Sunday, 3 February 2019

Inside Out Perspective: talk on SA's economy and job creation

Last Thursday evening I shared a platform at the Wanderers golf club with economist Mike Schussler and DA colleague Khume Ramulifho on the topic of jobs. The event was the second in a series organised by Dalu Cele, a councillor in the City of Joburg, aimed at giving the public perspectives on current issues from the outside (a guest speaker) and inside (two DA public representatives).

You can read my speech below.

Good evening ladies and gentlemen, it’s a pleasure to see you all here at the second Inside Out event organised by my colleagues Dalu Cele and Nicci Rahn.

I want to begin by offering a few thoughts on where political philosophy and ideology fit into our discourse on the economy and job creation.

Political philosophy and ideology have become very unfashionable words in South Africa. They have been supplanted by words such as vision, mission and brand identity, in a world where spin doctors like Lynton Crosby and faceless officials have come to dominate our language.

But we need to understand the political philosophies that underlie the main actors in South Africa’s polity to understand how economic policies flowing from them impact our daily lives.

The ANC, in government for close on 25 years, is fundamentally a socialist party with leanings towards Marxist Leninism.

This dates to the Freedom Charter but has greater expression in the National Democratic Revolution which is the driving force of ANC ideology. In the NDR, the state is the main actor in society and the economy.

It is interventionist, obsesses with control and regulation, and prioritises redistribution over growth.

Its alliance with communists and unionists means it always takes the side of labour over capital. Unless, as we have heard in explosive detail from the Zondo Commission, capital is diverted to cadres of the Revolution.

This bias leads to policies which support consumption over production, and welfare over innovation and competitiveness.

However, there’s a catch.

SA’ post 1994 democratic dividend is a stitch-up between these forces and the business leviathan.

Big business acquiesced in the formulation of the 1995 Labour Relations Act, black economic empowerment and employment equity legislation, all of which have been manipulated by vested interests connected to the ANC.

They have entrenched incumbency in markets and sectors, suppressed innovation and entrepreneurship and led to widespread corruption and de-skilling in our SOEs and public service.

It might surprise you to hear this from a market-oriented liberal with a career in business. But my political heritage dates to Sir Robert Peel in the 1840s and beyond. Peel, if you recall, repealed the Corn Laws, against the wishes of aristocratic landlords. This ushered in a great leap in Britain’s global competitiveness.

This analysis has been appropriated and distorted by the radical left – most notably the EFF – and by the state capture crowd – aided and abetted by Bell Pottinger – into the white monopoly capital narrative.

This crude form of racial nationalism identifies some of the structural weaknesses in our economy but doubles down with proposed remedies which will only deepen them. These include expropriation without compensation, and nationalising the reserve bank, the mines and the banks.

The problem with SA’s economy is not that we have had too much capitalism, it’s that we have not had enough. Even Bono recently said capitalism has helped more people out of poverty than socialism, though he calls it amoral.

Racial nationalism has been with us since 1948 at least, and has resulted in a command economy overly dependent on primary products for export revenue.

South Africa has completely missed out on the positive effects of globalisation since 1990 when over 1,2 billion people have been lifted out of poverty.

Whereas Asian countries exploited it to build strong manufacturing capacity by entering global supply chains, SA’s manufacturing base has shrunk from roughly 22% of GDP to 14% today.

What in Germany is called the mittelstand, or SME economy, is poorly developed in South Africa. We don’t have enough small and medium enterprises, which would normally provide the majority of employment. In SA, SMEs contribute roughly 60% of jobs but we need it to be closer to 80% to be reducing the unemployment queues. Big businesses are not hiring.

The net effect of this is that we have an economy dominated by big government, big unions and big business to the detriment of the wider economy and small business in particular.

Look at the poor representation of small business at the Jobs Summit and Investment Conference last year. The former was organised by Nedlac, hardly a friend of SMEs, and the latter by Business Leadership South Africa – the name speaks for itself.

Small business representation at Monday’s business indaba organised by BUSA was almost completely absent. The irony is that the indaba concluded with the launch of the CCMA-BUSA sponsored webtool for small businesses trying to navigate our labour law landscape.

Wouldn’t it be better to exempt SMEs from these laws altogether?

This is just one of the proposals contained in the DA’s economic policy which should find its way into our manifesto, due to be launched on 23rd February.

