Mind the funding gaps

This column first appeared in Business Day on 27 October here

THE days of wishful thinking are behind us. The post-apartheid fantasy was that a new, acceptable economic order would emerge with little conflict over resources. Inflows of foreign investment, economic growth and a black middle class released from the shackles of apartheid would fill the development deficit.

The scale of the task at hand was also underestimated. A well-respected macroeconomics professor at Wits University put it to my class that the informal sector must be large. If it were not, given the unemployment rate, at more than 26% in 2001, there would be a revolution.

My professor was wrong on the informal sector, but right on the consequences of underdevelopment and inequality in the end. The student uprising is presented by many as a major structural break in postapartheid engagement over social justice. But the student body can also be seen as yet another constituency that has taken to the streets to make its claims as visible and as audible as possible. Key public-and private-sector institutions have lost the ability to plan, deliberate and forge workable solutions to society’s demands and expectations. Conflicts fester until they explode and force outcomes that are difficult to finance. The higher education funding gap is the next frontier in the struggle over resource allocation. In energy, the government was unable to accommodate its objectives into a workable financial model. To simultaneously expand access to electricity to poor households, keep tariffs unrealistically low to support industrial production and provide for maintenance and future capacity, proved impossible. A scramble to finance the Eskom funding gap continues.

There’s the freeway funding gap. After much protest, Gauteng citizens won some concessions and the government had to shift resources to fund part of the unplanned shortfall.

Public sector wage talks often degenerate into ugly scenes of protest. Most recently, unions would not settle for an outcome consistent with the budget. Enter another funding gap, financed out of government reserves.

The breakdown of institutions of negotiation is not just a public sector issue. The quality of institutions of collective bargaining are ranked at or near the global bottom in the World Economic Forum’s competitiveness survey. Mining sector wage negotiations brought us constant strikes and, tragically, Marikana.

We have become a nation that cannot have constructive and nonconflictual conversations about money. What is a fair price? What is a fair wage? Who should pay for what? Or more controversially, who should pay for whom? These are questions that are now routinely taken to the streets because our institutions are failing.

SA largely relies on progressive taxation from current income and recent wage catch-up by employed black people to make up for its developmental deficit. Government spending, within the current fiscal framework and economic growth outlook, has hit a ceiling. Middle-class black South Africans can hardly keep up with the demands of the “black tax” that sees their wages gobbled up as they compensate for deficits accumulated over generations of dispossession.

You can read the rest here

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