Brokering a New Deal for SA

2017-02-19 06:11
The dispossessed:  A young man begs at an intersection in Durban, KwaZulu-Natal. (Tebogo Letsie)

The dispossessed: A young man begs at an intersection in Durban, KwaZulu-Natal. (Tebogo Letsie)

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Mcebisi Jonas

A combination of external and internal factors will make the next few years difficult for South Africa to navigate.

The 2017 World Economic Forum in Davos highlighted a continued weak global economic outlook, rising global inequality and the emergence of populism and economic nationalism, illustrated by Brexit and the election of Donald Trump as US president. This brings a number of risks for emerging economies such as South Africa, which are highly dependent on external sources of capital and markets.

Our country faces a combination of sustained low rates of economic growth – more pronounced since 2008, and predicted to continue over the next few years – along with an enduring concentration of ownership (meaning higher socioeconomic returns continue to accrue to those already endowed with capital and skills), chronically poor education and training outcomes (despite the not insignificant per capita spending on education), and patronage and corruption associated with rents controlled by the state.

In addition, short-termism and populism are on the rise, fed by the growing restlessness of our people, who are not blind to the obscene inequality which abounds and who are losing hope in a future of shared prosperity.

Faced with these challenges, the 1994 National Consensus has reached its limit. These negotiations resulted in a political and class compromise which:

- Safeguarded the interests of the existing (white) economic elite;

- Created a new black elite, primarily through state employment and rents;

- Put in place a robust system of democratic accountability;

- Provided a more secure and regulated labour market for the organised working class; and

- Established a comprehensive system of fiscal redistribution for the poor (with a growing social security system).

There is no doubt that the 1994 Consensus – especially the welfare spending component – brought significant social returns in reducing extreme poverty and vulnerability, and extending access to basic services.

The robust system of accountability and the democratic institutions we established provide critical checks and balances to those entrusted with the control of state administration and coercion. But we must accept that this Consensus has become unviable and will unravel if not combined with a New Economic Consensus. South Africa remains locked in a capital-intensive, energy-intensive and highly financialised historic growth path, which:

- Reproduces self-serving rent-seeking by the old white, foreign-owner and new black rentier classes;

- Is too dependent on financial inflows and commodity booms, making the economy vulnerable to global shocks;

- Creates very little new wealth in the productive economy; and

Excludes large numbers of South Africans from participating either as owners of capital or as employees.

Economic transformation

Most economic players will agree that the economy is long overdue for transformation and reform. The points of debate centre on these questions: What exactly should change, and how should this be achieved?

In advancing solutions to our current predicament, we need to accept that high inequality and low growth are mutually reinforcing. High inequality leads to low growth and stagnation because it reduces demand. Low growth reduces fiscal resources available for redistribution, as well as employment and wealth-creating opportunities.

However, inequality cannot be reduced only through fiscal redistribution because it is rooted and reproduced in the structure of the economy, which we need to understand if we are to transform. There is much talk currently about white monopoly capital. Historically, white monopoly capital played a core role in reproducing South Africa’s highly unequal economy.

In the mid-1980s, 83% of JSE shares were owned by four giant companies, all owned by white South Africans, who controlled economic activity in mining, finance, the industrial sector, agribusiness and retail.

Since, the structure of capital has changed significantly, having become increasingly "financialised", with investment being diverted from fixed capital into high-return (often speculative) financial investment. Indeed, slogans are a poor substitute for careful analysis and facts.


Today, some of the largest segments of white monopoly capital have globalised, with primary share listings in foreign stock exchanges and massive interests and investments elsewhere in the world – far surpassing their interests in SA.

Many of our large conglomerates have unbundled. Anglo American, for example, has narrowed its focus mainly to mining and has shed holdings in other sectors. The unbundling of Anglo’s manufacturing interests in the 1990s was closely associated with accelerated deindustrialisation in South Africa, and has contributed directly to manufacturing disinvestment and loss of capability in key value chains.

