New Growth Path

Andrew Layman:  PCB CEO

The New Growth Path for the South African economy has excited a good deal of comment, much of it positive no doubt from the political left wing which under the strong leadership of COSATU has prepared the way carefully.    For some time they have been researching economic models to validate the kind of regimen which they favour for the country.    This has complemented the political victory of Polokwane which resulted, among others, in the appointment of Minister Patel to take responsibility for Economic Development.   By contrast, it seems to me that Business has relied on the strength of the free market argument without articulating exactly how this may be used to solve the more acute socio-economic problems facing South Africa, a developing economy which is losing ground to several others throughout the world.   It hasn’t helped the neo-classical economics cause that the market failed so badly and brought about such economic trauma throughout the world.    Complete collapse was avoided, not by the expected market corrections and self-adjustment, but by wholesale intervention on the part of governments that steadied the ship but seriously weakened its capacity to survive any future storm.    Certainly in the developed world subsequent and con sequent government decisions, which are essential to restore some semblance of balance and normality, are proving very unpopular among electorates that don’t seem to comprehend that government, no less than households and business entities, have finite financial resources which are capable of running out.

It remains to be seen whether the New Growth Path is unanimously unpopular among business people, acceptable with some reservations or just another verbal confirmation of a political standpoint.    As often happens in the case of documents of this type, they are difficult to analyse without detail, and detail is inevitably thin.    Many economists have expressed grave concerns, perhaps because there are proposals that border on, or even cross, economic heresy.   Personally, I’m not sure if this is all that significant.   It is the practical implications of the policy that are important.   I don’t believe that the country’s unemployment problems will be solved by labour market forces or even a healthy 7% increase in GDP.    I am inclined to the view that there are too many extraneous and varied factors which influence twenty-first century economies and make them so complex that the theories of Adam Smith and the ubiquitous economic principle of ceteris parabus (the assumption that nothing else changes) are fundamentally out of touch, at least in developing economies where the social circumstances of the population make demands that modern societies often seem quite unable to meet.    I’m not sure what kind of revolution can provide the sort of impetus that previous agrarian and industrial revolutions provided centuries ago.   The digital or electronic revolution appears to have the effect of inhibiting the progress of the poor relative to their wealthier countrymen.   Perhaps this is unnecessarily pessimistic, however, as the cell phone seems capable of bridging huge divides.

People talk of the ‘trickle down’ effect which is the means by which the growth of wealth in the capital classes is translated over time into better economic prospects for the poor.    There is sufficient evidence to show that this happens much too slowly, if it happens at all.   In any event, the description “trickle” shows that even the expectations are very modest.   The truth is that we require a ‘cascade effect’ where the sharing of prosperity is achieved quickly enough to avert the disaster of uprising when the poor and unemployed have simply had enough of promises without any change in their misery.    That GDP growth is essential before this problem can be addressed goes without question, but it is not enough, surely.    It is the management of the growth that is the key.   And in order for this to be achieved, innovation will be necessary.    We must industrialise, but not only by technological advances which improve the competitiveness of large industries.  We must develop a new phalanx of small industries that have the capacity to grow, and will do so through employment rather than machines.   They need not export; there is sufficient strength in our own market, let alone that of neighbouring African countries.   If this is disputed, then think of the number of imported goods that industries or consumers buy.   

In the course of time, the detail of the Plan will be revealed and then it will be easier to assess its chances of success.    Let us hope that it is not the devil that is revealed when this time comes.        

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