The South African Civil Society Information Service

Free Market Ideologues Devoid of New Ideas to Build a More Inclusive SA Economy

3 Dec 2014

Speaking at an event to examine different ideological perspectives – left, right and centre - on building a more inclusive South African economy, Ann Bernstein of the Centre for Development and Enterprise (CDE) called for continued fiscal discipline, which she argued has been responsible for lifting millions of people out of poverty in countries like India, Brazil and South Africa.

This panel discussion was co-hosted by the South African Civil Society Information Service (SACSIS) and the Friedrich Ebert Stiftung South Africa Office (FES) on 7 November 2014 in Johannesburg.

During the debate, Bernstein echoed the tired free market refrain of a singular focus on economic growth to remedy South Africa’s unemployment crisis.

In terms of building an inclusive economy, Bernstein argued that she was strongly opposed to the idea of a deal between business, labour and government. She said that she was more interested in the people that are left out of the deal - the unemployed. Her solution: the answer to South Africa’s problems is not job creation, but labour intensive growth in the manufacturing sector alongside an effective state that is pro-market in its orientation. At the same time, she called for greater labour flexibility.

Bernstein’s message was tired in its attempts to protect the sanctity of the market - and very confused. Being on the side of the unemployed may have a noble ring to it, but it conveniently circumvents the issue of the working poor, of whom we have many in South Africa that are living a life of extreme hardship far from any reasonable vision of inclusivity in our economy or our society.

Bernstein’s analysis was also quite misleading. She was misguided in her assessment of Brazil’s success factors for pulling millions of people out of poverty, arguing that their Bolsa Familia programme (a direct cash transfer programme to the poor) while good, made only a limited contribution towards lifting millions of Brazilians out of poverty. She attributed Brazil’s success to fiscal discipline and macro economic reform.

This is in stark contrast to remarks made at another SACSIS/FES panel discussion in February 2013 by Brazilian economist, Prof. Georgio Romano Schutte, an advisor in the president’s office during President Lula’s term as president, who argued that it was not a solitary focus on economic growth that reduced poverty in Brazil, but a dedicated focus on building a solidarity economy in which the Bolsa Familia programme along with a significant increase to the minimum wage played an extremely important role in lifting millions out of poverty. Romano’s account of the approach adopted by Brazil calls into question Bernstein’s claims about the true drivers of Brazil’s success.

Bernstein was also tripped up by a question from the floor about land redistribution and its implications for addressing the wealth disparity in South Africa. She offered a half-hearted response, which failed to recognise that the question of land redistribution could not simply be reduced to the issue of pragmatism in the economics of land use. Land redistribution is a symbolic issue that is deeply tied to South Africa’s history of dispossession. Black South Africans still feel extremely wounded by the loss of their land and the related loss of opportunity for wealth creation. The pragmatism of land use has little relevance for people seeking to have a historical injustice addressed.

Her views found resonance in the right-wing views advanced by Vivian Atud who stood in for Leon Louw of the Free Market Foundation. Atud articulated an extremely backward perspective on inequality. She asserted that there’s no such thing as equality in society because people can only aspire to be the best that they can. Her views harked back to a crude ‘survival of the fittest’ philosophy, which has no place in cultures seeking to evolve to a higher consciousness where societies ought to be aspiring to taking care of all their people.

Indeed Saliem Fakir of the World Wildlife Fund for Nature (WWF) who represented a progressive perspective and Trudi Makhaya, economist and analyst at eNCA, were far more creative and open to innovation in their thinking about how to foster greater inclusivity. Makhaya, a former deputy commissioner at the Competition Commission positioned herself as a moderate and a centrist who understands the economy from multiple perspectives.

According to Makhaya the thinking about economic development was quite naïve during South Africa’s early transition phase, as the country wholeheartedly embraced the Washington consensus without critically assessing it.  She argued that South Africa liberalised its economy far beyond what was required in terms of its international obligations at the time.

At the same time, she pointed out that the level of skills acquisition for black youth had deteriorated over the years. Opportunities to avoid another “lost generation” were simply lost in the first 20 years of South Africa’s democracy, she asserted.

Makhaya said that her work at the Competition Commission highlighted the fact that South Africa is not an inclusive society. She spoke about a stream of activities by bigger South African companies that raise barriers to entry for emerging companies. Calling for the need to get out of this state of paralysis, she described the South African economy as a closed system because young people and small businesses are not included in it.

