STUART THEOBALD: It will be a new era if Ramaphosa can weld together his micro and macro policies

Posted in: i-Blog, Politics, South Africa on June 25, 2019

His master plans retain the developmental state approach, but he needs to get local government to foster the environment for a much bigger small business sector

This column was first published in Business Day

It is only in looking back that we can see the essence of an era. We can recognise and categorise the music of the eighties, nineties and even noughties, but it is hard to know the essential sounds of our current era, or even what it will be called (“teenies”, perhaps?). That’s because the zeitgeist of an era is not set by one person alone, but rather from the complex interaction of many actors and it is only when we have gained some distance and perspective that we can recognise it.

The same is true of economic policy. We know the essence of the Thabo Mbeki era: let the private sector grow the economy while using market-based incentives to drive transformation. The Jacob Zuma era has a policy flavour too, even though the reality was large-scale corruption and institutional destruction. Policy swung decidedly more state-centric, with the “developmental state” notion at the heart of an effort to direct the economy from the political centre.

So what will be the essence of economic policy under Cyril Ramaphosa?

Ramaphosa has, so far, been consistent in driving a recovery of the institutions of the criminal justice system.

The entrails of the Zuma era are still there. State-centric growth plans remain at the heart of government, despite the greatest failure of the period being the financial destruction of state-owned enterprises. It is a matter of some debate how much the developmental state policy enabled that.

As has been wisely pointed out by others, as soon as state-owned enterprises (SOEs) are given a mandate beyond efficient management according to business principles, the path is opened to justify bad decisions. So the plundering of Eskom was cloaked in terms of developmental objectives, the latter being much harder to measure and therefore harder to hold people to account. The developmental state may be solid policy under clean leadership, but it very easily provides a fig leaf for corruption under anything different.

Ramaphosa has, so far, been consistent in driving a recovery of the institutions of the criminal justice system. And in that arena at least, the talk has been followed up with some action, with the appointment of strong individuals. It will, at some point, translate into actual arrests.

It is tempting to think, then, that Ramaphosa is gearing up for a corruption-free version of the developmental state. Rhetoric from the ANC’s policy benches focuses on the state as a central driver of the economy. The private sector continues to be treated with suspicion, even while exhorting it to invest more in the economy.

Ramaphosa has so far not taken a clear line on just what the state should do. His state of the nation speech last week was a classic example. Some of it sounded decidedly pro-market, wanting “the state to effectively play its role as an enabler that provides basic services and critical infrastructure, a regulator that sets rules that create equitable opportunities for all players, and a redistributor that ensures that the most vulnerable in society are protected and given a chance to live up to their full potential.”

But then it went on to list several micro-level interventions in which the state would continue to be the lead actor through “master plans” in several economic sectors developed “with business and labour”. This sounds far more consistent with the developmental state approach, reminiscent of South Korea’s focus on creating industrial champions.

These are perhaps not mutually exclusive. It may be feasible to create a broad enabling environment in which companies are free to maximise profit by innovating and boosting competitiveness. Simultaneously, the government could lead several “master plans” to drive development in specific sectors using economic zones, digital hubs and the like.

The trouble is that it is the environment that has the biggest effect on small business, with its potential to become a major employer. Ramaphosa gave a nod to the importance of small business by promising incubation centres to support youth-driven start-ups, but master plans are much more about industrialisation and the formal sector. Incubators may help at the margin, but wider opportunity for small business would need a stable policy environment and slashing red tape (which Ramaphosa has also promised by improving SA’s performance in the World Bank’s Doing Business ranking).

The SA economy is structurally dominated by large companies and the formal sector. Mbeki’s policy direction focused largely on the formal sector, with BEE designed to transform it. As the historian Patrick Manning has noted, BEE drove black talent into institutions in search of rents rather than into entrepreneurship.

It is now clear that we need a far bigger small business sector, much of which might be informal. And that requires a pro-business policy unlike anything we saw under Mbeki or Zuma. Small business tends to be local, so it is the environments created by local government in towns and cities that can make the difference. A development strategy has to be integrated across all three levels of government.

Perhaps the essence of Ramaphosa’s  economic policy will be a dual line: master plans for driving industrialisation, while simultaneously driving an enabling environment for entrepreneurs. The latter, though, will require state leadership secure enough to put the government in the background. In this, Ramaphosa may struggle to overcome the insecurities of the rest of the governing party.

• Theobald is chairman of Intellidex.

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