Introduction
South Africa continues to face deep problems of unemployment, inequality and poverty. The South African government recently released a new economic policy framework, the New Growth Path (NGP). This policy is intended to facilitate ‘a restructuring of the South African economy to improve its performance in terms of labour absorption as well as the composition and rate of growth’ (Economic Development Department 2011, p. 2). This is a huge challenge given the country's extremely high unemployment rate, middling growth record, and the continuing structural economic distortions that have not been fundamentally transformed in the past 17 years of democracy.
In the NGP there is a significant shift from earlier post-apartheid economic policies. The Growth, Employment and Redistribution (GEAR) policy of 1996 can be characterised as broadly neo-liberal, including amongst its key tenets, tight monetary and fiscal policies, elimination of exchange controls, labour market flexibility and privatisation. In 2006 the government launched the Accelerated and Shared Growth Initiative – South Africa (AsgiSA) economic policy. This had as its pillars the expansion of public infrastructure investment, sectoral development strategies to promote private investment, improving education and skills, integrating marginalised parts of the population into the mainstream economy, improving macroeconomic management and enhancing public administration.
The political background to the NGP is somewhat different to these earlier policies of the African National Congress (ANC) government. The current Jacob Zuma-led administration came into office in 2009 with backing from the ANC's trade union and Communist Party allies and with expectations of some sort of leftwards shift in economic policy. A new Economic Development Department was created, headed by Ebrahim Patel, who until then was the General Secretary of the South African Clothing and Textile Workers Union. It was under this minister that the NGP was developed and championed, although it was formally launched by the cluster of economic ministries.
The NGP has received mixed reactions. The main trade union federation, the Congress of South African Trade Unions (COSATU), which is in an alliance with the ANC, released a thorough critique of the NGP subtitled ‘One step forward, two steps backward’ (COSATU 2011) while in another statement welcoming it as ‘a giant step forward’. While recognising the NGP as a progressive shift, COSATU views the NGP as not going far enough, and is particularly concerned about the macroeconomic policies in the NGP as well as the proposed wage capping. Organised business, while welcoming certain elements, has been critical in particular of the increased state intervention envisaged and of the proposed capping of higher salaries. Meanwhile, Joseph Stiglitz (2011) has characterised the policies of the NGP as ‘[having] the most promise of leading the country on the path of sustainable, equitable, and democratic development’, in particular praising the NGP inter alia for putting employment (specifically decent work) at its centre, for building a long-term foundation for a vibrant society in contrast to the short-termism of unregulated markets, for the focus on building capabilities, and for appropriate macroeconomic policies. Overall, however, reactions to the NGP from social forces and commentators have been largely negative.
This article discusses the policy changes in the NGP, and evaluates the extent to which the NGP represents a leftwards shift in economic policy. A polemical discussion of what constitutes ‘left’ is avoided. In broad terms, this is interpreted as economic policy expected to benefit the working class in particular (in terms of the level and quality of employment, improved livelihoods, lower inequality, and so forth) as well as opening the space for more radical pro-working-class shifts in future.
Summary of the New Growth Path
The NGP sets an ambitious target of five million new jobs by 2020.1 These jobs are explicitly conceptualised as arising from increases in both the rate and the employment intensity of growth. Five key ‘job drivers’ are set out in the NGP: substantial public investment in infrastructure; more labour-absorbing activities in the main economic sectors; the green economy and knowledge-intensive activities; social capital and public services; and spatial development (referring both to rural development and to the development of the southern African region). As well as prioritising employment creation, the NGP consistently emphasises the need for ‘decent work’, citing the International Labour Organisation (ILO) definition of this.
The macroeconomic policies presented in the NGP are mixed. The monetary policy on the one hand commits to lower real interest rates and continued targeting of low and stable inflation. On the other hand, there is to be support for a more competitive exchange rate, primarily through more sterilisation of foreign currency inflows, with further measures to be explored (including measures to address the negative effects of short-term capital inflows). Fiscal policy is probably the most conservative aspect of macroeconomic policy in the NGP: despite a counter-cyclical fiscal stance, real growth in expenditure is to be limited to just over 2% per annum for the next few years.
