As some movies are designed as “Oscar bait” and news organisations commission articles in pursuit of Pulitzer Prizes, the work that inspired this year’s Nobel Prize in economics seems similarly curated.
Last year’s Nobel Prize in Economics went to Claudia Goldin for her work on gender differences in earnings and employment. Daron Acemoglu, Simon Johnson and James Robinson won this year for their work exploring how institutions impact prosperity. They linked variations in the formation of public institutions during colonisation to variations in performance today.
Irrespective of whether this year’s winners were ever influenced by the tastes of the Royal Swedish Academy of Science, they pursued profound insights. Acemoglu and Robinson argued in their 2012 international bestseller, Why Nations Fail, that how the intersection of politics and commercial interests is managed, shapes the institutions which provoke long-term prosperity.
Their focus on power relationships across political and economic spheres is particularly relevant to our situation. They show how the governing structures they label as “inclusive” invoke broad prosperity whereas those they term “extractive” favour ruling elites at the expense of ordinary citizens.
In assessing our institutions, it should be clear that the ruling party of the past thirty years veered decisively at the midway point toward extractive policies and practices. In recent years, those biases have only been mildly tempered through aligning political and commercial interests around the pursuit of investment-led growth.
Coalition-styled arrangement
The structure of our government was materially altered a few months ago when elections produced a coalition-styled arrangement. Yet the prevailing political-economic compromise remains the pursuit of investment-led growth, despite its only offering dreadfully slow trickle-down benefits.
Formidable institutional capacities enthused our constitution, treasury, judiciary, financial institutions and universities. So what explains cities wobbling amid our having world-worst rankings in youth unemployment, inequality and rape? The newly minted Nobel laureate trio argue that institutions are more important than geography or culture. Does their template explain the ANC’s entrenched patronage biases or the inability of our new coalition-styled government to envisage a potent growth plan?
The authors explore how, when Europeans colonised countries, the incentives to invest in the productive capacity of the local population would vary depending on whether there was a large influx of permanent settlers. As our post-colonial era began just over three decades ago, South Africa qualifies as a particularly fresh test case. While the authors have much to say about this country’s journey, their mission is largely about identifying universal tendencies; conversely, we need to materially repair our political economy.
But if we have strong institutions, such as our constitution and legal system, what explains the ability of our elected leaders to comprehensively game the system? One explanation is that it takes a couple of generations to develop a culture of holding leaders accountable. Another is that geography plays a major role as no country is as distant from a top three economy as South Africa.
It feels like we are well integrated into the global economy yet remarkably few of our young adults add value to exports destined for affluent consumers. Such jobs are essential for achieving an internationally integrated workforce; high-growth economies excel at this. If such data were tracked, they would inform another metric where we would score among the worst.
Progressive themes
Until quite recently, globally lauded academics and media elites had advanced ever more progressive themes. Awards increasingly favoured anti-Western and anti-capitalist narratives while the ANC’s social justice credentials were celebrated internationally during the Mandela-Mbeki era. The party’s subsequent economic stewardship has permanently marginalised a significant majority of “born free” black South African adults.
Is our wild ride the reason we can’t align our politics with commercial sensibilities? Or did our trajectory plunge when we couldn’t agree on a growth plan? The academics, media elites and the ANC have routinely benefited from promoting social justice and inequality narratives. This is now working less well politically in various international capitals and, here in South Africa, recent surveys have identified jobs as voters’ top priority.
Perhaps we can’t see the forest for the trees. Maybe our experience is well explained by the template these development economists have developed.
We just can’t seem to align the interests of commercial and political elites in a way that leads to economic growth and adequate job creation. Among the specific reasons, rampant patronage, as expressed through Black Economic Empowerment (BEE) and localisation regulations, features prominently. This aligns with their concept of “extractive” governance − which others might call patronage or corruption. It is not unreasonable to link the ANC’s BEE legislation to colonial antecedents or the party’s localisation regulations to sanctions − they are a form of self-sanctioning.
These new Nobel laureates are probably being helpful when they encourage us to trace our current blockages to decisions taken during our colonial era. However, their wanting us to frame issues within a social justice context invites confusion. The ANC packaging its ubiquitous patronage as a much needed response to inequality is central to why our politics undermine our economic prospects.
Development economists using oppressor-versus-oppressed framing probably leads to more people reading their books −- which should improve the quality of public debates. Yet South African black voters are right to prioritise jobs, not inequality. Both those who influence public opinion and those who design policies should follow their lead while exploring promising growth paths.
[Image: Gordon Johnson from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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