It’s time for South Africa to stop being a non-developing country

According to the US Journal of Economic Perspectives’ managing editor, Timothy Taylor, the wealth gap between rich and poor nations is getting wider. "But it is not that the poor are getting poorer. The poorest 20 nations are much the same as they were in 1870, whereas the rich nations have grown steadily, so the gap has expanded. Countries that have caught the economic growth train have moved steadily ahead of those that have been left at the station."

This sort of observation is common nowadays. It tends to be made both by those that favour globalisation and those that oppose it. So the observation is worth exploring in a little more detail, because broadly speaking there are two kinds of poor countries. Along with most rich nations, there are by now many poor but developing countries that have also "caught the economic growth train". There are also many poor countries that have not done so, and we might call them non-developing countries. Regrettably, South Africa, though not as poor as a host of other countries, might also be considered as non-developing.

Looking back as far as 1870 is impractical for lack of data and unhelpful in the context of modern economics. So let's look back to 1970, the start of the Thatcher revolution, by comparison with 2001 World Bank data. The graph below represents the 1970 wealth and subsequent growth of 97 countries.

In constant 1995 US$, the richest country in 1970 was Switzerland at GDP income per capita of $35,491. By 2001 this had grown 32.6% to $47064 per capita at a compound annual real growth of only 0.91%. On the graph, therefore, the right-most point shows low positive growth.

By contrast the richest country now is Luxembourg at $56,206, up 175.6% from $20,457 in 1970 after compound annual growth of 3.32%. On the graph it's a relatively high point halfway along.

High and low on the far left of the graph are two countries that are, respectively, the fastest-growing and fastest-imploding. China's annual real per capita growth of 6.96% raised incomes from $109 to $878, while Congo (DRC) shrank by an annualised 4.51% from $355 to $85. And almost matching China's performance from a higher base, Botswana's yearly 6.8% real per capita growth pushed incomes up from $538 to $3,931, now matching SA’s.

More generally, the graph shows better than words like Taylor's that many richer countries sustain moderate, though not spectacular, growth. It shows a great host of poor countries still milling around 'at the starting gate' with low or zero growth, or all too often, declining incomes. But it also shows clearly how many poor countries are achieving sometimes astonishingly rapid growth towards greater prosperity.

So it is simply incorrect – even wicked – to say in deliberately simplistic manner that "the rich get richer and the poor get poorer". That's up to the poor. It depends entirely on what they do. Or, more precisely, what kind of policies their governments pursue.

Earlier, I mentioned regretfully that South Africa remains non-developing. Well, this 31-year view does after all encompass the stagnation of the 80s and 90s, and the present inadequate growth. But how many people realise that real SA incomes fell from $4,100 in 1970 to $4,068 in 2001. That's an annualised decline of 0.03% in the growth rate – the point sitting on the Y=zero axis left of $5,000 on the graph, just above even sorrier Venezuela – rather poor, really.

Certainly there's no shame in being not very wealthy yet. But surely we ought to aspire to better than non-growth. Real growth rates of 2-3% per annum that merely keep pace with population growth are taking us nowhere fast. And no 'developmental' or 'redistributionist' fiddling on the regulatory margins is likely to make much difference, except perhaps for the worse.

Like the White Rabbit, we're late, we're late, and we really need to catch Taylor's economic growth train. It must surely be time for far more radical economic freedom approaches. For a change we need some serious economic growth, preferably more ambitious than GEAR's old un-achieved 6% (about 4% per capita) real growth.

If Africa's poor Botswanans and China's even poorer teeming masses can keep on hitting over 9% real growth year in, year out, for three decades, what's wrong with us? Can it be anything other than government policies? We know that the appalling apartheid policies devastated the economy in the latter part of that era. But we now have that behind us and we should have moved on to the real high growth rates envisaged by GEAR. However, the problem with GEAR is that it was never properly implemented and didn’t go far enough, not that the policy was poorly conceived, as its critics are fond of maintaining. SA seems to have settled into a plodding mode with economically damaging policies being adopted, not left-right-and-centre but too often left-of-centre, which keep us non-developing. Is this all the electorate deserves and the best we can expect?

Author: Dr Jim Harris is a freelance researcher and writer. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and they are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article\12 August 2003
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