What the NGP terms the ‘microeconomic package’ contains 10 programmes intended to control inflationary pressures and inefficiencies, as well as promote a more inclusive economy with social equity and regional development. These programmes are: active industrial policy; rural development; more interventionist competition policy; improved education and skills development; promotion of small enterprises; broad-based black economic empowerment; labour market policies focused on improved productivity; promotion of technological advancement; developmental trade policies; and policies to support development in the rest of Africa. Insofar as there is a change in emphasis from previous policies, this could be characterised as more active state intervention and greater focus on employment than was previously the case.
Although the NGP did not emerge through a meaningful process of consultation outside government prior to being announced, the policy itself recognises that ‘no technocratic solution … [can] be imposed from above’ (Economic Development Department 2011, p. 44) and heavily emphasises social dialogue. The most prominent aspect of this is in the proposal for wage moderation, with stronger moderation at higher salary levels, coupled with moderation in price increases and the intention of ensuring that wage moderation leads to measurable increases in employment.2
There is more in the NGP than can be discussed here, such as proposals on building co-operatives, the green economy, overcoming spatial inequalities, and more integrated industrial development within the southern African region. Having summarised the main elements of the NGP, we proceed with an overall assessment of the policy followed by discussion of some specific policy areas.
Overall characterisation of the New Growth Path
The combination of decent work, growth in employment-creating activities, and social-democratic-style consensual wage restraint in the NGP is an unconventional package. While elements draw on models pursued in other countries, the mix of policies is unusual. There are some similarities between the industrial policies of the NGP and those followed in East Asia. However, the role of the state is not nearly as strong, and the more social democratic elements of the NGP and the emphasis on decent work were not part of the East Asian route. The NGP also has some commonalities with the Scandinavian models, especially that of Finland, but without comprehensive social security and other elements. Of course, both the domestic and international political economies are very different in South Africa in 2011 than was the case in either the East Asian or Scandinavian cases.
The NGP draws on a model of economic policymaking in which key social forces buy into a model which holds some benefits and trade-offs for different classes and which is implemented through agreement. Such a model of economic policy is essentially based on class compromise, where no class is powerful enough to drive through a clear class agenda (but this certainly does not imply that economic policy under such a model is class-neutral). That South Africa is going this route is understandable in the context of the balance of class forces, including the uneven distribution of economic and political power. Whether organised labour and business can actually reach agreement on the key tenets of the policy remains to be seen.
A significant change in the NGP from all earlier economic policy frameworks is the paradigm shift that puts employment creation and specifically decent jobs at the centre of policy. Previous policies have acknowledged the importance of job creation but have been focused primarily on growth rather than employment, despite the crisis of unemployment in South Africa.3 Job creation, especially the creation of decent jobs, is fundamental to the empowerment of the working class, both in terms of livelihoods and more broadly in terms of working-class power. The extent to which the measures put forward in the NGP are likely to successfully create jobs on the mass scale needed are debatable, but the paradigm shift to prioritise job creation is important (and overdue).
The shift in the NGP towards a central focus on job creation is linked with the emphasis on the transformation of the productive base of the economy. The NGP explicitly recognises that growth alone is insufficient for employment creation of the magnitude needed (that is, by simply scaling up the existing productive base), such that transformation of that productive base in required.
A key thrust of the NGP is the deepening of domestic demand, through increasing employment and making income distribution less unequal. This could be important not only as a base for sustainable growth but also in improving the living standards of the working class.
Perhaps the greatest threat to the success of the NGP – and specifically of those aspects which would be most beneficial to the working class – is the dependence on decisions that will be made by the capitalist class. For instance, measures are proposed to promote employment creation, but in the main these ultimately rely on the private sector choosing to hire more people. The NGP does envisage some direct job creation by the state (for example through public works and the public service) and some which would fairly directly leveraged off public spending, such as in infrastructure. Nonetheless, it is explicit in the NGP that the overwhelming majority of jobs would be created in the private sector. This endangers successful job creation as the state can implement policies aimed at stimulating employment creation but capitalists may or may not respond accordingly.
To illustrate this by way of example: the NGP advocates ‘more constructive and collaborative relations between the state and business, where government commits to minimise unnecessary economic costs … and business responds by supporting critical and innovative initiatives for a more inclusive and equitable economy, especially projects that can generate employment on a much larger scale’ (Economic Development Department 2011, p. 43). The state could do its part in ‘[minimising] unnecessary economic costs’ – the NGP mentions in this respect unnecessary regulatory requirements and delays, inadequate infrastructure, and weak education and training – yet capital will decide how to respond to these changes. They could potentially respond by reaping higher profits and paying these out in higher dividends or by expanding production in a capital-intensive way.
