The rise of Asia raised the bar for all economies and AI will have similar effects.
Of course, we must improve competencies and pummel corruption, but that won’t achieve economic or political stability. Many commentators want to fix our economy through raising fixed investments; others prioritise raising employment. Both groups are focused on symptoms.
If we were competently proceeding along a well-reasoned path, investors would provide the capital — that’s what they do. For a path to be well-reasoned, it would accommodate our workforce’s limitations and potential.
Our economic discourse has been mostly framed around the need to reduce corruption while pursuing investment-led growth. Yet, if we suddenly became much better at both of these pursuits, the benefits would be meagre relative to our massive development shortfalls – which tempt political turmoil.
We should accept that our politics preclude our producing some grand economic plan. We lack the vision, cohesiveness, and execution capacity to pursue some Dubai-styled ambitious vision. That other SA, Saudi Arabia, which lacks our political diversity, has learned how exceptional UAE’s leaders are. We must reject politicians seeking to sell grand plans; rather, policy reforms must support paths which enable high growth.
Common among high growth countries
Copying and adapting what works elsewhere has long been common among high-growth countries and companies. Few companies rely on innovation leadership. Countries establishing a new economic paradigm are extremely rare.
Over the past two centuries, two island nations, the UK and Japan, at opposite ends of the world’s largest land mass, stand out. Other high-growth nations copied and expanded on their successes.
No country is more geographically distant than SA from today’s twin economic superpowers, the US and China. More troubling still, while lacking the learnings that a regional peer competitor would provide, we ignore global success determinants as we can fund imports of finished products by exporting commodities.
Post-1994 SA has pursued economic independence while the world’s successful economies became ever more integrated. As the pace of change accelerated, diffusion of new and better ways of doing things became as empowering as access to capital – and the two are very much mutually reinforcing.
Adding value within global supply chains by emphasising competitiveness and specialisation fuelled the rise of Asia and created hundreds of millions of productive jobs. Notwithstanding a few exceptions which lead to union jobs through subsidy arrangements, our policymakers have steadfastly rejected this path.
They have preferred beneficiation. Aside from directly creating a sliver of union jobs, this was always going to preclude adequate job creation. For instance, as households will struggle to fund Eskom’s subsidising of ferrochrome producers, more jobs are likely to be lost than created.
Work programmes that produce nothing might reduce crime and ease socio-political tensions, but they won’t grow the economy. The same is true with pursuing investment-led growth absent supporting policy reforms. Of course, basic infrastructure needs should be funded, but such projects can only support high growth as part of an economic path that adequately addresses key questions.
What are we to sell to whom? Our domestic consumption is woefully inadequate. This cannot be fixed through investment-led growth initiatives if investment returns rely on selling to our domestic consumers.
Despite its economy growing at nearly 10% per year for four decades, China doesn’t have sufficient consumer purchasing power to grow its economy. Yet our policymakers have presumed that our consumers can fuel adequate growth.
For a country’s domestic consumption to surge, its companies must invest heavily to increase the productive capacity of its young adults. If all of our unemployed stood a meter apart, our unemployment queue would be as long as Johannesburg is distant from London. The vast majority of these people are under 35 and most have become, or are on track to become, permanently marginalised. Very few will achieve their potential. That is, our domestic consumption will long remain hobbled.
We are nearing two decades of stagnation in per capita income, amid compounding social stresses, as we haven’t identified paths which could spur high-volume creation of productive jobs. We have been too accepting of our policymakers’ assumptions. It has suited our political leaders to target South African and African consumers while expanding grants to politically-sedate the unemployed. Policies intended to become globally competitive are irreconcilable with such patronage-focused politics.
We have long been on a path that was never viable. Rather, it has led to immigrants out-hustling locals. The resulting xenophobia further undermines our inherently modest prospects for selling to neighbouring countries.
We want to believe that our business leaders have a plan to remedy SA’s economic woes. Rather, our business leaders have aligned with their public sector counterparts to pursue investment-led growth. This seemed likely to result in more pro-growth policy making but that hasn’t happened.
Imprudent reliance on domestic consumption
The intense integration which rewired the global economy during the post-Cold War era spurred extraordinary upliftment – particularly in Asia. Our policymakers rejected such integration thus placing imprudent reliance on domestic consumption and regional integration.
AI now promises to disrupt economies at least as profoundly as globalisation did. Many economists contend that the most vulnerable are older and well-educated workers. As birthrates plunge in affluent economies, Africa will soon account for 40% of the world’s births. To navigate toward high-growth and economic stability, SA’s challenges and opportunities must be freshly assessed.
Policy reforms must then encourage entrepreneurs to identify how our young adults can add value to products and services consumed in affluent markets. We should better appreciate the extent to which we don’t do this – and how common this is among high-growth countries.
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The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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