The same liberalised capital controls that allowed our large conglomerates to export capital and list abroad, means that private capital in our economy is now significantly foreign owned – just under 40% of JSE capitalisation and 50% of the JSE top 40 is foreign owned.

Much of our government debt – about 40% – is also financed through foreign savings, which is why we take our investment status and related costs of borrowing seriously.

Understanding these changes has enormous implications for how we engage capital in our project to restructure the economy. Much of the capital we lump into the category of white monopoly capital is highly mobile, financialised and international in orientation. Globally, this foreign-based big capital is driven by short-term shareholder maximisation and ownership traded in highly liquid markets.

This seriously limits our ability to draw this capital into a national development project. And, given our low levels of domestic savings and current levels of government indebtedness, we must accept that disinvestment at scale is a real threat to national sovereignty.

We must also avoid reducing transformation to black rent-seeking replacing white rent-seeking. Economic transformation is not simply about increasing black ownership of the large JSE-listed corporations to the corresponding reduction of South African white and foreign ownership.

Even if this could be accomplished without disruptions such as capital flight, it will not reduce overall inequality – in fact, inequality could increase.

Instead, a fundamental restructuring of the economy is required, in which rent-seeking is incrementally replaced by the development of new productive capabilities in which the previously dispossessed have a correspondingly high share on a mass scale. This includes taking into account the real factors that exclude the poor and previously dispossessed from accumulating wealth and overcoming asset poverty, such as access to capital, productive assets (including land), skills, markets and, in the context of the fourth industrial revolution, technology.

In essence, we need to shift government’s policy from a focus on redistributing existing assets as an end in its own right, to linking redistribution to production outcomes to have sustained economic impact. This becomes the core business of the developmental state.

State capital

We must also leverage the role of state capital in South Africa’s economy. The state currently owns and controls about 30% of the economy in highly strategic sectors, including state banking, information technology, energy, transport, aerospace and the weapons industry, and communication. In addition, the state owns about 25% of land and has an array of regulatory and administrative apparatus to influence the behaviour of capital.

Hard questions must be asked about whether we are deriving optimal growth and inequality reduction outcomes from this state capital. We must also look at how our pension funds and union investment funds can be better geared to increase fixed investment in the economy.

So, what is to be done? It is evident that the coincidence of unfavourable global conditions, the limitations of the 1994 Consensus and the growing recognition that we are stuck in a high inequality-low growth trap implies that we urgently construct a new consensus to transform the economy towards more equal and higher growth.

In confronting these challenges, we need to consider a New Economic Consensus derived from three national obsessions:

- A national obsession with inclusive growth, based on fostering new logistics and technological capabilities that will grow employment, incomes and exports;

- Constructing a state that is stronger, more capable, less corrupt, more people-centred and more developmental; and

- Improving the quality of public education and training, to achieve the first two.

A critical mass in society – emanating from within the state; the higher education sector; the business sector, established and new; and labour and civil society, including the media – must be mobilised to support a number of policy choices that can rapidly transition the economy out of its low-growth and high-inequality trajectory.

These three national obsessions, cascaded down to local level and built on dialogue and strategic trade-offs, should form the basis of a new consensus for inclusive growth.

At the heart of these obsessions is an understanding that the current conjuncture is not about a choice between either transformation or growth. Broad-based black economic empowerment and land reform, for example, cannot simply be about ownership transfer, but must grow productive capacity, including investment, output, jobs and exports.

Growth without transformation will exacerbate inequality, leading to increasing social tensions and providing fertile ground for the rise of populism. Transformation without growth will be accompanied by disinvestment, rising unemployment, less wealth and fewer assets to redistribute.

And decreased state revenue will lead to a reduction in fiscal redistribution – for example, of social welfare.

Simply put, without growth, transformation will make us poorer; without transformation, growth will exacerbate inequality, which will make the growth itself unsustainable.

Such a consensus will not be easy to broker, given the vested interest in the current status quo.

Visionary leadership capable of mobilising support across interests and sectors, and of managing spoilers, is required.

We have no choice.

Jonas is deputy finance minister. For an extensive version of Jonas’ article, visit


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