To some extent this vulnerability is inherent in a market-based economy in which most employment is private. Even so, there could be greater compulsion on the private sector to employ more people or more direct employment creation by the state. The state might implement all the measures set out in the NGP which are under its direct control, yet the employment outcome could fall far short of the targets set out. This is a particular problem given that employment creation is the centrepiece of the NGP. Nevertheless, the private sector would be expected to at least partially respond to state interventions such as those mentioned by expanding production and raising employment, if policy is not to be dismissed a priori as ineffective.
One of the weak aspects of the NGP is that it is gender blind. Changing the patriarchal structure of an economy requires explicitly analysing the differential effects of policies on women and men and prioritising policies that especially benefit women materially as well as contributing to transforming patriarchal power relationships. For example, the prioritisation of sectors in industrial policy would need to take into account the gendered patterns of employment across sectors.
Macroeconomic policy
Macroeconomic policy is a crucial aspect of any economic policy framework, as it frames the fiscal parameters of what is possible in microeconomic interventions and conditions the overall state of the economy. The macroeconomic section of the NGP is notably short and thin – just one page in a 56-page document. It appears that the macroeconomic framework was crafted as a compromise between different views within government, especially between the Treasury and other economic ministries (as well as within the ANC). The lack of macroeconomic detail may well be based on the difficulty in obtaining agreement on anything more. It effectively implies a bias towards the retention of conservative macroeconomic policies. Even where there is an explicit shift in macroeconomic policies, there is limited detail in terms of how these changes are to be effected.
The NGP combines a looser monetary policy with a more restrictive fiscal policy. Even on the monetary side, the commitment to continued inflation targeting at low rates of inflation is inconsistent with a looser monetary-policy stance and is unlikely to support economic expansion and employment creation.
A positive shift is in the commitment to a more competitive exchange rate and lower interest rates, as these changes are likely to support (re)industrialisation and the expansion of employment. These aspects of looser monetary policy are by no means radical leftist policies, but could simply be regarded as long-overdue, common-sense shifts which have even been publicly called for by sections of South African industrial capital. Nonetheless, these policies represent a significant improvement on previous conservative monetary policy.
The NGP notes that, apart from increased sterilisation of capital inflows, additional tools for making the exchange rate more competitive are being explored. It is disappointing that the NGP does not make a firm commitment to strong capital controls. South Africa has experienced massive capital flight (see Ashman et al 2011) as well as currency volatility and overvaluation arising from portfolio inflows. Particularly at a time when countries such as Brazil have acted decisively to strengthen their capital controls, and even the International Monetary Fund (IMF) has come out in cautious support of capital controls (see International Monetary Fund 2011), the South African government remains unwilling to take a stand on this. Capital controls are important not only for economic stability and growth in the short- to medium-term, but also for opening space for more radical future changes by mitigating the power of capital to influence policy with the explicit or implicit threat of capital flight. The NGP also does not consider measures such as taxes on financial transactions which have been implemented by centrist governments in other countries. The global economic crisis has opened up policy space for more progressive macroeconomic policy and the NGP could have pushed forward much more boldly on this.
Contractionary fiscal policy is one of the most conservative aspects of the NGP. The policy provides for real growth in expenditure of just over 2% a year for the next few years, and since GDP growth will almost certainly exceed 2% a year, this amounts to a reduction in the expenditure–GDP ratio. Even with the intended better use of existing resources, it is doubtful whether the austere fiscal policy of the NGP will enable the success of other components of the NGP. Significant fiscal resources will be needed for the active industrial policy measures, infrastructure rollout, and other interventions set out in the NGP, and the conservative fiscal policy threatens to hamstring or derail these. It will also constrain domestic demand, which the NGP posits as a source of sustainable growth. This highlights the weakness of the NGP as a compromise document. Aspects of the compromise package which have been included to satisfy certain government departments (or the views of certain groups in the ANC) will undermine other aspects of the same policy, thus compromising the policy's overall coherence and feasibility.
Industrial policy
The NGP takes a relatively strong stance on industrial policy, envisaging a central role for the state. Progressive aspects of the industrial policies in the NGP include the active promotion by the state of employment-creating sectors; the promotion of forward-looking activities such as knowledge-intensive sectors and green technologies; stimulation of domestic and regional demand; strengthening of competition policy; support for fabrication; and developmental trade policies. More broadly, the NGP recognises the importance of (re)industrialisation and supports measures to achieve this.
