Asia is now the centre of global growth, as it converted massive poverty into the world’s most populous middle class. Circumstances across this country and region are the opposite. Policies matter.
It’s no longer the West versus the rest. East and West integrated to form a global juggernaut which pummelled the planet’s poverty. Consequently, the World Bank’s pre-Covid projections pointed toward nearly 90% of the world’s extreme poverty being concentrated in sub-Saharan Africa by 2030. The pandemic has since aggravated this trajectory.
Scientific and commercial advances have aligned with global integration to make reducing large-scale poverty quite manageable. The basic formula begins with constantly importing skills and ideas to stay current. This has never been easier, cheaper or more essential. From there, specialising and innovating to add value to exports destined for highly affluent markets can fuel sustained high growth. This amounts to a ‘free lunch’ effect made possible by enormous wage differentials.
Sharp declines in transport and communication costs along with lower trade barriers make it possible for high-poverty countries to compound high growth for decades through adding value to exports. If households also save adequately while skills steadily proliferate, in barely a generation, the destabilising effects of widespread poverty can give way to the steadiness a broad middle class offers.
Rich countries benefit from cross-border trading and specialisation, but the benefits are far greater for countries with high unemployment and poverty, as they lack the domestic spending power to support high-volume job creation.
Stagnation
Once a nation’s household- and government-borrowing capacities become stressed amid high-volume unemployment and poverty, the resulting stagnation can’t be overcome without steadily growing exports. But commodity exporting encourages patronage while discouraging development.
While this largely explains why South Africa and sub-Saharan Africa are massively underperforming, our national debates seldom address such issues. Hence, none of our leaders can offer potent growth plans. As a society, we are wedded to the idea that our resource wealth is our core strength. Rather, our core asset is our youth, and our government has betrayed most of them.
Nations centred on value-added exporting focus on skill development and global integration. Commodity exporting promotes predatory biases where the masses can be kept poor, uneducated and distant from affluent consumers. They generally become reliant on the state or work on farms – far from upliftment paths.
Great wealth and know-how accumulated in the West over many generations, driving wages ever higher. This, combined with how skills, knowledge and capital can easily transcend borders, provides a path for lower-wage countries to sustain high growth. Japan’s leaders began to recognise this in the mid-19th century. The astonishing resurrection of Japan’s economy after the Second World War again relied on resisting isolation. They focused intently on exporting, through specialising and innovating. This established the initial blueprint for the world-changing rise of Asia.
Low-resourced societies
The ‘resource curse’ is an expression recognising how commodity exporting retards development. Low-resourced societies such as Japan, Taiwan, Singapore or South Korea were always more likely to become manufacturing and trading centres than resource powerhouses, such as Saudi Arabia or South Africa. As global economic growth is now significantly decoupling from reliance on raw materials – reflecting the rise of digitisation and services – resource-endowed nations must manage their asset portfolios ever more astutely.
South Africa’s debt is backstopped by resource wealth which must be much better managed. Yet resource wealth is a curse if its harvesting doesn’t lead to investments in people, leading to global integration. Two generations ago, per capita income in South East Asia and sub-Saharan Africa were comparable. Many nations across the Middle East and the southern Mediterranean are transitioning far better than South Africa. Will we also be a laggard relative to our regional counterparts?
This country’s future hinges on massive job creation through value-added exporting. Such projects must be freed from all but the most basic of regulations. Export-focused entrepreneurial initiatives must be fast-tracked at every turn. Having BEE regulations block value-added exports helps our competitors while closing off our only high-volume employment avenue.
South Africa should be this region’s Japan. Ending apartheid should have started our being a regional role model. Instead, our economy is fading.
That over a million South Africans turn 20 each year should be making the economy more dynamic and ever stronger. Instead, the vast majority will be forever stranded. Our massive unemployment backlog threatens to stunt productivity and growth for decades.
Inequality-focused politics
South Africa’s mutually reinforcing poverty and debt traps trace to anti-growth policies stemming from inequality-focused politics blocking global integration. The presumption of much redistribution to reverse decades of racial oppression was central to our 1990s transition. But nothing can substitute for strong growth, and believing otherwise was destined to encourage toxic politics while crippling the economy. We have arrived at that destination. Now what?
We must progress from debating redistribution measures to embracing growth through far greater integration into the global economy. The majority of South Africans born 20 years ago are now destined to reach 70 without ever escaping poverty. Life can, however, be much better for nearly all of our ten year olds.
Yet the principles of economic development do not fully explain why global poverty has been steadily declining for generations and sharply declining in recent decades. The interaction between politics and economics sets the stage.
A successful liberation movement is insufficient to the task of overcoming colonial injustices. A genuine commitment to broad upliftment is also required. This is not the natural direction of travel, as it contradicts the feudal and chieftain traditions of favouring cronies while holding back the masses. South Africa’s history and its ongoing concentrations of skills and wealth along ethnic lines is less unique than our political elites would have us believe. Most of today’s highly dynamic economies became strong by transcending formidable challenges entangled amid injustices.
Voices are faint
Our ruling elites, and thus the voters who keep them in power, continue to undermine South Africa’s potential. Meanwhile, many who benefited under the previous regime resist the steady flow of ill-conceived policies. Yet when it comes to challenging the central policy flaw, focusing on inequality not poverty, our voices are faint.
As the legendary political economist, Albert Hirshmann, suggested in his book, Exit, Voice, and Loyalty, for those who can’t find their voice, the choice is between leaving or acceptance.
[Image: Miguel Á. Padriñán from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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