Parsons,+Popular+Capitalism,+B+Day+May+12+2005

Business Day, 12 May 2005
=Give capitalism a popular edge=


 * By Raymond Parsons**

THE recent South African Communist Party annual conference harped on about the replacement of the “capitalist” system in SA by something else. In the economic debate in SA there is still a deep vein of ideological antagonism to market forces and to capitalism as it is practised here and in many other countries.

The fact that this strong ideological antipathy runs right into the governing political alliance goes a long way to explain puzzling inconsistencies and ambivalent facets of public policy — notwithstanding the excellent monetary and fiscal policies of the past decade.

Amid SA’s good economic performance, divisive “drawbridge” issues still regularly surface. Various interest groups and intellectuals constantly want to pull the drawbridge up to shield the economy from globalisation, capital mobility and imports — while others enthusiastically want to lower it to get access to exciting global opportunities in the interests of long-run growth.

This fissure persistently permeates the economic debate, even as the average growth rate rises, inflation is reduced, and the Barclays-Absa deal reflects positive investor perceptions.

Of course, day-to-day experiences of continuing unemployment, poverty and historical imbalances arising out of apartheid have much to do with sustaining negative perceptions of a private enterprise-driven economy at the grassroots and other levels. The poverty in SA is ugly. While economic realities may in many cases dictate a tolerance of the market system, it is perhaps too much to expect widespread, wholehearted acceptance of it at this stage.

The truth, nevertheless, is that rapid growth and transformation in SA are possible only with a market-related economy — provided the hand of the “development state” is not too heavy, especially for small and emerging business.

But while questions of market “failures”, like government “failures”, need to be constantly addressed and are grist to the mills of economists, analysts and journalists (whether of the left or right), they do not necessarily add up to a compelling alternative economic system.

Indeed, the case for the market economy in SA or elsewhere does not depend upon an exact assessment and weighing of the system’s strengths and weaknesses. Nor does it excuse the hardships and injustices that markets, or the lack of them, often inflict. The argument for the market economy is more simple and straightforward, if still controversial in some quarters.

Since the advent of the industrial revolution more than two centuries ago, no other economic system has been able to consistently generate prosperity and progress on a large scale over time. Many alternatives have been attempted over the years in one guise or another — feudalism, slavery, communism, socialism, nationalisation, kibbutzes and syndicalism — and they have all failed.

The market economy has successfully operated in different social and cultural environments. Development is not the product of economic forces alone. Yet it has not been possible so far to make any of the alternatives work in the long term.

It has become a cliché to compare the emergence of the information age with the dislocations and transformation of the industrial revolution. Nonetheless, it is valid to see parallels between some economic pains of our times and social hardships of the industrial revolution.

Eventually the fundamental economic changes of the early 19th century enormously expanded the middle class and raised living standards for all, including the working class. But in the early stages they widened the gap between rich and poor, just as critics of globalisation say they do today — though the gap is sometimes misrepresented as increasing poverty. We cannot turn Swaziland or Somalia into Sweden overnight.

Empirical evidence tells us that economic change has winners and losers. As globalisation proceeds it is acknowledged that income inequality often temporarily widen within nations (although the right social policies and time can remedy this) but that the gap between rich countries and many developing nations has narrowed dramatically. After all, that is the purpose of mobilising the international division of labour.

Supporters of globalisation should have enough confidence in the case for them not to feel the need to deny the imbalances that arise from time to time and to find constructive responses to them — such as through appropriate global or regional institutions.

And while there is no “one size fits all” market economy, we need to understand and accept why all those other economic systems have failed to deliver on a large scale and what, if anything, could be done to rectify their terminal defects.

Historical evidence suggests that intellectual capital is more productively invested — as John Maynard Keynes and other noted economists have demonstrated — in making the so-called “capitalist system” work better and more equitably in terms of particular socioeconomic circumstances. Such efforts are essential to public policy the world over if we want to see stability and progress.

Ensuring that the inevitable tension between self-interest and public duty remains low and tolerable helps keep policy makers’ tasks down to manageable levels, even if it must be accompanied by robust debate as to where the contours should lie. In SA there is, in the National Economic Development and Labour Council (Nedlac) and elsewhere, fortunately a sufficient sense of being in the same boat to prevent the boat from being dashed on the rocks. There is still much unfinished business on SA’s socioeconomic agenda over the next decade.

Yet the repetitive arguments about the size and reach of the state are now rather sterile and a chewing over of stale mutton. These days, economists talk about “matching the role of the state to its capacities”. Drawing on international and domestic experience, the strength of state institutions has become decidedly more important in influencing long-term growth and ensuring delivery. Capacity-building is the name of the game.

So both government and business must make their contributions to a mixed economy, whatever the purists of the left or right may say. Business also has to put its case effectively. At the end of the day the legitimacy of the market system depends upon spreading its benefits as widely as possible, both by demonstrating its superior competitive efficiency and straddling the middle ground.

Hence, whether it is to be President Thabo Mbeki’s “partnership” or a “social compact”, we need to establish the conditions for their success. Many more people require a stake in the economy to uphold and defend. It is because “capitalist systems” are flexible and adaptable that they can still flourish in the 21st century as the basis of economic interaction, even in SA.


 * Prof Parsons teaches at the University of Pretoria and is the overall business convenor at Nedlac. He writes in his personal capacity.