A concern is whether the fiscal conservatism of the NGP will undermine its active industrial policy programme. For the state to play a leading role in industrial policy, on a scale that would allow South Africa to catch up the ground lost when there was no real active industrial policy as well as move forward, will take significant resources. Adequate financing of industrial policy also relates to the prioritisation of sectors for support. Future growth would require South Africa to target sectors in which it is not highly competitive at present but which are likely to grow as a share of global demand and sectors which are technologically advanced. However, such activities are generally not very labour-intensive. The unemployment crisis in South Africa compels the targeting of highly labour-intensive activities, even where these activities do not play a leading role in competitiveness and productivity. These conditions require industrial policy to target and support a much broader range of activities than would otherwise be the case. This in turn entails substantial financing and supportive fiscal policy, and the NGP falls short in this regard.
The financial sector
Proposals on the financial sector in the NGP include: raising the level of private savings; increasing the capacity and impact of the development finance institutions for industrial financing; improving access to micro-finance for small enterprises; retirement fund reforms; disincentivisation of personal debt; incentivisation of corporate savings; mobilising resources from retirement funds; and exploring the possibility of a state-owned bank.
Overall, these proposals focus more on raising funds for the other measures in the NGP than on fundamental transformation of the financial sector. Given that the financial sector is a powerful part of the economy with implications for virtually all economic activities, and given the current highly concentrated and non-developmental character of the South African financial sector, a more comprehensive approach to the transformation of this sector would have been desirable. Even in terms of leveraging funds, the NGP could have gone further with bolder measures such as prescribed asset requirements. As well as mobilising resources, such a policy could weaken the power of financial capital and open space for more radical interventions in future.
The NGP does mention the possibility of establishing a state-owned bank. This is an interesting idea, with the potential of challenging private-sector domination of this important ‘commanding height’ of the economy. The success of such a venture in advancing working-class interests would, of course, be contingent on how it is implemented and what its role would be.
Changing the patterns of distribution
Inequality in South Africa is extremely high, and is strongly racialised. The NGP proposes to bring down inequality primarily through the labour market, in particular through large-scale creation of decent work and also through progressive wage moderation. Creation of employment, especially decent work, and the closing of wage gaps amongst the employed are absolutely central to reducing inequality. Empirical results from Tregenna (2011) suggest that the unemployment rate is a central determinant of inequality in South Africa, which would support the choice in the NGP of addressing inequality primarily through the labour market.
One implication of focusing primarily on changes in the level of employment and in the wage structure to bring down inequality – as opposed to through channels such as direct redistribution of assets – is to raise the stakes on the success of employment creation (as well as the reduction in wage gaps amongst the employed). Should employment creation not materialise on the scale envisaged, this will be a failure not only in its own right but also for the NGP goal of reducing inequality.
A further potential vulnerability of the inequality-reduction measures of the NGP relates to the enforceability of the proposed capping of salary increases at the top. Even if agreement with organised business and labour were to be obtained on these measures, South Africa does not currently have the institutional structure for enforcing this. Individual businesses are unlikely to feel bound by any agreement made by organised business in this respect. In Scandinavian countries that followed corporatist wage-restraint, peak-level organised business had far greater power over individual businesses than is the case in South Africa. There is a danger that the sacrifices that are called for from labour will be enforceable whereas those from capital and high-income earners will not actually be implemented.
The proposed wage moderation starts from a low level of earnings at just R3,000 (about US$430) per month, which would include much of the organised working class. The proposed wage moderation at this level is quite mild – inflation plus modest real increases. Even so, it seems likely that this threshold would be negotiated upwards before any agreement on it would be obtained. The proposed minimum threshold would imply sacrifice from sections of the working class in a context of very high wage gaps and a phenomenon of the working poor; it would also undermine the bargaining power and organisational strength of trade unions.
The NGP does not mention progressive taxation as a way of reducing inequality (and simultaneously mobilising resources for development). Furthermore, income from capital contributes to inequality but it would not be affected by the proposed salary capping and the NGP does not contemplate higher taxation of dividends.
One of the ten pillars of the ‘microeconomic package’ in the NGP is Broad-based Black Economic Empowerment (BBBEE). This takes a progressive position with a critique of the limitations of Black Economic Empowerment (BEE) thus far, notably that the model has focused excessively on the transfer of existing assets to a small number of people and that issues of ownership and the demographic transformation of senior management have been prioritised whereas employment creation has not been incentivised. Instead, the NGP calls for a welcome new emphasis on the more broad-based elements of BEE, with the promotion of employment creation, investment in new productive capacity, skills formation, collective forms of ownership, and so forth.
