TIM HARRIS: New Growth Path
New economic plan will lead us down the road to poverty
PARLIAMENTARY legend has it that President Jacob Zuma ’s office was stormed on the morning of May 10 last year — the day the Cabinet was to be announced — by a delegation of unionists demanding a senior economic ministry for their man, in exchange for supporting Zuma’s bid for the Presidency. The story goes that this is the reason the announcement was delayed.
Whether Ebrahim Patel was indeed appointed Economic Development Minister in such a chaotic fashion is difficult to confirm, but it has become clear that his ministry was simply bolted on to the existing economic portfolios with little more than a vague mandate to "make economic policy".
Beyond the obvious questions about overlapping ministerial responsibilities, there is a serious concern about Patel’s appropriateness for such a job. One respected economist commented recently to me that "the only thing he’s done before is destroy the clothing and textile sector". This is an obvious reference to his previous role as the head of that sector’s main
union, the South African Clothing and Textile Workers Union (Sactwu).
The clothing sector is not quite destroyed yet, but it’s on its last legs. I recently met
workers in Newcastle, KwaZulu-Natal, who are forced to be members of Sactwu in a closed-shop arrangement. They told me they couldn’t understand how the union and bargaining council can be working so hard to close down factories because of noncompliance with centrally determined provisions. They would rather keep their "noncompliant" jobs than see the factories closed.
Following my visit, Patel declared a moratorium on factory closures until next month, when he claims he will broker a consensus to save the industry. I can only hope he will consult more broadly than he appears to have done in developing the
New Growth Path document that was released on Tuesday.
It is clear Patel faces two main problems with his New Growth Path: the first is economic, and the second is political.
Economically, the document is something of a c urate’s e gg: part good and part bad but, as a result, entirely spoiled. The key issue is that the document envisions a scaled-up role for the state in all sectors of the economy without acknowledging that our public service has been so crippled by cadre deployment that we are a million miles away from the accomplished and efficient bureaucratic elite required to skilfully manage such broad interventions. Involving an incapacitated state so deeply in our economy will put us on a path to poverty, not a path to growth.
The three clearest examples of intervention that will take SA backwards are the proposed state-owned mining company, the state-owned bank, and the cap on pay and bonuses for senior managers and executives (which seems to exclude public servants).
SA already has a state-owned mining company; it’s called Alexkor and it has posted losses of R275m and shed 85% of its employees over the past 10 years. The state has no place in mining, aside from recouping royalties and taxes from private companies. The same applies to banking: our financial sector can step up to our developmental challenges. The last thing we need is taxpayers’ money crowding out private capital in the banking sector.
Equally, while the proposal for a "social pact" to moderate wages is a good one, the component whereby pay and bonuses for senior managers and executives would be capped is madness. We need to tackle inequality by extending opportunity to those without, and subsidising young job seekers, not by driving small business owners and skilled managers abroad with salary caps.
Parts of the document are good: all reasonable South Africans will applaud the proposals for reform of black economic empowerment, competition policy, and small business regulation and financing. And it has an awareness of economic trade-offs often lacking from government publications not produced by the National Treasury.
Overall, the bad parts of the New Growth Path taint the economic viability of the entire plan and represent a clear threat to SA’s future growth. The most obvious threat to the document itself, however, is political.
Patel is clearly aware that his mandate overlaps substantially with the trade and industry, finance and planning ministries. In some respects he has tried to secure the policy high ground: shoehorning in a preview of the New Growth Path hours before Finance Minister Pravin Gordhan’s medium- term budget policy statement last month, as if to show who is really calling the shots.
But he has also made mistakes. Failing to consult the National Economic Development and Labour Council, or the business sector, before Tuesday’s release has turned them against the plan. Consulting labour one day before the release had a similar effect.
But the real opposition could come from his Cabinet colleagues and Reserve Bank governor Gill Marcus. On Wednesday, I challenged them to public ly support the document, and the silence has been deafening. We can only assume, therefore, that Patel’s lonely seat at the announcement of the plan shows a lack of support from the "absent" economic leaders, who have actual influence over macro, micro and monetary policy, and control the state’s purse strings.
One example is that most of the good ideas in the plan cannibalise the responsibilities of Trade and Industry Minister Rob Davies . The plan also reduces his industrial action plan to a plan to turn around manufacturing, doing it a serious disservice.
It also stomps all over Gordhan’s mandate — as defined in the Public Finance Management Act — to set economic policy and define a fiscal framework.
It airbrushes out Gordhan’s youth wage- subsidy proposal, commits the state to a specific fiscal policy stance and new infrastructure expenditure, and alludes to firm currency interventions.
Alarmingly, it rides roughshod over the independence of the Bank, enshrined in the constitution, by committing the governor to looser monetary policy. It subverts Planning Minister Trevor Manuel ’s responsibility for long-term planning and wipes his Growth, Employment and Redistribution strategy from the slate of history by referring only to the Reconstruction and Development Programme and the Accelerated and Shared Growth Initiative for SA.
Perhaps Shakespeare would have identified in Patel, instead of Macbeth, a "vaulting ambition, which o’erleaps itself, and falls on the other". The silence from the minister’s Cabinet colleagues seems to suggest they are not planning to help catch him.
The Democratic Alliance (DA) agrees with the ends of the plan: we need to accelerate gross domestic product growth from an anaemic 2,6% to the 6%-plus experienced by comparable economies, and we need to create millions of jobs, especially for young South Africans. But we do not believe that Patel’s proposal represents a realistic or implementable plan to do this. The state simply does not have the capacity.
Instead, international experience has proved that the best way to drive growth is for the state to actively dismantle constraints, not to intervene further in the economy.
Equally, the best way to tackle unemployment is to reform labour market regulations directly, or indirectly through proposals such as the youth wage subsidy.
Policies such as these will put SA on a growth path to prosperity. Patel’s plan represents the path to poverty.
- Harris, MP, is the DA’s shadow minister of trade and industry.
Business Day, 26 Nov 2010
