The Democratic Alliance published a leaked government paper that says ‘the current crisis … offers an opportunity for the macro reorganization of the state’. Intended as a post-lockdown municipal recovery plan, it lays bare the clueless developmental state model of governance.
In the private sector, it’s okay to be wrong. You won’t like it, because it means your business will fail and your competitors will eat your lunch, but your being wrong doesn’t break the economy. It doesn’t harm consumers, on whose behalf the entire economy operates to produce what it does.
One of the free market’s biggest strengths is not just that it rewards successful, well-executed ideas with handsome profits, but also that it punishes bad ideas or bad execution with swift failure, at limited or no cost to anyone other than the idea’s proponents and investors.
This dynamic is what has produced the vast wealth of choices consumers have to satisfy their subjective and varied needs and wants.
With government, it’s different. When the government has a bad idea, or implements it badly, there is no competitive pressure to make it fail quickly, and there is no parallel competition that might succeed. Consumers have no choice. They are stuck with the low quality, high price, or bad service delivery for as long as government chooses. And taxpayers are required, by force, to fund it for as much as, and as long as, government deems necessary.
Serial vs parallel
A good way to think about the difference between a government-led economy and a free market economy is to think of solutions being tried in parallel and in series.
Let’s assume (generously) that a government bureaucracy is no more likely to come up with a bad idea, or execute it badly, than a private sector player. In the private sector, many players try different solutions in parallel. Bad solutions fail rapidly in the crucible of the market, and capital gets (re-)allocated to the most successful solutions.
By contrast, the government tries solutions in a serial manner, one after another. Worse, because of the sunk cost fallacy, government solutions take a long time to fail. So, to produce what the market can produce in a matter of months or years can take government years or decades. What the market can produce cheaply, risking only investors’ funds, the government is likely to produce at great cost to the taxpayer.
This is the core problem with the entire philosophy of the ‘developmental state’. Based on the development models of the Asian Tigers, Japan, and especially China, the developmental state is characterised by strong government control over and intervention in the economy, with extensive regulation and central planning.
Even when sound policies and good governance make them appear to be successful, they cannot compete with the agility and efficiency of a free market. When the goal becomes job creation or wealth redistribution, rather than profiting from producing what consumers demand, and when state-owned enterprises muscle private companies out of the market, developmental states are not only financial burdens on the public purse, but materially worsen the quality and price of goods and services available to the public.
With this in mind, it is instructive to read the leaked municipal Covid-19 recovery plan of Nkosazana Dlamini-Zuma’s Department of Cooperative Governance and Traditional Affairs, published recently by the Democratic Alliance. The party is trying to determine the status of the document, but as a fifth draft of a 45-page document, it wouldn’t have been written for nothing.
It does acknowledge that ‘the risk of going hungry far outweighs the threat of the virus’, which rather undermines the rationale for a hard lockdown, but as we shall see, the intent of the document is shrouded in a haze of contradictions.
It says, ‘But amidst the crisis the South African state has emerged as an exemplar of excellent leadership and capacity, during this time of crisis, we have experienced decisive action, vigour and action on the ground.’
Rarely has the boot-licking been more effusive, and more hilariously wrong.
‘Never waste a good crisis,’ the document’s authors admonish, before repeating the age-old ambition to ‘address the most persistent structural economic inequities’, seeing in the crisis ‘an unrivalled opportunity to re-imagine and re-design our municipal economies’.
Acknowledging the grave extent of the economic calamity brought about by the government’s lockdown policy, the document concludes that without a co-ordinated government response, things will get very, very bad. This economic policy prescription reads like homeopathy, in which the cure for illness is more of what caused the illness in the first place.
The paper proposes to do this by supporting the ‘township and village economy’, forcing large malls and retailers in townships to do business with small local suppliers and establishing systems so that large groups of township-based firms can tender for government contracts as if they were one large firm. Needless to say, that will require an immense amount of planning and coordination, which will employ a great number of planners and coordinators.
