Sparks,+Star,+2005-05-18,+SA+needs+an+economic+miracle



=SA needs an economic miracle=

The Star, Johannesburg, May 18, 2005

 * By Allister Sparks**

President Mbeki's efforts to initiate a national debate on how to boost economic growth in a way that will reduce unemployment are important and timely.

Jobless growth is the scourge of our age and some radical new thinking is required.

By all conventional measures the government has done a wonderful job rebuilding an economy that was in dire straits when it took over in 1994, as Mbeki points out in the second of his on-line articles on this theme last week.

Our budget deficit has remained below 3% for seven years, national debt has fallen from 48% in 1997 to 3% in 2001/4, inflation has been within the 3%-6% target for 19 months, and we have had 23 consecutive quarters of growth for the first time in our history.

Lately we have even had increased job creation. But not enough to match the newcomers entering the labour market, so that net unemployment has increased. It is now somewhere between 28% and 40%, depending on which definition is used - far higher than the 22% the United States suffered in the Great Depression.

That is not acceptable. A humane society cannot live with that, or with the wide gap between obscene wealth and dire poverty which is our country's shame.

What to do about it, is Mbeki's challenge. He will present a third on-line article on the subject on Friday, while the ANC itself has produced a discussion paper for its general council meeting in July.

Together they set the scene for a wide-ranging rethink on how to boost our growth rate above the 4% plateau it appears to have reached to a new level of 6%-7%, which is needed to really cut into the unemployment rate.

At this early stage, government thinking appears to be running along two parallel lines.

The first is to borrow from the Asian "developmental state" model, first used by Japan, then emulated with spectacular success by Taiwan, South Korea, Singapore, Malaysia and Thailand.

The second, mooted by Mbeki in his first article on May 6, is to learn from Ireland's equally successful Programme for National Recovery in which the government and trade unions formed a "social partnership", with the unions agreeing to restrain wage demands and industrial action in return for more take-home pay through reduced personal taxation. The result was the start of the Irish economic miracle.

Both are interesting models, but their application in South Africa could be problematic.

The rationale of the developmental state is that the state should influence the direction and pace of economic development by intervening directly in the process, rather than relying on the uncoordinated influence of market forces to allocate resources.

The state assumes the role of setting key social and economic goals, then devising policy tools to ensure that business is helped to achieve them.

It has been spectacularly successful in creating the celebrated Asian "tigers", but such a strategy can succeed only if driven by a highly efficient bureaucracy staffed by the nation's brightest and best.

We do not have such a crack bureaucracy, not by a long shot, as the bumbling delays in drafting badly needed new immigration regulations illustrate all too clearly.

The prospect of a mediocre and sluggish bureaucratic establishment trying to give direction to our generally pretty livewire business community is too ghastly to contemplate. On top of which the developmental state, by its very nature, tends to be authoritarian - and we are trying to establish a democracy.

As for the Irish model, while it, too, was successful, the specific time and place of its implementation helped make it so. Ireland was about to join the European Union and gain beneficial access to that vast market. That is an advantage we cannot have, and how much the "social partnership" on its own contributed to the Irish miracle is difficult to quantify.

What does seem clear, though, is that Mbeki's use of the Irish example is an attempt to coax his alliance allies, Cosatu and the South African Communist Party (SACP), into accepting the idea of a dual labour market, with young people earning less and being subject to a more flexible set of labour laws than exist in our present Labour Relations Act and Basic Conditions of Employment Act.

Such a dual market is proposed in the discussion document which will go before the ANC general council. It is precisely the kind of radical thinking that is required, since 60% of our unemployed are young people and that is not going to change unless they are given an edge in the job market.

Older workers can be retired early and social welfare benefits can be put in place for them, but for young people to be shut out of the system from the start of their working lives is unconscionable.

Yet, as Mbeki must know, this is going to be a huge hurdle to clear. The unions and the SACP will fight it tooth and nail, and the fight could split the alliance and lead to the formation of a new left-wing political opposition - the economic cost of which, in terms of business confidence, would have to be weighed against the benefits of the reform.

This raises a critical point about the debate Mbeki wants to initiate. If it follows the usual course it will be a debate between organised business, organised labour and organised government - a closed-shop of system insiders talking about what is best for the outsiders. Not unlike the bad old days when white politicians and others talked endlessly among themselves about what was best for black South Africans.

Many political groups claim to speak for the poor and the workless, but none actually does. They represent the interests of those who are in the system and whose interests they must protect against the desperate masses who would undercut them.

The unemployed are unrepresented and unorganised. How, then, are their interests to be injected into the debate to challenge the vested interests who would shut them out? That is the challenge that will face Mbeki as he tries to initiate this critical debate.

His hope is to try to cut an Irish-style "social partnership" deal with the unions. But if he fails I believe there are still other ways to get growth breaking through the 4% barrier and unemployment coming down from that dreadful 40%. Organised business, for its part, will no doubt repeat its mantra of lower interest rates and a weaker rand, which would help, but is not enough.

The macro-economy is in good shape and some micro tinkering with it would be beneficial. But South Africa needs to go beyond that and come up with some radical initiatives aimed directly at the second economy rather than only at the first.

The primary focus in this debate should be on the outsiders, not the insiders; on the people riding in the bottom deck of what I have called our double-decker economic bus, and what Mbeki has called the ground floor of our two-storey house.

So, following the president's example, I shall devote my next few columns to presenting some ideas as a contribution to the debate.


 * From: http://www.thestar.co.za/index.php?fSectionId=225&fArticleId=2524696**