South Africa’s stringent Covid-19 lockdown has largely been lifted with the shift from Level 4 to Level 3 on 1 June. Under Level 3, most businesses are now allowed to operate, albeit subject to strict social distancing and hygiene conditions. However, the country has also been in an unacknowledged policy lockdown for at least the last ten years.
This is especially so since Jacob Zuma came to power in 2009 – and began implementing ‘radical economic transformation’ policies aimed at changing the ownership, control, and very structure of the economy.
Contrary to widespread belief, policies of this kind have continued under President Cyril Ramaphosa – whose ‘new dawn’ pledges have simply provided cover for the further damaging interventions introduced under his watch. Mr Ramaphosa has also recently made it clear that ‘radical economic transformation’ must ‘underpin’ the ‘reconstruction’ of the economy in this Covid-19 period.
Over the past ten years, the policy lockdown has subjected the private sector to ever more onerous, costly, and damaging regulation. Coercive labour laws have been made more rigid, while black economic empowerment (BEE) requirements have been ratcheted up. Property rights have been eroded to the point where the Constitution is now to be amended to allow expropriation without compensation (EWC) – nationalisation by another name.
Pressure for prescribed asset requirements for pension funds has increased since 2017, as have demands for a wealth tax, stricter exchange controls, and a money-printing mandate for the South African Reserve Bank (SARB).
Though the rigour of the 10-year policy lockdown remains largely unrecognised, its impact was clearly visible even before the Covid-19 lockdown began. Growth went down to 0.2% in 2019, while the jobless rate was 39% (on the expanded definition), public debt amounted to 61% of GDP, and almost all investment grade ratings had already been lost.
Hobbled the economy
The 10-year policy lockdown had severely hobbled the economy long before the Covid-19 pandemic began. Since then, more than nine weeks of hard lockdown have further crippled it and pushed it down on to its knees.
The Covid-19 lockdown has, of course, been highly visible to all. But the policy lockdown that has held the country in an iron grasp for at least the last decade is not so easy to discern. That makes the policy lockdown more difficult to understand and far harder to end.
Many commentators criticise ANC policies for being too ‘uncertain’ or too ‘poorly implemented’. The real problem, however, is that many policies are bad. These bad policies have also been tightened up and made more damaging over time, while their implementation has often been far too effective for the country’s good.
These bad policies have their roots in the National Democratic Revolution (NDR) to which the ANC/SACP alliance has been committed since the 1960s. The NDR aims to shift South Africa from a predominantly capitalist society to a socialist (and ultimately a communist) one.
NDR policies have been implemented in some 20 spheres over the past 26 years, making it difficult to summarise what has been done. One general point can, however, be made. A transition to socialism would be more difficult to achieve if South Africa’s capitalist economy was thriving, joblessness was low, and living standards were rising.
A shift to socialism is far more likely to occur when unemployment is high and most people are becoming poorer. This is why the ANC/SACP alliance seems so buoyed up by the economic destruction resulting from the Covid-19 lockdown.
‘Ideology’ and ‘dogma’
Current ANC/SACP proposals for an economic ‘reset’ are replete with ‘ideology and dogma’, as Business Unity South Africa has warned. They are also based on an irrational belief that an inept, corrupt, and bankrupt government should be given ever more powers – including control over the nation’s pension funds and a vastly expanded capacity to ‘guide’ the private sector.
The reforms in fact required to reinvigorate the economy and vastly raise the growth rate could not be more different. First, property rights must be strengthened by jettisoning the EWC constitutional amendment bill and reversing all the current laws and proposed policies that undermine and threaten private ownership. Without this essential step, direct investment on the scale required cannot be achieved. (Land reform will remain an imperative but must be done in a way that empowers individual black South Africans, rather than the state.)
Second, a business-friendly environment must be put in place. Red tape must be slashed, especially for small businesses. State-owned enterprises (SOEs) should be sold off on terms that guard against the creation of new private monopolies (by limiting the number of entities any one business can buy) and protect against corruption – by preventing sales to political cronies.
Third, the inefficient public service must be trimmed and professionalised. In particular, the government must put an end to cadre deployment, hold wrongdoers to account, root out corruption and wasteful spending, and trim back the unaffordable public service wage bill.
Fourth, labour laws must be substantially reformed. The government itself acknowledges that entry-level wages are so high that they lock the unskilled out of jobs. Rules which push up labour costs – including the national minimum wage – should be scrapped. Instead, private employers must be allowed to take a leaf out of the government’s book and pay the unskilled, as the state does, a stipend of some R90 a day.
This daily wage is far below the entry-level salaries generally paid by business. However, the government provides work opportunities at these low levels because it recognises that some earnings are better than none, and hopes the training it provides will pave the way to better jobs. Often, however, it does not.
Better training
By contrast, if people were allowed to work for the same low wages in the private sector, they would generally receive better training, notch up more relevant experience, and have greater prospects of moving into higher-paying jobs over time.
Fifth, South Africa’s ineffective and damaging BEE policies require fundamental reform. In 2017 the SACP summed up the defects at the heart of BEE by identifying the ‘intra-African inequality’ that BEE has fostered as ‘the main contributor to South Africa’s extraordinarily high Gini coefficient’ of income inequality.
Added the party: ‘Enriching a select BEE few via share deals…or (worse still) looting public property…in the name of broad-based black empowerment is resulting in…increasing poverty for the majority, increasing racial inequality, and persisting mass unemployment.’
BEE should be replaced by a far more effective policy, built around the IRR’s alternative proposal of ‘EED’ or ‘Economic Empowerment for the Disadvantaged’. EED, like the social grants system, would select its beneficiaries on a socio-economic basis, but almost all of them would in any event be black.
EED would have two other core features. First, it would replace the current scorecard with a new one, which would reward firms for all investments made, plus all contributions to employment, individual earnings, skills development, tax revenues, and innovation.
Second, EED would reach down to the grassroots by equipping the poor with sound schooling, housing, and healthcare. Some R700bn has been budgeted for these key needs in the current financial year – but the government’s centralised and top-down delivery system is so mismanaged that outcomes are generally inordinately poor.
EED recognises that current budgets cannot be increased – and that the key need is rather to get far more bang for every buck. This can be done by redirecting much of the revenue now being badly spent by bureaucrats into tax-funded vouchers for schooling, housing, and healthcare for the disadvantaged.
Low-income households provided with these vouchers would have real choices available to them. In the education sphere, schools would have to compete for their custom, which would help to keep costs down and push quality up. In the housing arena, people could stop waiting endlessly on the state to provide and start building or upgrading their own homes. In the health sphere, people could join low-cost medical schemes or take out primary health insurance policies, giving them access to sound private care.
Three vital spheres
With this voucher system in place, business would also earn EED points by topping up the vouchers of the poorest – or by helping in other ways to improve the quality of delivery in these three vital spheres.
BEE will never be more than a limited system of crony capitalism that hurts rather than helps most black South Africans. EED, by contrast, would genuinely empower the people most in need of effective support.
After ten years of an NDR policy lockdown, the ANC/SACP alliance wants to use the massive damage from the Covid-19 lockdown to advance the revolution and enormously expand the role of the state. This, however, would be a recipe for socialist penury and misery.
By contrast, the reforms outlined here would lift the country out of the policy lockdown – and successfully ‘reset’ the economy for the rapid growth and expanding prosperity the NDR has long prevented and denied.
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