GOVERNMENT SPENDING CAN ENABLE GROWTH

Written by Pedro Mzileni

To enable this economic environment, we offer friendly tax rates to corporates, we allow any industry to invest anywhere in the world even if it uses domestic labour and our local environment to drive production, and we provide unregulated free trade agreements as the cornerstone of our imports and exports.

This macroeconomic approach has led to the collapse of the manufacturing sector and a general deindustrialization of the economy. This is an irreversible trend that we have been sliding on as a country for the past 30-50 years. Our free trade agreements and liberalization of the economy has not generated the jobs and the growth we require.

Despite this problem being so articulated with so much evidence, government refuses to change gears and pursue an alternative.

This takes me to the second issue – which is the paradigm used to structure our fiscal policy – a problem that also emanates from the misplaced macroeconomic strategy.

The finance minister believes that fiscal consolidation will attract confidence of rating agencies and see South Africa as a safe destination given the lesser deficits on its books.

This approach does not consider the fact that a country can use government spending, loans and even debt to invest in productive assets that will generate sustainable revenue, drive growth and deliver jobs.

For instance, if the public purse can be used to fund small-scale farming activities, modernise the railways and our ports, build industrial technology and new telecommunications including the adding of more allocations to scientific research development and in the reactivation of the manufacturing sector – these productive assets can generate the necessary growth and recovery that the country requires to be sustainable again.

In other words, government spending can be used in more targeted sectors that will deliver tangible value in the productive economy. It is not true that all government spending is wasteful and it must therefore be avoided with the hope of reducing deficits. That approach will only deliver austerity.

Countries such as Germany, South Korea and China have used government spending to modernise their infrastructure, rollout business innovations and global trade to the extent where they even used IMF loans for the purpose of reopening their economies. Today, these countries are global economic powerhouses with full-employment from economies that were subsidised by their governments.

The third issue with our economy is the crisis of inequality. The extended unemployment rate is still standing above 40% and our gini coefficient rating is at 0.63 - which makes our case be one of the most unequal societies in the world, compounded with high levels of racialised underdevelopment as well.

Our economic model where a few big foreign listed oligopolies own the country’s most key productive assets creates a disconnection between the private sector and our national targets.

We don’t have a vibrant, sustainable and competitive small business environment like our comparable developing economies around the world and this makes it difficult for us to drive growth at consistent levels alongside our national development goals such as job creation, domestic investment, infrastructure development and economic transformation.

Our current monopoly industries that are dominated by the retail-mining-banking-energy complex are not interested in these national targets because our economic liberalisation policy allows them.

These three issues I’ve mentioned are fundamentally institutionalised on how the National Treasury prepares its annual budget speeches and the one delivered yesterday was not any different.

Now that we are in this problem, what then becomes a solution and a way forward is for a concerted effort from every working adult in South Africa that pays taxes to get organised and start building towards an alternative macroeconomic approach that will put industrialisation, job creation and reduced inequality at the core of its paradigm.

We need a developmental state that will put our strategic assets and national wealth to good use. This entails the utilisation of targeted taxation towards corporations, industries and mineral wealth to fund our national targets. The constant squeeze on the personal tax is unsustainable and has potential to trigger instability.

We need a freely accessible and high quality higher education system with centres that offer vocational skills, agricultural colleges connected to our infrastructural priorities, a comprehensive public health care system, a basic income grant, reliable electricity supply, and a manufacturing economy that is the primary foundation of our industrial policy.

These targets must shape the paradigm of our macroeconomic policy and they must feed a targeted fiscal and monetary policy that is centred on the concrete needs of ordinary people.

This direction requires an active citizenry that votes smartly and uses its power to surface a leadership that will lead our public institutions with due diligence and have strategic, productive and developmental relations with industry.