Pravin Gordhan and tinkering with economic policy

After listening to the besieged and much-admired Finance Minister unveil the mini-budget, the question that is on my mind is: What would a radical budget look like?

Interest in what Pravin Gordhan had to say was high this year for political reasons. I guess many people tuned in to the Medium-Term Budget Policy Statement because he is central to fighting off an apparent bid to capture state institutions for the benefit of a small group of people in and outside of government. Ordinarily, the speech is a bore, except to budget nerds like me.

This is just as well. Any serious adjustment to tax and spending should ordinarily come in the main budget, in February. The mid-term budget is also part of a three-year rolling budget process, designed not to surprise.

The three-year planning process was one of the revolutionary changes introduced by Treasury, along with much greater transparency, something associated with Finance Minister Trevor Manuel. It has served the country well in its proper and gradual reintegration into global markets. Markets, supposedly, don’t like uncertainty.

Here’s the thing though. This process militates against radical changes in tax and spending, so-called fiscal, policy. Every budget seems like fine-tuning an existing, reasonably well-functioning machine.

The machine works for some but not all members of the society. Those who support the path that economic policy has taken will accept Finance Minister’s Pravin Gordhan’ contention that fiscal policy cannot be relied on alone to change society for the better. The same can be said for the Reserve Bank’s monetary policy, the other pole of economic policy.

The facts are that after 20 years, unemployment remains stubbornly high; greater equality of incomes and wealth seems elusive; racial disparities in both wealth and income persist; and a large percentage of the population remains stuck in poverty.

Changing any one of those indicators would be evidence that economic policy was working.

Altering our course drastically and thoughtlessly in economic policy could be worse. We have the example of Zimbabwe, whose monetary and fiscal policy has wrought havoc on the economy, not helped by chaotic land reform.

Does that mean that we must stick to the path we have pursued? The authorities maintain that the Global Recession of 2008-09 is to blame, and that we were about to reap the benefits of our sound economic policy until then. There’s some truth in this. Can we blame the Global Recession entirely? What about our own policies?

Don’t talk to me about vague plans. We have enough of those. What I am suggesting is not a Left-wing intervention-above-all-else, or a Right-wing deregulation-at-any-cost, approach. We need to be pragmatic and adapt to our own experience. And maybe we need some creativity. And importantly, nothing will work if corruption cannot be combated.

So, here’s some radical prescriptions:

• Start once again to look at privatising State-Owned Entities, but more importantly liberalise the markets they operate in. If we don’t, privatisation of a forced sort will creep in anyway. Look at all the privately-owned electricity generators in middle class hands in Nigeria. And some has happened in any case. We forget how telecommunications market was liberalised to allow cell phones, creating an entirely new industry and helping people get communications at a low cost.

• Rethink and maybe even scrap Black Economic Empowerment. It has had some success, but at a cost. One such cost is an extra layer of regulation which invites ticking boxes and not seriously transforming the way the economy operates. Black business, by which I mean identifiably black-owned and black-run, has not taken off. New initiatives are needed.

• Get properly serious about competition. The Competition Commission has done some good work. It needs more resources. One reason South Africa has such stubborn inflation is the dominance of cartels and monopolies. Why is it that we still have one company supplying around 95% of the beer market? The dominance of food supply by the big four retailers has had some bad consequences for employment, among other things. I could go on.

• Stop ignoring land reform – and by this, I mean somehow increasing the number of black farmers, especially small and medium-size farming. The land reform policy so far has not worked. It doesn’t even get a mention these days, and the amounts devoted to land reform in the budget are risible. If done properly, unlike BEE, it could help equality and shore up food security.

• Strengthen the areas of the State that underpin the workings of the economy, such as health, policing, energy, water, and communications. Communications (which should be merged once more with telecommunications) is a mess. Our TV landscape is dominated by two big firms, one state-owned, as is our cellular industry, with implications for business and democracy. Scrap superfluous ministries, like Higher Education, which can be reabsorbed into Education, and devote the resources saved to the remaining ministries.

• Replace restrictive labour legislation with a much bigger and more comprehensive social welfare net. The Danish model may not be exactly replicable in South Africa, but it is inspirational. The idea is that you can hire and fire at will, but the fired can fall back on the state.

Any of these measures, some more so than others, would mean taking on vested interests in the private sector and in the state, so fierce resistance is to be expected. In fact, the way politics works means that none is likely to be adopted soon. More’s the pity.

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