even more true today
Since President Cyril Ramaphosa’s Sona, South Africans have been debating whether government should limit its economic growth role to creating a conducive atmosphere for private sector to thrive or to play an active role in the country’s economy to ensure poor people get basic services and employment opportunities. What balance should SA seek between the free market and the state’s economic intervention in pursuing macroeconomic balances that allow for sustainable development?
To answer this question, it is important that South Africans understand the present economic challenges against the backdrop of global economic expertise, experiences and successes. An open secret is that “no economy, not even the old Soviet economy, was entirely state-driven; nor was any economy, certainly not the US economy, ever entirely market-driven”.
It was clear that market-led development alone was unable to address the deep-rooted realities of the country’s two economies.
In 1996, then president Thabo Mbeki’s administration adopted the Growth, Employment and Redistribution (Gear) strategy, which was initially sold as an economic growth strategy with specific targets for economic growth and the promise of several thousand jobs by 2000. It is now history that Gear, while managing to secure macroeconomic stability, achieving a 5% growth and assisting business owners to multiply their profit margins, failed to facilitate the transfer of resources to the poorer part of the economy and to create the promised jobs. Gear was later described as a structural adjustment policy, self-imposed to stabilise the macroeconomic situation. However, the business sector’s irresponsible and unpatriotic response to Gear left Mbeki fuming. In September 2004, Tony Trahar, CEO at Anglo American, told the Financial Times of London that “political risk” still existed in SA even 10 years into democracy. Meanwhile it was conservatively estimated that SA’s business was sitting on cash reserves amounting to R500bn, which could have made a huge difference had it invested them in the economy. It became clear to Mbeki that his government needed to strengthen the development capacity of the state to meet the needs that markets alone could not reach.
When delivering his 2005 Sona, Mbeki dropped the concept of the country having two nations and said if social transformation were to succeed in SA, the country could not be the prisoner of neoliberal market ideology. He went on to define SA as comprising two economies — the “first economy” was described as a resourceful and wealthy minority economy, while the “second economy” was an economy of the masses who were uneducated, unskilled, unemployed, poor and lacking resources — and implied it was the result of the free market or neoliberal ideology. He concluded that a free-market economy favoured the “first economy” and that the disadvantaged “second economy” needed the support of state institutions.
It was clear that market-led development alone was unable to address the deep-rooted realities of the country’s two economies. In fact, it could deepen the levels of exclusion and marginalisation, and precipitate political, economic and social instability. Through concrete and active state intervention in the economy, the “unskilled, uneducated and unemployable citizens must be helped to realise the dream of a life free of poverty, free of hunger, free of unemployment and free of underdevelopment”, he said.
The decision by Mbeki was a direct result of historical events that led his administration to have little trust in the free market to provide the country’s masses with key resources. The Ramaphosa administration has no options but to leap ahead of the marketplace to create jobs for African youth. Compared with “political, economic and social risks” of the early 2000, today’s risks have reached insurmountable levels.
All the elements that led to the Arab Spring are here, present and imminent as we debate non-stop and repeat the same demand that the government play dual roles; create a conducive atmosphere for business to thrive and be an active economic player, and not referee, through a capable state machinery and effective SOEs that ensure access to basic resources and create job opportunities.
The state and business have patriotic and active roles to play, with clear tasks that each must carry out, variously and collectively, to build an economy from which all citizens can benefit. In the current global economic space where democratic and responsible governments strive to serve all their masses, privatisation has lost its glory. One of the most instructive global lessons of the past century is that the worst form of fundamentalism can in fact be market fundamentalism.
Thabani Khumalo is a management consultant and independent political analyst based in Durban.