THE INTERNATIONAL MONETARY FUND’S 2016 SOUTH AFRICA CONSULTATION REPORT V - WHAT IT MEANS

The first two briefs in this series considered internal constraints and external constraints on growth. The third outlined the situation in public finance, monetary policy and state-owned enterprises. The fourth discussed the reasons for the current structural reform cul-de-sac.  This brief discusses some conditions necessary for making progress in a bleak environment.

It is an open question as to whether the following conditions can be met, but they are all necessary if we are to navigate the next few years without running aground on reefs or shoals.

1.Develop a deeper, shared understanding of the causes and consequences of weak economic growth.  The first step in dealing with a problem is to acknowledge its existence.  The second step is to delineate its dimensions and understand its causes.  The third step is to bring all available resources to bear on it.  We haven’t got very far with step one yet.  Recognition will not be aided by a fatuous preference for ‘positive’, feel-good narratives.  Feeling worse is the route towards progress. 

2.Move from ‘must have’ to ‘can do’ in social spending.  The IMF recommends protecting social programmes and so we should.  But in the present circumstances, protect means protect rather ambitiously expand.  It is the government’s function to determine the budget constraints for the various items of social expenditure.  This it does through the Medium Term Expenditure framework, revised each year in February, at the time of presentation of the Budget and October, through the Medium Term Budgetary Policy Statement. But there remains a gap between these estimates and construction of an account of what best can be delivered within the constraints.  The gap needs to be filled.  There is a progressive mentality, formed in the demand politics of the 1980s, which finds the process desperately difficult.  Its instinct is to shy away into constraint denialism.  One can even find this within the government which owns the MTEF projections.  Only those who can look unflinchingly at the problem as set are able to contribute towards a solution.

3.Firm support for the Treasury principle of no new projects without proper costing and financial plans.  This is essential to keep fiscal risk from rising further.

4.Develop capacity for deals trading wage restraint for employment protection, defer the national minimum wage and ramp up the Extended Public Works Programme.  All this would mitigate rising unemployment and reduce its effects.  The first is recommended by the IMF, the second may happen of its own accord, seeing that the matter has been with NEDLAC for a long time now, and the third would be the most appropriate use of reserves which have piled up in the Unemployment Insurance Fund.

5.Crystallise problems with a defined and limited set of goals, analyse them technically and find pragmatic solutions.  Goal overload is a chronic problem in South African policy, and it imposes delays and cost increases in getting things done.  Simplify, simplify.  If a piece of infrastructure is urgently needed to remove a bottleneck, concentrate on getting it up at lowest cost and as quickly as possible.  And nothing else.  If higher education finance is the issue, concentrate on keeping universities and students afloat.  And nothing else.  If legislation is required for exemption from secondary goals, enact it and use it.

6.De-ideologise.  Neither populism, nor socialism, nor traditionalism with a regression to Bantustan politics and administration will help in an economic crisis.  They will damage the capacity to cope by elevating policy uncertainty, demonising elites whose co-operation will be essential and quite possibly undermining the rule of law.  Rage will not help either.  There is an old joke – not entirely applicable to current circumstances – which says that the fights in universities are fierce, because the stakes are so low.  The converse is also true: when the stakes are high, calm is essential.

7.Recognise that the most potent cause of democratic failure is elite failure.  Elite failure takes three main forms:

·  elite polarization.  Elite polarization occurs when politics is perceived as ‘war’ rather than bargaining, and outcomes are seen as zero sum rather than positive sum[1].  In Latin America, elite polarization has often been the precursor to military coups. 

· elite enclosure.  Elite enclosure occurs when an elite becomes insulated and out of touch with the circumstances surrounding it.  This can be a consequence of having been in power too long.

· elite incoherence.   On this, Richard Poplak is eloquent:

Because, like, who does run the country?  The answer is not Jacob Zuma, who runs a small faction of thriving gangsters within the ruling party. The answer is not the ruling party, which is comprised of a small faction of thriving gangsters and a bunch of wannabe technocrats, all of whom are currently popping rivets like a submarine sounding below the recommended depth. The answer is not Johann Rupert and his white monopoly capital pals, and nor is it Cyril Ramaphosa, Paul Mashatile and their black oligarch pals – they’re just taking advantage of the weird admixture of stability and chaos that defines “developing” economies in the Age of Insanity. And the answer is not regime changers in England, who are reasonably busy with their own situation right now.  And Uncle Gweezy [Gwede Mantashe] most certainly doesn’t run the country.[2]

Thirty years ago, elites had to move beyond their incoherence and usual preoccupations in order to deal with a political crisis.  They did it.  Now, the composition of elites has changed and the problem is different, but a similar response is required.   A song and a dance will not get us past our economic crisis.

Charles Simkins
Head of Research
charles@hsf.org.za