Government would intervene in ‘[linking] agro-processing and the food economy to the social relief of distress requirements’, creating an ‘an explicit market for homestead and small farmers to supply quality food to food insecure households, including through the establishment of municipally enabled “people’s restaurants”’, where poor people can be fed at the state’s expense, after the model of Brazil’s highly criticised Fome Zero (‘Zero Hunger’) policy.
The state-led programme will involve a vast expansion of the welfare state, ‘to inject liquidity to households, informal traders for basic foodstuffs, medication & transport’.
Essentially, if one cannot, or does not want to, earn a living, the consequences should be limited to having to forgo luxuries, and other people will be compelled to provide for your basic life necessities.
Rule by command
The Covid-19 crisis, the report says, ‘has demonstrated the institutional strength of the district health system and the importance of centralising operations, decision making, policy making and project planning through the Command Council’.
Although state control over the economy will be exercised through a ‘district development model’, under which local municipalities are ‘capacitated’ to implement projects and plan the local economy, this model will require ‘a centralised decision-making body which functions precisely as the Central Command Council does so that all of government in involved’.
Clearly, the paper’s authors have had a taste of rule by fiat, and they like it. Extending the idea of a central command council beyond the present crisis will effectively turn the country into a Soviet-style command economy.
The paper recognises that municipalities are suffering a ‘governance and financial crisis’, but the authors believe that simply requires a course correction, and engaging the private sector into providing financing and technical support. Essentially, the paper’s solution to incompetent, corrupt and bankrupt municipalities is to confiscate more money from the private sector to throw at them, and then require them to do less with it.
They call this approach ‘all of government and all of society’, which pretty well defines totalitarianism.
Neoliberalism has failed. Viva neoliberalism!
There is substantial ideological confusion in the paper. The authors say that the ‘top-down neoliberal approach’ has failed, and that we should turn to a bottom-up, entrepreneurial economic model, which requires that ‘barriers to access to market opportunities need to be eliminated through decisive policy and action’.
But neoliberalism is not a top-down approach. It is a laissez-faire, free-market system that is based on, well, a bottom-up, entrepreneurial economic model, and which requires that barriers to access to market opportunities are eliminated through decisive policy and action.
Under neoliberalism, everyone is free to produce what they believe other people want to consume, may freely cooperate with others to do so, and compete with different groups who have different approaches to doing the same thing, which is exactly what the authors propose.
The paper wants to devolve the state’s responsibility for service delivery onto private enterprises, managed and controlled by municipal governments. They call this a ‘service delivery co-production model’. This way, the government can create ‘social enterprises’ that build skills, employ people, encourage self-reliance, reduce cost of services, attract professionals, pay everyone a sweet salary, and hand out free beer on Fridays.
Just employ everyone
Unemployment will be tackled through programmes to employ unemployed youth as apprentices and employees in ‘new deal’-style public works programmes.
The paper also envisages a new contracting system, under which larger companies will ‘deliver work packages’, which in turn will sub-contract smaller firms and co-operatives, which in turn will employ young apprentices and interns.
By turning experienced, skilled people into middle-men, jobs can be done by inexperienced, unskilled people, so they, too, can become experienced and skilled. And with more middle-men, everyone can benefit from these ‘social enterprises’! We won’t have unemployment at all!
See now why only a totalitarian government and a planned economy can work this magic? Neo-liberal fuddy-duddies would consider this model wasteful, and would try to make it more efficient by cutting out the middle-men that profit from doing nothing. But that would render these poor middle-men unemployed, which just goes to show how cold and callous neoliberalism really is.
The entire paper reads like a utopian wish-list written by a student of Marxism. It is shot through with woolly ideas, ideological mantras, clueless proposals and pie-in-the-sky ideals.
If this document demonstrates the quality of economic thinking inside government, it makes a good case, but not for expanding the role and scope of government, as it intends. It makes an excellent case for reducing the size and power of government to the bare minimum required to protect life, liberty, and property, so that it can do as little harm as possible.
Please keep whoever wrote this well away from the real economy.