Economic Transformation – The Wasted Years!

2017-04-25 12:08

There’s little doubt that the call for “RADICAL economic transformation” is gaining increasing momentum – it’s fast becoming the clarion call of the masses and therefore also for any political party that’s looking to do well in the 2019 general election.

Of course, what’s so sad about it all, is that transformation wouldn’t now need to be done RADICALLY if government had concentrated on broad economic transformation and less on enriching the relatively few – an observation that has now become widely accepted!

However, what should be concerning to all of us in SA, is how “radical” economic transformation can be achieved, given that an acceptable level of economic transformation hasn’t been achieved in the 23 years of our constitutional democracy!

Broadly speaking, one can transform the economy in two ways:

- By economic growth – which is sustainable; and

- By wealth redistribution – which is unsustainable.

Of course, these aren’t mutually exclusive eg one has wealth distribution, through the tax system, in high-growth economies.

Unfortunately, economic growth (the preferred option of the two) takes time and it essentially requires

- the upskilling of the nation’s workforce - done through improved basic education and with investment in quality tertiary education/vocational training; and

- the investment of capital in infrastructure, factories, offices, creation of new businesses etc.

A nation of well-educated people is useless without capital, and a lot of capital without an educated/skilled workforce is equally useless – the two must go hand-in-hand!

So, how’ve we done as far as economic growth is concerned?

I believe that it’s widely accepted that our basic education system hasn’t performed well at all – as evidenced by its many failures eg the frequent non-delivery of school textbooks, extremely poor school facilities, problems of morale and poor discipline amongst the ranks of teachers etc.

The universities have also had to deal with enormous challenges – a significant increase in the number of students without a commensurate increase in the number of academic staff; reduced state grants/subsidies; disruptions/violence on campuses etc.

And, how’ve we done in encouraging capital investment in our economy?

Generally speaking, capital inflows into the SA economy have been good over the past 23 years, although it started declining in 2016 and will decline a lot further now, given the country’s recent sovereign ratings downgrade to "junk" status.

One can only wonder how much more capital would have been invested in the SA economy had we not had:

- investor-unfriendly labour legislation;

- B-BBEE (which foreign investors have difficulty in relating to);

- uncertainty re the nationalisation policy of Government;

- threatened expropriation of land etc

I believe that one can therefore classify the post-1994 period as our “wasted years” when it comes to achieving meaningful economic transformation.

Reverting then to the "million dollar" question: “How does one achieve “RADICAL economic transformation, given that we’ve achieved very little economic transformation in the past 23 years?”

I’m afraid, I really don’t know!!

The (flawed) temptation must clearly be to abandon achieving sustainable economic growth (because it takes too many years to achieve) and opt for the “quick-fix” of the unsustainable policy of redistributing wealth. Unfortunately, this (the redistribution of wealth) would herald the end of the SA economy and our consignment to the rubbish bin of failed states!!

It’s important for our political leaders to realise that the redistribution of wealth doesn’t offer anything of significance to the masses.

Without complicating the matter, the sums just don’t work! SARS has estimated that, in respect of the 2016/17 tax year, some 231 000 taxpayers will earn taxable incomes in excess of R1 million – that’s only 0,4% of SA’s total population!! Put another way, it’s only 4 out 1 000 South Africans who will be earning more than R1 million per annum – can 4 people economically uplift 996 people and pull them out of poverty? Clearly not!

One needs vast amounts of cash in order to redistribute wealth and it therefore becomes very tempting for a government to tax this small group of taxpayers more and more.

Of course, that would be extremely short-sighted as it would result in many from this group emigrating to other countries, cheating on their taxes, or having little or no incentive to make profits. This would result in the pool of high-income earners/taxpayers dwindling to almost nothing … and then where would Government gets its funds to redistribute?

I’m afraid that I’ve painted a rather depressing picture as to the extent that “radical economic transformation”, of the sustainable variety, can be achieved.

Clearly, economic growth, as the sustainable option, needs to be followed, but have we got the luxury of time to do so?

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