World Bank touts private sector intervention in inequality, but MPs push back

Private sector intervention is among the policy proposals by the World Bank to address South Africa’s inequality and poverty levels. However this has not been received well by some members of Parliament.

Marek Hanusch, senior economist for the World Bank's global practice for macroeconomics this week briefed the Standing Committee on Finance (Scof) on the organisation’s research: An incomplete transition: Overcoming the legacy of exclusion in South Africa. The research was published as a book in April this year.

The research proposes solutions to SA’s inequality and poverty, which has been entrenched through the legacy of apartheid.

The World Bank proposes private sector involvement in the formation of policy and in enhancing service delivery, among a list of priorities to strengthen policy implementation. 

During his presentation Hanusch further unpacked the role the private sector could play.

For example, considering skills constraints - which have contributed significantly to inequality since the dawn of democracy, the World Bank proposes the entry of private universities.

When asked about the involvement of private universities, Hanusch explained the rationale for private universities is because with fee-free higher education, existing institutions will not have capacity to take more students. He argued that the concept of private universities has worked well elsewhere in the world. Hanusch said that with fee- free higher education more hands will be needed on deck and private universities would just assist in fulfilling the need.

“It does not mean they will be unaffordable for poor people. They’re not meant to be exclusionary,” he told the committee.

As another example the World Bank also proposes partnership with the private sector for the roll out of social and affordable housing, as part of a solution to address the skewed distribution of land and productive assets and weak property rights.

But MPs had questioned why the World Bank had proposed private sector involvement. Economic Freedom Fighters MP Floyd Shivambu particularly questioned why South Africa should take recommendations from the World Bank, as the organisation’s reforms had failed in the past and actually contributed to the high levels of inequality and poverty.

“The World Bank’s policy submissions have almost been disastrous… The result has been the direct opposite – low growth, underdevelopment, the exclusion of the poorest,” Shivambu lamented.

Shivambu said that it would be foolish to follow what the World Bank is saying as it was instrumental in legitimising apartheid. Shivambu took issue with the role of the private sector, which has had its own issues of collusion and corruption.

“I think we must ignore them [the World Bank], they must explain their failures first.”

But Hanusch said the World Bank views the private sector as the main creator of jobs and plays a significant role in the economy. “The private sector needs to grow so that it can create more jobs,” he said.

Hanusch defended the World Bank as being viewed as a free market proponent, as suggested by Scof chair Yunus Carrim.

Commenting on the World Bank’s report, Carrim said that there is a disjuncture between the observations made about the challenges in the country and the solutions proposed. 

He added that the World Bank has been very influential on government officials, and many ANC MPs from his generation would probably agree with Shivambu’s views.

“In Parliament, one of the things that makes people upset is [the World Bank’s]  influence on GEAR (Growth Employment and Redistibution programme – an economic plan implemented in SA),” said Carrim. None of the targets for growth and employment were ever achieved. “Partly where we are is because of the failures of GEAR,” he said.

“Unless the World Bank takes some measure of responsibility for failures in the developing world, here your credibility will be questioned.”

Carrim said he was also taken aback by the proposal of private sector involvement in policy, as the private sector has played a major role in shaping policy but has “never come to the party”.

He said that the privates sector probably has too much of a say, and has delivered little. “What we want is a private sector partnership.”

Having aired his views, Carrim concluded by calling for more engagement with the World Bank. He also acknowledged that the World Bank had been making an effort in recent years to engage more and had reached out to Parliament to present this particular research.

Hanusch in turn said that the World Bank has been very happy to engage and said that in compiling the research there were consultations with many stakeholders in the country. 

Hanusch also said the purpose of the research is not to “influence” government policy. “Our mandate is not to influence government policy. We are a service provider for the government. If the government wants our view on something, we will provide it based on the evidence we have or the international experience we have in other countries. That is all we do. We do not have an agenda.”

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