Can a unity government fix the economy? – Global Bar Magazine

The global rethinking of economic policy recognizes that to generate inclusive growth, markets must be carefully regulated. The goal is to ensure that economic power is not concentrated and that outcomes work well even for those who lack power in market relationships.

But policies to achieve these goals cannot be designed where there is a monopoly of political power. This leads to a monopoly on economic policy formulation, poor policy interrogation, declarations of evidence-based policy ideas and, consequently, poor performance.

This was certainly the case in South Africa. However, there may be room for optimism after the African National Congress lost its majority in the last election. This was followed by efforts to form a unity government – essentially an alliance between the African National Congress, which has dominated South Africa at the national level since 1994, and its historic opposition, the Democratic Alliance.

My optimism comes from a sense that a more pluralistic political space can bring new voices that can generate better economic policies to address South Africa’s key challenges of economic concentration, unemployment and inequality.

Economic growth that fights poverty and inequality

Over the last 30 years, South Africa has entered into a pattern of high inequality, excessive corporate power and the concentration of wealth in the hands of a small elite.

Measures to reduce this high level of inequality through social transfers have proven effective. However, they have had limited impact on overall levels of inequality.

The problem with this pattern of inequality is that it reduces the level of economic growth because too few people are integrated into the economy. Conversely, when the economy grows, the benefits of growth go mainly to the upper and wealthier classes. It’s a vicious cycle.

Anyone informed about the economic challenges in South Africa will agree that the economy must grow. However, to address the country’s high levels of unemployment, poverty and extreme inequality, the benefits of growth will need to be transferred to lower-income groups and marginalized communities.

The Government of National Unity may be a chance to achieve this.

On the face of it, a unity government is unlikely to agree to and implement policies that will generate growth that disproportionately benefits low-income groups and marginalized communities. This is because the Democratic Alliance has a long history of opposing policies such as the minimum wage.

But the country could be moving toward the same goal for a different reason – because a space has opened up for challenging ideas.

Political scientist Adam Habib notes that uncertainty and contestation are necessary in South African politics to ensure that economic growth is not skewed in a way that benefits the political and economic elite.

Faced with greater uncertainty and controversy, political elites are more likely to respond to citizens’ concerns.

When governments respond to the needs of their citizens, the likelihood of success increases. That’s one of the conclusions of economist Daron Acemoglu and political scientist James Robinson in their study of why some nations succeed and others fail.

Why the new policy may be good for economic policy

It is worth paying attention to two extremely costly mistakes made in politics. On December 16, 2017, then-President Jacob Zuma announced free higher education in South Africa. This decision was contrary to the recommendation of the commission of inquiry that he himself appointed. This was a costly mistake and now cannot be undone.

Another example comes from the late 1990s and early 2000s, when President Thabo Mbeki, in defiance of all scientific advice, adopted bizarre views on HIV-AIDS. This was a policy mistake that had enormous social costs. It delayed the introduction of life-saving antiretroviral drugs, a decision that was reversed only by courageous civil society action.

These two examples illustrate the dangers that can occur when leaders are allowed to take unilateral policy action. A more pluralistic political space will put much greater pressure on political actors to base their decisions on evidence.

Globally, societies face complex challenges: climate change, migration, the development of artificial intelligence and inequality, among others.

In the coming years, the South African government will have to make important policy choices in a complex international political space. It will have to create policies that carefully evaluate choices, based on good research and evidence.

This approach to policymaking can rely on strong domestic institutions beyond the state. These include excellent universities, a strong and capable civil society, highly competent legal institutions, trade unions with good political capacity, and an experienced business community.

Cautious optimism

Nothing is certain. But there are good reasons to feel a little more optimistic, because of the new pluralism, about the possibilities of meeting current challenges and those that will arise.

Whether this happens will depend on how the government behaves, as well as on how non-state institutions use the open political space.

And as the complexity of economic challenges interacts with political turbulence, it is worth heeding the words of renowned economist John Maynard Keynes:

Practical men who consider themselves entirely free from any intellectual influence are usually the slaves of some non-existent economist. The madmen in power who hear voices in the air distill their madness from some academic scribble of a few years ago.

Imraan Valodia
Vice-Chancellor: Climate, Sustainability and Inequality and Director: Southern Centre for Inequality Studies, University of the Witwatersrand

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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