In terms of offering a way forward for inclusive growth, Makhaya argued that South Africa had not quite cracked the right policy mix. South Africa has a very lopsided approach to policy development, she said. Part of the problem is that “we only look to one solution and become frustrated when that doesn’t work”.

In this regard, while acknowledging that it wasn’t a perfect plan, Makhaya said that the National Development Plan (NDP) represented a good point of departure, as it didn’t inhibit the opportunity for further discussion of policies.

She also argued said that South Africans viewed things through a problematic lens in that the private sector is regarded as exceptional and as having risen above society’s problems whilst government is perceived as pulling the country down. For example, one cannot simply lay the problem of labour relations strife at the door of government and labour alone. Business must also carry some responsibility. Makhaya pointed out that the human capital problem was a national issue.

Contributing to our nation’s problems is the fact that business and labour remain deadlocked in their positions. In Makhaya’s view, what is missing from the equation is sacrifice and trade offs on both sides that will enable the country to move forward. She said sacrifice from all stakeholders was critical for a more constructive debate on how to build an inclusive economy.

In similar vein, Fakir highlighted the trust deficit between labour, capital and government, which he argued is important to address because political sovereignty goes hand in hand with economic sovereignty. Fakir called for a set of negotiations between labour, government and capital to work out economic policies and the future of the country. If this doesn’t happen in the next 2-3 years, South Africa’s prospects bode poorly, he cautioned. But he wasn’t optimistic about the competence of the National Economic Development and Labour Council (NEDLAC) to play any significant role in this.

According to Fakir, one of the things that needed to be pinned down was the role of both foreign and domestic capital. Having a good political climate of democracy with only a few people benefitting economically is inadequate, he remarked.

Fakir argued that South Africa should focus on how to make better use of human capital through improvements in knowledge such that people can work in a superior services sector (as opposed to the low-skilled services sector that South Africa has cultivated over the years). An important issue that he raised in this regard is the issue of productivity, saying that it’s not just about adding more forklifts, but about having better uses for physical infrastructure to enhance knowledge and creativity in the economy.

Fakir engaged with the minimum wage debate by pointing out two positive aspects. Firstly that consumptive spending as a consequence of better wages will improve the economy and secondly that a minimum wage is good for productivity. To this he added that redistribution was an important aspect of job creation, as opposed to it simply taking place via the grants system.

Renate Tenbusch country representative of FES who framed the debate, talked about what lessons Germany with its unique history of division and reunification, could offer to South Africa with respect to building a successful economy that is able to deliver a good standard of living to all it citizens.

Germany is Europe’s strongest economy and according to Tenbusch, always looked to the Scandinavian countries to see how they were building their wealth as well as building more inclusive societies.

She argued that after 25 years of reunification, many people in the country’s eastern provinces as well as immigrants would not agree that Germany is an inclusive society.

Wages and pensions in the former East Germany are still lower than in the western parts of the country. Unemployment is also higher in the eastern part of Germany; and with economic problems come social complications. For example, xenophobia fuelled by youth unemployment, wears the ugly face of right wing Nazism in Germany.

Although overall unemployment is low in Germany, many people, especially immigrants and single-parent families cannot afford a decent standard of living on their current incomes. For Tenbusch, a decent standard of living is not just about having a roof over one’s head and putting food on the table. Decent living is also about having all basic needs catered for and being able to engage in social life as well as have guaranteed social mobility. To address this issue, the German government recently introduced a minimum wage, which comes into effect next year.

One of the critical factors in Germany’s success is its healthy middle class that is supported by a small to medium sized economic sector that provides jobs. Germany does not have an anglophone type shareholder economy. The German economy is built on many small private companies supported by a high level of entrepreneurship, engineering skills, a robust research sector and high standard of education.

Tenbusch highlighted the important role of trade unions as well as German civil society that both contribute to healthy social dialogue towards the country’s success. In offering her advice to South Africa, she argued that a social compact was key to building a more inclusive economy.

**This report was compiled by Fazila Farouk, executive director of SACSIS.

Listen to Individual Podcasts of the Panellists' Inputs

• Renate Tenbusch
• Trudi Makhaya
• Vivian Atud
• Saliem Fakir
• Ann Bernstein

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