An interesting issue for consideration is the extent to which this broad approach to BEE suffuses the entire NGP. On the one hand, this approach takes several of the other components of the NGP (skills development, sector strategies to create jobs, etc.) and conceptualises these as part of BEE. On the other hand, it is unclear whether the NGP's BBBEE approach will be sufficiently integrated with the policy's industrial policy thrust, to ensure that manufacturing not only grows but that patterns of ownership and control in manufacturing are also transformed, in the process building black-owned productive enterprises (as opposed to just the transfer of stakes in existing enterprises). This could be covered in the aspect of the BBBEE approach on investment in new productive enterprises by black entrepreneurs, and it remains to be seen how integrated these components of the NGP will be in practice. In the absence of this integration, existing racial and gendered patterns of ownership and control in the manufacturing sector could just be entrenched.
Conclusion
The NGP aims to be a comprehensive and cross-cutting policy package. A shift to a new growth path goes well beyond narrow economic policies only. Changes needed for the success of the NGP would fall under the ambit of a range of government departments and institutions in addition to the core economic departments. A coherent approach and a strong sense of ownership across the state is thus a precondition for the success of the NGP, but this is not clearly evident. In particular, without real commitment to the NGP from National Treasury it is highly unlikely to succeed. Commitment to the NGP would imply inter alia significant changes in spending patterns and changes in macroeconomic policy, including the mandate given to the Reserve Bank.
As well as full commitment to the NGP at the top level of government, its success would also depend on a paradigmatic shift at all levels of the state apparatus. A new central policy focus on employment creation requires a new orientation in which the direct and indirect impact on employment is factored in as a consideration in an entire spectrum of policy choices. In practice, such a mindset shift would need strong political direction as well as capacitating bureaucrats to think and act in a different way from previously.
The NGP is not by any stretch a socialist economic policy, nor does it purport to be one. Some shift to the left from previous economic policies is evident, notably in the central focus on employment creation rather than growth, the emphasis on decent jobs in particular, the intention to transform the productive structure of the economy, some aspects of monetary policy, a more active role for the state in transforming the economy, active and developmental industrial policies, and so on. Amongst its weaknesses, perhaps the most important are the failure to fully change macroeconomic policies to ones that would really facilitate the shift to a different growth path as well as mitigating the power of capital, and the reliance on the private sector for the majority of employment creation. An explicit choice is made that it should be the private sector rather than the state that employs more people, and that this is subject to the decisions of capital. There remains an apparent lack of strong political will to really challenge the existing distribution of economic resources and power.
Relative to the conservative economic policies implemented since democracy, the NGP is certainly a significant improvement. Much of it could arguably be characterised as a ‘normalisation’ of economic policy in South Africa, in the sense of finally adopting policies which in many cases have been successfully implemented internationally, and also in selecting policies responsive to the country's extremely high levels of unemployment and inequality. For instance, had previous economic policy been more sensible then lower interest rates and a more competitive exchange rate would not need to be hailed as the advance which, in the event, they are. To some extent the thrust of the NGP is pro-growth and pro-development in general terms, in the sense that its policies can be seen as conducive to enhancing sustainable growth and industrial development. This is likely to be materially beneficial across classes, benefiting both the established and emerging fractions of capital as well as the working class. Beyond this, some specifically pro-working-class orientation in the NGP can be discerned, in the focus on creating decent jobs and in closing wage gaps, as well as in developing poor rural areas and in the broad-based approach to black economic empowerment. Of course, as with any economic policy, its effects can only be surmised from simply reading a document and the actual effects remain to be seen. These will also depend on the relative aggressiveness with which the various components are implemented. Particularly in the context of the global economic crisis, the case for more radical policies is easier to make than previously. While the NGP takes significant steps forward in the transformation of the South African economy, the necessity and the space exist for much stronger interventions.
Note on contributor
Fiona Tregenna is Associate Professor in the Department of Economics and Econometrics at the University of Johannesburg, South Africa. She received a PhD in Economics from the University of Cambridge and a Masters degree in Economics from the University of Massachusetts, Amherst. Her research is predominantly in the fields of development economics and political economy.