STUART THEOBALD: Bootleggers and Baptists are holding up SA’s economic recovery

Posted in: Economics, i-Blog, Politics, South Africa on September 3, 2019

This column was first published in Business Day

SA has a “bootleggers and Baptists” problem. The term was coined by American regulatory economist Bruce Yandle. He observed that American evangelical Christians and illegal alcohol sellers often aligned in lobbying to ban alcohol sales on Sundays.

Where they succeeded, the bootleggers got much more profitable Sunday sales and the Baptists got their notion of Sunday rest. But bad public policy results: alcohol consumption could be better reduced through a Sunday surcharge, which could be directed to public benefits rather than bootleggers’ profits.

SA policy debates are riddled with bootleggers and Baptists problems. Vested interests in the spoils of state capture align with ideologues to block change. The state captors fan certain ideological narratives that will prevent the implementation of changes that would lead to longer-term public prosperity (but not other ideological shibboleths that would frustrate state captors).

SA’s bootleggers and Baptists are rallying. Last week’s surprise policy paper from the Treasury is a sensible setting out of the obvious policy moves that would unlock economic growth. But the response of vested interests has been sharp and aggressive.

Countries that make economic breakthroughs do a lot of planning. SA kind of knows this, as we demonstrated in the National Development Plan. But we are unwilling to suffer any discomfort now in the interest of longer-term prosperity.

So, while we all know that the electricity sector has to be reformed for the country to have any hope of long-term economic success, the distress caused to coal miners, coal transporters as well as tens of thousands of unnecessary Eskom employees, stands as a sharp barrier to implementing the plans that would leave us all much better off in the future. The same is true of digital migration — the short-term pain of getting everyone to change the way they receive television signals looms larger than the long-term gains of redeploying the spectrum.

To try to trade off short-term pain against long-term gain, we have developed the concept of “just transition”. In theory, we should be able to overcome short-term resistance by promising to direct the spoils of longer-term prosperity towards those that will suffer now.

So, for example, we can find ways to re-employ coal miners in renewable energy plants, but this is difficult to do when the status quo is unjust. For example, the failure of Eskom’s supply chains has spawned (and partly been driven by) a huge and highly profitable coal-transport industry.

It cannot continue under any scenario for Eskom’s future, but having become a powerful vested interest, it can demand economic rents to drop its resistance to change. Such vested interests are endemic in the post-state capture state and make notions of a just transition difficult. We should be ending such rent seeking, not laundering it into a share of the legitimate fruits of successful economic planning.

China, the world’s outstanding economic planner, arguably rides roughshod over resistance. In its efforts to cut pollution it has shut down swathes of steel plants and coal mines across the country, shedding 1.8-million jobs. While the country has simultaneously built a renewable energy industry employing millions more, the transition of the people from one to the other is not done.

China’s approach is utilitarian, promoting the interests of the greatest number, rather than protecting the interests of single groups who might unjustly suffer. But these are not mutually exclusive. China as well as SA can protect the losers in their development processes.

The Treasury paper says all the right things: improve competitiveness, cut red tape, promote labour-intensive growth, promote small enterprises, improve transport linkages and much else. But vested interests will opportunistically align themselves with those ideologically resistant to the Treasury’s underlying economic orthodoxy.

The paper serves a useful function in forcing to the foreground those opposed to sensible policy. When it comes up for debate in the cabinet meeting on Wednesday, it will be interesting to see who comes out against it. There will be Baptists and bootleggers.

Two things are needed to break through the resistance: leadership and a just transition. A just transition that accommodates legitimate interests who stand to suffer short-term pain, is one way to placate part of the resistance. But it has to be credible and only strong leadership can make it so. Short-term losers have to trust that the long-term benefit will actually materialise before they willingly lay down their defences now.

Strong leadership is essential for another reason: it must resist the bootleggers. Public policy cannot be used as a device for further rent extraction. The public is depending on the cabinet, with the president at the helm, to prioritise its interests over the bootleggers and the Baptists, suppressing the former and accommodating the latter.

Let us see this week if our leadership can deliver it.

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