The policy rests on the idea that for an economy to grow and produce jobs, it needs to be open and market-driven. This is in contrast to the developmental state model that is the foundation of ANC policy since 1994.

What are the characteristics of an open economy?

First, it is inclusive with a focus on eradicating the divide between insiders and outsiders. We have seen how BEE has been manipulated to benefit only a tiny minority of individuals and vested interests, rather than the majority.

To be inclusive we must close the skills gap by investing in better quality education and training for our youth. This inevitably means confronting SADTU which has promoted a culture of mediocrity and non-accountability in our schools. You will be hearing from Khume Ramulifho on the DA’s plans in this regard.

We must create an investment environment for all that lowers the cost of doing business and reduces the regulatory burden, especially on small business. We must level the playing field to make it easier for small businesses to compete.

Inclusive growth is predicated on an emphasis on growth over redistribution, with the goal being to reduce the number of people dependent on welfare.

Second, an open economy is integrated into global markets. South Africa must go on a massive export drive. Our domestic purchasing power is inadequate for us to achieve the 4-5% economic growth needed to reduce poverty.

We must address barriers to exports such as inefficient and costly transport links and ports, ensuring local industry has access to competitively priced imports while providing remedies against dumping.

It’s not just about exports, it’s about encouraging skilled immigrants and entrepreneurs to come to South Africa. Our visa regime is punishing firms who require imported skills to grow. Countries as diverse as Tunisia, Chile and the UK are introducing incentives for inward investment in start-ups.

Thirdly, an open economy is collaborative. We should encourage a diversity of contributions that will enable South Africa to work together to achieve common goals. The much-vaunted trust deficit is not just between government and business, it is between government and much of civil society. Rather than alienate civil society, an open economy embraces it for the added diversity, skills and resources it brings.

By encouraging a healthy relationship with the private sector, business will be enabled to drive growth but also to work with us in government to provide frontline services. The private sector is already stepping in to provide healthcare, transport, education, and security services to South Africans. We see private sector involvement in service delivery as essential to diversifying the options available to citizens.

Collaboration also involves different spheres of government working together to achieve effective decision-making and management. Local governments must be better capacitated and provided with means to enhance their own revenue raising capacity.

Finally, an open economy is transparent and accountable. This means we must preserve and extend freedom of information in all spheres of society, and use the instruments of the criminal justice system to hold miscreants to account.

Whatever one might say about Helen Zille’s views on a tax boycott, they are born out of years of frustration at not seeing criminals put in jail. If government is seen to protect its own, obstruct justice and break institutions, the legitimacy of the state comes into question and law and order breaks down, leading to state failure.

Wherever these principles are implemented through government policy, anywhere in the world, they have had a positive impact on economic growth and job creation.

I was fortunate to have spent time in Taiwan and Spain’s Basque country recently on study tours. Both are exemplary in devising and implementing policies to bring their people out of poverty. In 1960 their GDP per capita was comparable to ours. Now theirs is ten times ours.

Here in South Africa, the Western Cape has been the test bed for such policies for the past ten years. The contrast with the rest of SA is striking.

It starts with a growth-oriented strategy. This leads to a higher business confidence index. The Western Cape Index regularly tracks 10-30% points above Gauteng’s.

Between 2009 and 2018, the Western Cape was able to create almost 640 000 new jobs, representing employment growth of 19.8%.

With only 11% of SA’s population, the Western Cape produced between 50% and 75% of new jobs in South Africa between 2017 and 2018, depending on the period under review. This has been confirmed by Africa Check.

Wesgro, the province’s economic development agency, has secured over 300 direct investments into the economy since 2009.

The province has the lowest unemployment at 20,4% compared to the national average of 27%. Its long-term unemployed, who have given up looking for work, is by far the lowest nationally, a full 14% lower than the national average.

The Western Cape is on a par with Gauteng in the number of start-ups, but is ahead in the number that grow to scale and enter global markets.

Alongside the economic incentives to locate in the Western Cape, the quality of its schooling and governance are far higher.

The dropout rate from grade 10 to grade 12 is the lowest of any province at 35%. While its record on clean audits in the 2017/18 financial year was 83%, Gauteng came a distant second at 52%.

I could go on, and Midvaal tells a very similar story though time prevents me from giving the stats.

The lesson we must learn is there is nothing complicated about getting the basics right. It starts with seeing what works elsewhere and adapting the lessons to our own circumstances.

I look forward to the Q&A session later this evening.

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