Mbeki+slash-and-burn+economics,+Duma+Gqubule,+Sunday+Times

Sunday Times, Business, Johannesburg, 04 March 2007
=Mbeki’s slash-and-burn macroeconomic policy=




 * Duma Gqubule**: //Comment//

With two years left in office, the focus has shifted to the economic legacy of President Thabo Mbeki.

As Deputy President after 1994 and President since 1999, he has played a leading role in shaping South Africa’s economic development trajectory. However, the entire ANC leadership is collectively responsible for the economic policies adopted since 1994.

South Africa’s GDP grew by 3.3% a year between 1995 and 2005. GDP per capita, the international benchmark of average living standards, grew by 1.3% a year over the same period. This is a pathetic performance, whichever way one looks at it, especially when one considers our country’s massive development challenges.

Lest we forget, we live in a country where 50 people are murdered and 1000 people die of HIV/Aids-related diseases every day. By comparison, deaths in the Iraq war last year were 56 people a day. Every two days, more people die in South Africa of HIV/Aids- related diseases than were killed during the recent war in Lebanon.

The mismanagement of the epidemic is also mismanagement of the economy, because it has resulted in a massive destruction of human capital. More than two million people have died of HIV/Aids-related diseases. Most of these deaths could have been avoided. The life expectancy of the average South African has dropped to 50. HIV/Aids is not a global disease: South Africa, with just 0.7% of the world’s population, accounts for 14% of the global number of people living with HIV/Aids and 12% of global annual Aids deaths.

We also live in a country where 1.7 million economically active people have no schooling and 7.2 million people are functionally illiterate. Eight million people are unemployed, according to the expanded definition, and another four million are underemployed and earn less than R1000 a month.

There are 12 million people, 61% of the economically active population, who are either unemployed or underemployed. The figure rises to about two-thirds for black Africans. Among black Africans, 6.2 million people, or 73% of those who supposedly work, earn less than R2500 a month.

In total, 7.4 million people who “work” earn less than R2500 a month, according to the March 2006 Labour Force Survey (LFS). There are 15 million people who are either unemployed or earning less than R2500 a month — 75% of the economically active population.

According to the 2005 General Household Survey (GHS), 7.6 million black African households — 77% of all black African households — had a monthly expenditure of less than R1200; 90% had a monthly expenditure of less than R2500. South Africa Inc works for a minority of the population, most of them white and including a tiny, BEE pink-shirt brigade.

The richest 10% of households get 45% of income compared with 22% in South Korea, says economist Neva Makgetla. If South Africa really cares about inequality, why does the finance minister always dish out massive tax cuts to the employed elite?

It is often claimed that government policies have created a large black middle class, which is driving consumer spending. This is an urban legend. The black middle class is everywhere, except in the official statistics. Only 366 000 black Africans earn more than R8000 a month according to the LFS. Only 275 000 households had a monthly expenditure of more than R5000 a month, according to the GHS. Only 10% of black African households own a car compared with 93% of white households, according to Statistics South Africa.

More recently, between 2004 and 2006, the economy has broken out of its “Hindu” rate of growth. This is because the world economy is growing at its fastest rate since the 1960s and because the government’s macroeconomic policies are less deflationary than before. Most of the growth has been driven by lower interest rates, which have fuelled a consumption boom.

Government’s fiscal policies have made little contribution to growth and planned infrastructure spending will provide a negligible stimulus.

Infrastructure spending, as a percentage of GDP, will merely increase to what prevailed in 1998. Over the next few years, economists predict average growth of 4.5% — only 1.2% above the trend of 1995 to 2005.

This is far below the average annual growth rate of 8% for East Asia over five decades and below the current average 7% growth rate of all developing countries. The current growth path does not match the level and quality of growth in other developing countries.

For example, 54% of the 1.1 million jobs supposedly created between March 2003 and March 2006 are in the informal sector — hawkers descending on to the country’s streets to get some of the crumbs from the shallow middle-class boom. Someone still has to explain how the government can claim that it has created an informal sector jobs market. Of the formal jobs created, the majority are in retail, where working conditions are poor.

According to the standard discourse, the economy is well-managed. The 1996 Growth Employment and Redistribution Strategy (Gear) produced macroeconomic stability — a low budget deficit and inflation rate.

However, the ultimate indicators to evaluate the success of economic policy are not the budget deficit or surplus or the inflation rate. They are the rise of average living standards and the visible reduction of poverty, unemployment and inequality, which are the real macroeconomic fundamentals. A well-managed developing country should double average living standards in 13 years.

Moreover, there is overwhelming evidence that there was no macroeconomic stability in the first place, if one accepts for a moment the narrow and dubious neo-liberal definition of macroeconomic stability.

In 1996, the debt to GDP ratio was just above 50%, well below the current average of rich countries. The budget deficit was at about 5% of GDP. It was 2.9% of GDP in 1994 if one excluded the liabilities to the Public Investment Commission. The inflation rate was at 7%, its lowest level in two decades.

However, government introduced savagely deflationary macroeconomic policies. They included sky-high interest rates and indiscriminate cuts in public spending. Everything from capital spending to the training of nurses and adult education suffered as: government used primary surpluses of R200-billion between 1998 and 2002 to service a phoney debt; blew R100-billion on unproductive tax cuts for the rich; and wasted R150-billion pre-funding public sector pensions. Most of the capacity problems in the emaciated public sector are due to such macroeconomic mismanagement and the unnecessary, insane, inexplicable and mindless slash-and-burn policies which prevailed until 2002.

All South Africans must now participate in a debate on what will replace the Mbeki legacy. After 13 years, South Africa still does not have a comprehensive economic development plan. It has no industrial or employment strategies. There is no leadership, vision or ambition. The economy is on autopilot. There are no new ideas. The smug ruling elite is satisfied with its mediocrity. We deserve better. We cannot continue on the same path.

The starting point of the debate must be the need to achieve full employment, reduce inequality and double the rate of growth.

There is a generic template in East Asia which shows how a country can achieve an economic growth rate of 8% a year and more, sustain it for four decades and more, and make the leap from dirt-poverty to achieve the status of a newly industrialised country with full employment.

A new economic model must combine the developmental mindset of East Asia with the egalitarian policies of Scandinavia.

//Gqubule is a businessman//


 * From: http://www.sundaytimes.co.za/PrintEdition/BusinessTimes/Article.aspx?id=401798**

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