Status quo vs. pragmatic development model
Policy makers and business leaders have been slow to appreciate that this has become all too obvious to credit agencies and young career seekers. SA's already inadequate opportunities are being stifled as economic stagnation becomes even stronger than the country's political paralysis.
Elections, protests, or perhaps compromise will finally resolve the country's political impasse. A strong growth model is far more elusive.
SA's governing and business leaders have never cracked the code to creating workable development and transformation models. Political and economic dialogue in the country remains weak while challenges are increasing.
It was established years ago, although never acknowledged, that GDP is an invalid gauge of SA's economic vibrancy. From 2002 to 2007, GDP growth was approximately 5% per year. Yet those were the years when the foundations for SA's current economic stability were laid, consider: Eskom's investment was low; Consumers are becoming increasingly indebted; declining industrialization; insufficient competitiveness; and excessive dependence on commodity exports.
Political dialogue has also become no less distorted. It is only in recent months that the term “patronage” has replaced “corruption” as a political term of condemnation. two magazines. Only now have commentators and the public begun to adequately appreciate how nepotism has created a potentially impenetrable protection net that serves narrow interests while blocking broader economic progress.
SA's leading policy makers gambled that China could consistently grow two or three times faster than the rest of the world and drag SA with it. That China's successes arose from economic policies contrary to SA should have created a sense of foreboding.
Economic growth cannot be achieved through policies that encourage debt-driven consumption and simultaneously discourage investment, especially investment in people.
Bureaucratic change structures displaced commercial logic, while the underlying assumption was that demand for the commodity would continue to grow. Recent developments indicate that commodities are becoming less important to global economic growth.
Almost all of the economic prosperity of the world today stems from industrialization and globalization. Industrial production has been doubling every generation for about ten generations.
This trend has to be stopped. Change is now gathering pace as some of SA's workforce prepares to compete in the information age. The DNA of many SA businesses reflects the stress of geographical location and isolation associated with the sanctions era.
The solution needed to address highly indebted consumers with excessive dependence on commodity extraction is to integrate into the global economy through the export of value-added products and services. This requires focus on competitiveness.
However, key factions of the ANC are opposed to sufficiently market-friendly policies to encourage the investment needed to achieve global competitiveness in many areas. His economic policy focuses strongly on progress through redistribution. This makes sense politically but it has become counterproductive to the interests of all South Africans.
By definition, an effective development and transformation strategy must expand and expand prosperity. This can only happen by creating a good political-economic feedback loop. The extent to which this is not happening in SA is worth considering.
The West got the big advantage of being first in industrialization. Young workers came from the fields to the factories. They produced tractors which allowed the production of both food and machines to steadily increase. Such virtuous economic cycles promote increased productivity in a diverse labor force.
China has caught up with this growth model and now they too should abandon it and focus more on services and domestic consumption. Importantly, China and its neighbors could never have sustained high growth rates for decades without exporting to wealthy Western consumers. China's ability to leverage extractive economies was always a convenient bluff.
Asia's rapid growth is perhaps the most surprising thing that has ever happened. However one hard consequence is that countries, companies and workers must now focus on achieving higher competitiveness through specialisation. Such thinking has not flourished in South Africa.
However, progress is being made in improving the environment for such a large change. There is a growing awareness of the need for business and government leaders to collaborate more effectively and for both groups to engage more with small businesses.
To achieve a healthy economic growth cycle, the government must reconsider a broad list of policy conditions. This will be politically challenging at the best of times. The changes required in SA politics will not easily coincide with a reimagining of the global economy.
Teaching youth to code seems progressive. Undoubtedly, those who prove to be poor at coding will be unemployed. It is so difficult to be accepted politically by the policy makers of major Western countries and especially SA despite the coding being quite 21scheduled tribecentury, career prospects for “average coders” are notably lower.
It's unpleasant to be average in a highly specialized, hyper-competitive, integrated global economy. On average, most people are average. But it's hard to be universally average.
Almost everyone has innate talent. Many companies and workers have figured this out. However, finding, aligning and developing such talents requires a highly flexible set of labor rules. SA's path to competing globally will place greater reliance on creativity and specialization, making flexible labor rules even more important.
This is extremely problematic given the political dynamics of SA. While older workers often prefer political solutions rather than learning new skills, in a somewhat similar manner, fragmented factions of the ANC collectively support economic alternatives, such as industrial renaissance, that no longer exist.
ANC leaders show modest openness to change, while neither they nor their big business counterparts acknowledge the extent to which the status quo must be rejected. Similarly, designing a development model for SA needs to estimate what can realistically be implemented versus what is the minimum degree of change required.
Given SA's many divisions, the way forward will not come from committees seeking to alter the status quo. A comprehensive analysis will need to generate a powerful, highly disruptive, vision and sell that vision to various factions as the only alternative to bleeding hope.
Given SA's circumstances, an effective development model will, unfortunately, incur political pain while gains on the ground will be slow to materialize. However, among the immediate payments will be reactions from credit agencies, young South Africans and foreign direct investors. At the grassroots level, determination will overcome despair.
To appreciate that SA's policies are backward and inward-looking, SA's senior government and business leaders must look at today's rapidly changing world through the eyes of those who are able to adapt. They should take with them a diverse group of young South African entrepreneurs and meet people from a mix of different countries.
They should also recruit guides versed in the history of economic development and then fly north overnight. Guides will explain that although “rising Africa” is an essential priority, perceptions of progress are greatly manipulated by fake statistics. While passing over the houses of crores of people, there will be darkness on the ground below them for the first few hours.
Ireland would be a good first stop as it is one of many countries whose history of oppression and economic ups and downs is extreme, even by SA standards. Irish hospitality and creativity extend from songs and poetry to writing code and accommodating research facilities for top global companies. The important thing is that their youth have moved beyond struggle and become aspirational.
BRICS entrepreneurs live in different worlds. Three resource-intensive economies, Brazil, Russia and South Africa, are stuck in a conservation quagmire. The bright future of India and China reflects investment in people.
On the way home, the delegation should visit resource-rich countries that are successfully transitioning to diverse, information age economies. There are very few options to choose from because the political and economic challenges are so severe.
Topping the list will be the United Arab Emirates. That many South Africans choose to tolerate Dubai's extreme temperatures compared to their temperate homeland is one of many indicators that this monarchical government is successfully integrating into the global economy through selective competition. Africa's more competitive economies, such as sparsely populated Mauritius and Botswana, have also stood out.
SA is unique in that it has a large population, a highly diverse, sophisticated, mixed economy, tremendous resource wealth and is highly isolated from major economies and trade routes. Where SA shares a great similarity with all countries, especially those dependent on resource extraction, is the need to fundamentally reinvent its economy.
As resources and SA's consumers can no longer fuel growth, for the first time the country has no choice but to integrate into the global economy through competition by adding value in various specialized sectors. This greatly increases the importance of innovative disruptive entrepreneurs.
SA's young minds are creative in abundance. The blockages show that the elite prefer the status quo and have little to offer the next generation. It's time to understand how good economic growth cycles work.
Shawn Hagedorn is an independent strategy consultant
@shawnhagedorn
Abridged version of this article appeared for the first time On Biznews.