[DEBATE] : 'Bold and dispassionate platform'

[Russell]

'Bold and dispassionate platform'


Ferial Hafajee | Johannesburg, South Africa




19 May 2008 11:59



Ferial Haffajee quizzed the Director General of the treasury, Lesetja
Kganyago, on the International Panel on Growth's policy ideas .

How would you characterise the set of recommendations from the Harvard
Group? Doable? Contentious? Likely? Highly unlikely?

None of the above. They are bold and dispassionate. They are supported by
rigorous research and a comparison of South Africa with other developing
countries. 

They asked basic questions and over a two-year period also asked more
pointed and often difficult ones. Questions we refuse to ask ourselves
because we want to be too nice to each other. 

The team challenges a number of shibboleths by recommending major changes to
black empowerment; suggesting a wage subsidy and the relaxation of labour
laws for first-time employees; declaring that trade policy is not robust
enough; that we should be brave and dump exchange controls, that we phase
out expensive tariffs . Are we ready to jump these hurdles? 

In economics, you can't be evangelical. Proposals must be evidence-based.
You can't formulate policy from the rooftops. South Africans may find it
difficult [to hear what the International Growth Panel is saying] but
counter-arguments must be based on a similar analysis with the hallmarks of
evidence and rigour. 

You will not see the policies being acted on over the next few months
because we want a debate on this issue and have put the recommendations on
the table. It will be an intensive process. 

But will it be an inclusive process? 

Like all good bureaucrats we could have put in place a Cabinet memo and
implemented it once approved. But we want to build national discourse about
these things. 

There isn't an agreed position even within government, so a rigorous debate
is essential. 

The economists say we should be running a bigger surplus. As you know [from
when Minister Trevor Manuel tabled a budget for a small surplus in February]
this is highly politically contentious in a poor country where deep need
stares us in the face? Is it a palatable or sensible proposal?

We can also say it's harder to run an economy at such high interest rates.
Policy is about trade-offs. What the recommendations say, in a nutshell, is
that if you don't like high interest rates, take pressure off monetary
policy. 

The recommendations suggest a real surplus to shore up funding plans .

Beautiful economic ideas can die at the altar of politics. You can undermine
plans by failing to protect the poor and the vulnerable. Well-considered
economic reform programmes end up faltering because you fail to take
cogniscence of the vulnerable and of the need to protect them in the
transitory phase. 

Is this what happened during the Gear years (the controversial previous
economic policy called the Growth Employment and Redistribution Strategy)?

South Africa has run a tight fiscal ship without having to compromise on
social programmes. 

The central thesis of the economic minds assembled is that we need to get
more people working, urgently. This finally recognises the link between
unemployment and growth whereas the treasury's view has been entirely more
sanguine on employment, which is that it's getting better and isn't quite so
bad. 

The treasury has not been sanguine about unemployment. [We have always said]
the only way to deal with poverty is to create jobs. 

The economy has come to the point where it is facing skills needs that won't
sustain growth in the long run. 

Laced through the recommendations are critiques of policy gaps and gaffes
that have hurt our exporting potential. 

The nice thing about being a bureaucrat is you get to put ideas on the cards
of politicians. We have grown on the demand-side of the economy, which
should have told us we would run into constraints. 

For a small developing country you don't grow and grow sustainably by
producing goods only you consume; you produce goods that rest of world can
consume. Our export performance has been pedestrian compared with other
emerging markets. 

The fact is that jobs in export markets absorb low-skilled workers. Ask
China. 

How do we make ourselves a trading nation?

Through trade and industrial policies. Those fall within the competence of
the department of trade and industry. If you read the recommendations they
say that industrial incentives must be used for self-discovery, for new
firms to be created in the tradable sector. 

They do not say we should not have incentives, but when we create these, the
important thing is to evaluate, evaluate, evaluate. You've got to constantly
ask yourself if they are yielding [the required] outcomes and if they are
failing, we should can them. 

I can smell trouble with the recommendations on BEE. The recommendations
suggest that ownership, as a criterion, is downgraded to be of the same
value as procurement, enterprise creation, training and employment. This, of
course, will not sit easily with the mandarins for whom the BEE all is
ownership and equity. The symbolic purpose of BEE is to create more and more
Patrice Motsepes, who make it to the cover of Fortune magazine -- real-life
symbols of the coming of black power to more than just the political levers
of the country? 

Should we be giving more [BEE] marks for being export-oriented? For creating
jobs. The recommendations talk of a balanced scorecard and say that, in
practice, it's not balanced enough. I don't think it would have been
possible for a South African to raise these issues [about BEE] or for a BEE
businessperson or a white businessperson to raise. That's the benefit of
having outsiders giving us a dispassionate appraisal.

The economists say that immigration policy needs to be radically liberalised
to bring in skilled workers who will create jobs. It's been the same story
for 10 years. Are you hopeful that we will ever becoming a skills importing
nation leveraging off sunshine and lifestyle to attract people here?

I'm not Mr Msimang [Mavuso Msimang, the Director General of home affairs].
The clarion call in South Africa is that we should train our own, and that's
correct. But do you wait until you've trained your people or bring in
people? Every skilled job that is filled carries or fulfils another two
jobs. The whole world feels they can recruit our own [people] but we feel we
can restrain our own and constrain ourselves from recruiting. It's not
logical. Beautiful ideas die at the altar of politics.

Have you learned lessons from the Gear experience so that economic policy is
not merely implemented but negotiated?

[Laughs] Gear was formulated in the middle of a crisis. We have breathing
space but it does not mean it must be a Codesa-style negotiation. [A
reference to the years long negotiation of the transfer of power.] In June
we will hold a conference of South Africans from all walks of life; we will
engage the unions and the broader elements of civil society.