A round-up of posts

Dear readers who stumble across this blog, apologies that April has flown by and I have hardly made any posts. But here is a quick round-up of posts that I made on the School blog:

• South Africa's economic growth prospects (things are not looking good).
• Different perspectives on the challenges we face (real and significant progress has been made since 1994).
• The delivery deficit at local level (there is one).

I am also still playing around with podcasts and have this one on the BRICS summit (in Afrikaans):

Opinion posts about the year ahead

This time of year there are many posts out there with views on the shape of the economy, what to expect in 2013, trends for 2013, ect. They are all fine, but I have been getting worked up about how they are often set against the background of the challenges that the SA economy faces: a low economic growth rate, high unemployment rate, poverty and inequality. But then the discussion that follows is mostly about short-term concerns over interest rates and exchange rates that can play only a small role in addressing those challenges.

So I wrote a whole post about it on the School's blog: The SA economy in 2013.

And by the way, if you are interested in the things that need to get done for the long-term, have a look at Johan Fourie's post: Five wishes for the new year. It's good stuff.

More on the beloved country

Yesterday I weighed in on The Economist's "Cry, the Beloved country" article on the School blog: What if leadership matters?  The point that I try to make is that that there are many different ways of reading “the evidence”. There are indicators of progress and signs of decline. The challenge is to look for clues to the long-run path of growth and development. These clues, I argue, lie in the way that we try to implement our plans, i.e. market-lead vs developmental state. I favour the pragmatic market-lead mixed-economy approach and the post goes on to explain that it requires a working relationship between government, business, labour and civil society. This, in turn, requires some leadership. Not the speechifying, big-man type of leadership. Rather, the inclusive type that can outline a vision, build trust and get disparate groups to work together. 

If we can find evidence of this, South Africa will be fine and The Economist would be wrong. At the moment though, it seems that our political institutions are extractive and the economic institutions look set to remain so as well.

Since writing the post I have stumbled across a few interesting links:

• Marginal Revolution University's latest lecture is on the importance of trust for economic growth.
• National Planning Minister Manual said on Friday: The ANC’s policy-making process under which branches are called upon to make decisions on the nitty-gritty of complex issues "doesn’t work" and is damaging both the party and the country.

Another example was discussions on nationalisation. At the ANC’s policy conference in June, delegates queued up to voice their support for nationalisation, not wanting to be seen to speak out against the idea. "That is policy-making by vuvuzela," Mr Manuel said.
"Sloganeering around policy" was not in the interests of either the living standards of working people or industry, which would see underinvestment or excessive profit-taking by owners if they feared that nationalisation was a real possibility.

Too true. Another example to the above is President's Zuma's new 5-step land reform plan. Analysts are calling for more detail, but they forget that he is not really speaking to the farming community - the proposals are bait for those that will end up supporting him in Mangaung. What really happens with land reform we'll only learn later. Inclusive, or extractive?

More on growth from ECON621

A post on growth slowdowns and growth plans

I wrote this post for the School's blog but also want to post it here:

With economic growth slowing down, economists everywhere are offering advice on what can and should be done. There is advice on how the ECB can stave off crisis and restore confidence, blogs argue that the Fed should be doing more and there are views on how China should respond to a global slowdown.

In South Africa we are never short of plans and strategies and recent the Democratic Alliance added their Plan for Growth and Jobs to the proposals of government’s New Growth Path and National Development Plan.

And in the academic background the Institutions versus Geography debate rages.

To provide another perspective on this story it may be useful to distinguish between the drivers of growth over the next 6 to 12 months and those of catch-up growth and deep development.

To my mind, there is little sense in talking about drivers of growth over the next few years. RMB economist Ettienne le Roux shows that the real growth rates expected in the EU are -0.5% in 2013, 1% growth in 2014 and 1.5% in 2015. The private sector, governments and banks need to deleverage. The slowdown in Europe will have an important contagion effect through channels like trade, investment and labour mobility. Developed economies look set to “muddle through”.

The prospects for the other 50% of the world are better. They are under-leveraged, have smaller deficits to GDP and more open credit channels, which provides for policy flexibility. Average growth rates of 5-6% per annum are forecast.

The South African economy grew by only 5.8% in total from the third quarter of 2008 up to the first quarter of 2012. The drivers of growth have been households, government consumption spending and investment by State-owned Enterprises. Exports, private fixed investment and government fixed investment have been slow to catch up or contribute to growth. Most of the work created since 2008 has been in the public sector.

Given the global outlook and the limited fiscal and monetary policy room available, one can hardly expect South African policymakers to drive growth over the next few years.

It is when one considers the drivers of catch-up growth and deep development that the story becomes interesting. There are probably as many views on what matters for growth as there are economists. “Everyone knows” that human capital, innovation and infrastructure are important. Some say these drivers are fostered by openness, agglomeration or a developmental state.

Years ago Rudolf Gouws presented two summary slides at a BER policy conference and today we can still plot most of our plans and strategies against these drivers of growth. The DA’s plan, for example, emphasises, education and training, a Youth Wage Subsidy, Job Zones, reducing the cost of doing business and encouraging entrepreneurs, and building infrastructure that crowds-in investment.

These are all sensible ideas, but unlikely to deliver a knock-out blow to a growth ceiling or to structural unemployment – least so in the next electoral cycle. One private sector economist opined: "Eight per cent is achievable, but not with this plan. They are making the right noises and politicking very well, but it’s not offering anything inherently different…”

Which brings me to the point of this post: there is nothing else. No single plan or idea will be able to deliver catch-up growth of 6% or 8% per annum. Growth is a many splendored thing. We have to get education, infrastructure and innovation right. We need institutions that nurture investment and protect the vulnerable. Most importantly, we need to get away from the idea that if we were to do only that one thing: weaken the rand, support SMMEs, invest in railways, improve competition develop tourism, curb corruption, or whatever, then we would be on our way. In fact, we need to do all that and more.

And that makes it so difficult. Politicians, bureaucrats, the public, all love a big shiny project that will change everything. Whereas we need to do many different things right and we need to start now.