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Imagining Futures Dialogue

Imagining Futures Nelson Mandela Foundation

ANC economic policy National Development Plan

Real change begins at home for ruling ANC

This column appeared on Business Day 13 October 2015

IN MIDRAND weather that was more Pretoria than Johannesburg, the African National Congress (ANC) got down to its mid-term policy review at the weekend. The economy was meant to feature prominently on its national general council meeting agenda.

From Enoch Godongwana’s briefing it is clear the ANC is deeply unhappy with the structure and performance of the economy. This reflects the slow pace of transformation but also the government’s inability to raise the economy’s productivity and competitiveness. As ever, the party is pressing ahead with initiatives to change the functioning of markets in private security, media, pharmaceuticals, mining, agriculture and property, to name a few. There is nothing inherently controversial in this to those who accept the need for an inclusive, mixed economy. These industries, like many others, are beset by challenges including concentration, limited black ownership, high prices or poor international competitiveness. So the ANC proposes to force changes in conduct or ownership or, more boldly, it sets up the state as a direct participant in the market. Moves to develop new state-owned corporations in mining and pharmaceuticals are well under way.

When I asked Godongwana how the party felt about progress on the National Development Plan (NDP), he admitted it was unsatisfied. But the party still wants to pursue a host of ambitious projects. The National Health Insurance (NHI), for instance, has to be fast-tracked.

I see three problems afflicting interventions in the economy: communication, coherence and capacity.

You can read the rest of the column at Business Day.

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Shaking off SA’s babalas of extractive institutions

In today’s Business Day, I have a column reflecting on the institutional trap that we are stuck in:

FINANCE Minister Nhlanhla Nene quipped recently that we might be suffering from three deficits: the fiscal deficit, the trade deficit, and the trust deficit between government and business.
Our current institutional malaise extends beyond this. Indeed, a subgenre of journalism has developed for reporting spats between and within government institutions. There is also the growing schism between business and society. Consumers’ faith in business is tested by stories of anticompetitive behaviour, stratospheric executive compensation and white-collar crime.
Until recently, almost all of this would not have mattered to economists. The economy, according to the standard neoclassical view, was assumed to be made up of rational participants, with access to perfect information, seeking to maximise self-interest. The messy reality of interest groups, norms, beliefs and organisations did not figure in this equation.

For his efforts in developing the institutionalist perspective, Douglass North was awarded the Nobel prize in economics in 1993. In his acceptance speech, North emphasised the importance of understanding not just how markets operate, but also how they develop. This would enable the economic sciences to make better policy prescriptions.
For the rest of the article go here
For Douglass North’s Nobel Prize acceptance speech (Economic Performance Through Time) go here

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IMF highlights insider/outsider dynamics and the need for structural reforms

The IMF has released its report on the South African economy. From a macro growth perspective, the report argues that it’s two steps forward (government spending, export growth) & two steps backward (weak consumption, muted private investment) for the economy. Various areas of concern are highlighted:

  • Lackluster economic performance compared to other emerging markets and commodity-based economies
  • Fiscal and current account deficits
  • Depreciating currency
  • Higher risk rating of the country’s debt
  • Labour and social tensions
  • Negative demand conditions in export markets
  • Low household savings rate
  • Risks of unsecured lending
And the advice includes:
  • Speedy implementation of the National Development Plan
  • Labour market reforms
  • Product market reforms
  • Improved business climate
  • Trade liberalisation
  • Increased co-ordination amongst (financial) regulators
The IMF also echoes the view that there is policy uncertainty in the country, as a result of political debate. It may be true that there is a climate of uncertainty with regard to government policy. However, the importance of political debate in a young democracy cannot be minimised. In fact, debate is crucial to any democracy. The real point is the need to balance debate with implementation and to avoid paralysis. 
I was musing to myself early this week that a US-style government shut-down driven by political contestation will remain unthinkable for a long time in our country. But then again, factionalism-induced paralysis may lead to our own unique kind of (invisble) shut-down. But let’s not condemn debate in and of itself.
The macroeconomic arguments in the report have already been ventilated in the press, but the microeconomic aspects are also worth reflection. The report appreciates the challenges of concentration and uncompetitive markets. The enhanced powers of the competition authorities (the power to conduct market inquries) are noted. There is the suggestion that greater competition in product markets should be twinned with greater competition in labour markets, and developed as part of a ‘social bargain’.
In short, the argument is that the modes of operation and agreements entered into by big business and big labour have locked the economy into a low growth scenario characterised by high prices, high wages and unemployment. So the deal would be struck thus: organised labour exercises wage restraint, big business submits to measures to increase competition and government provides better public services. The report makes some interesting suggestions on how to improve the competition commission’s capabilities, including, quite obviously, increasing its resources.* 
International competition is important, and the report argues for further reductions in tariffs. Interesting, in the wake of the recent determination to increase tariffs on certain lines of poultry products.
* Some of the analysis on the competition regime draw on a 2012 paper by Makhaya, Mkwananzi and Roberts (How should young institutions approach competition enforcement? Reflections on South Africa’s experience) published in the South African Journal of International Affairs.