Let’s hope the Polokwane revolution reverses course sharpish

Sometimes it can seem that different factions inhabit parallel universes containing quite different South Africas. There is even a faction telling us that we are living in a laissez-faire, liberalising and excessively-growing economy!

In Business Report of 8 January the experienced and astute labour analyst Terry Bell describes, no doubt accurately, how Cosatu and the SA Communist Party view our economic situation. What they call Mbeki’s “1996 class project”, underpinned by Gear laissez faire, has apparently been prioritising growth over RDP redistribution. So the “Polokwane revolution” hopes to dump his liberal economic policies in favour of a Left alternative – a social democratic formula where an interventionist state takes a high degree of control over the economy to build a “developmental state”.

This can sound quite surreal to anyone thinking we already have the world’s largest welfare state, with 30 per cent unemployment and 5 million personal taxpayers supporting 12 million recipients of state handouts and many more in the queue. Are we discussing the same country? Do Cosatu and the SACP consider that we have been enjoying too much growth and too little redistribution these last ten years? Can it actually be possible to grow even slower and redistribute even more? And if so, would that be desirable?

But perhaps it’s a question of our persistent “feelgood” democratic honeymoon, our media-driven perceptions of recent fast growth and our wishful denial of long-term stagnation? And it’s certainly true that average incomes, having declined during the onslaught-eighties, have begun sluggishly to get ahead of recorded population growth in the last decade. So let’s “go abroad” and contemplate the South Africa of World Bank country datasets for a more objective, long term and comparative view of our progress thus far.

In 1971, average income (in constant 2000 US$) of SA’s 22.6m people was $3,163. It slid to $2,960 in 1995 (39.1m people) then rose to $3,406 by 2005 (46.9m people). Good show, though that last decade’s annual average 1.4% incomes growth isn’t so hot. Oh, by comparison with where?

Consider two developed states – the admirably-caring welfarist European social democracies of France and Germany. During 1995-2005 their average real incomes grew 1.6% and 1.3%. So we already enjoy their low social-democratic growth rates but with only a seventh of their average incomes. Then consider two developing states – the disreputably-uncaring non-welfarist emerging economies of China and India. During 1995-2005 their average real incomes grew 8.2% and 4.5%. So their average incomes rose 120% and 58% meaning so much more “cake” for saving and investing and consuming and redistributing. They really need and sensibly chase that growth because currently they ‘enjoy’ real average real incomes only 47% and 18% of ours. Not for long, of course, as they race off in hot pursuit of rich western incomes.

Now this bit may be interesting. Relative to South Africa right now, all four of those countries have slower population growth, much lower taxation, very much less unemployment and very much higher longevity. So what?

Well, which way does the Polokwane revolution want to go? Towards still more taxing and redistributing that will slow growth and increase dependency even further, then we can stagnate even more than France and Germany without ever getting any richer first? Or towards much faster Chinese-style low-taxed growth to create a progressively larger “cake” and the “better life for all” that the Chinese and Indians now savour yearly as they play swift “catch-up” with the developed world.

We already know the answer. All the evidence of policy statements from the SACP/Cosatu left has been that SA can now expect more socialist taxation and intervention rather than any of the real liberalisation, tax reductions, privatisation and deregulation needed anywhere for faster growth.

So while the World Bank forecasts growth in the developed world slowing to 2.2% in 2008 and developing countries expanding at a rate of 7.1% (before deducting population growth), SA’s recent 5% annual growth may well sag and keep on sagging with each new piece of interventionist bad news from the new ANC leadership.

In addition, some say the global picture is darkening as property bubbles pop and a post-bubble recessionary tide draws in across the globe. So it may not be the best of times for further ‘teach yourself mixed-up-economics’ experiments in milking capitalist pigs of more and more of their golden eggs. Because – and here’s the real clincher – if SA’s real average incomes growth does ever turn negative again and unemployment and hardship start shooting through the Zimbabwe-roof, there will be hell to pay and no handy border to cross. So let’s hope the Polokwane revolution comes rapidly to its collective senses and chooses a better approach than more intervention.

Author: Dr Jim Harris is an independent policy analyst. 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 are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article/ 15 January 2008

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