Johannesburg: Here are two different national models SA might consider for its economic development. Country A is a low-growth, resource-short nation with a consolidated ratio of national debt to gross domestic product (GDP) of more than 500%. It has recently nationalised pillars of its automotive, insurance, banking and mortgage sectors. It runs a chronic external deficit as well as a very large internal fiscal deficit, preferring debt-driven consumption over savings and investment-led production.
It has a permanently incontinent monetary policy based on negative real interest rates and huge debt monetisation. And, despite being the self-proclaimed cathedral of capitalism, its bonds have outperformed equities since 1991 — its public sector is more "profitable" than its private one.
Country B is a resource-rich nation with a ratio of national debt to GDP of 6%. Growing more than twice as fast as Country A, it has lower unemployment, lower inflation, a current account surplus, a negligible budget deficit and a monetary policy based on real interest rates. It has proved that resource- based development is possible, having developed its forestry, fishing and agribusiness sectors alongside its mining core. All told, it is widely seen as its region’s best-run and most competitive economy.
Yet in the late 1980s, Country B pursued highly unorthodox monetary policies, suppressing its currency and favouring long-term foreign investment while punishing short- term inflows. It made a concerted effort to reduce poverty and inequality with increased government spending on health, education and housing.
Free-market in its orientation, in its all-important mineral sector, highly successful private sector-run mines run alongside a consistently profitable state-owned company — the world’s largest producer of its mineral. It has a sovereign wealth fund that will fund nearly all the reconstruction caused by a recent earthquake, a state-designed but private sector-managed pension system widely seen as one of the world’s best, and a state- sponsored National Innovation Council for Competitiveness that is highly regarded.
It has a state-owned bank and backs the world-class development bank in its hemisphere. It was the first country in its region to establish diplomatic relations and sign a free trade agreement with China. And, in the modern era, it has a stock market that consistently outperforms its bond market.
Which model should SA consider following? Reading most of the commentaries and critiques on the New Growth Path in the past week, it is hard not to conclude that most think we should be embracing Country A with open arms, while avoiding Country B like the plague, what with its history of suppressing its exchange rate, its state-run mining company, its state-directed pension system, its state-sponsored research council and its eagerness to dance with state banks, publicly owned development banks and even (horror of horrors!) China. But if we did, we would be embracing an exhausted US and spurning an energetic Chile, not that even Chile is a perfect template for SA.
When will our chattering classes recognise that we are not South Virginia, South Tuscany or South Somerset but South Africa ? Incidentally, that same Africa is now the world’s third fastest-growing region after China and India, even with us dragging down the continental average.
When will our chattering classes broaden their knowledge base beyond the narrow and economically jaded confines of Western Europe and the US to recognise there are many models of development that might be usefully imitated in SA’s attempts to become a high-growth emerging market?
When will our chattering classes stop making sweeping generalisations about "international experience" without looking beyond the Old World to the New World?
No paradigm-shifting development banks? What about BNDES of Brazil or KDB of Korea? No productive state-sponsored research institutes? What about Brazil’s Embrapa or even Old World Australia’s CSIRO? No profitable state-owned mining companies? What about Brazil’s Petrobras, Botswana’s Debswana, Chile’s Codelco, or even Old World Norway’s Statoil? Of course, the private sector is often involved in these institutions but the trite and ill-informed generalisations that have littered our opinion pages and our stockbroker commentaries would have you believe that only full-on, undiluted private enterprise is the answer to all our problems. It is not, not by a long shot.
But then neither is full-blown socialism the answer, certainly not the creeping socialisation of the economic process that is corroding so many western nations, most of which, notwithstanding their "we love capitalism" mantras, now have governments dictating more than 40% of their GDP. Indeed, Deng Xiaop ing’s capitalism with Chinese characteristics is more economically vibrant than Barack Obama’s socialism with American characteristics. Socialism in its most extreme form is just as destructive as unfettered free-market capitalism — just ask the North Koreans … or the Irish!
In São Paulo last year, a businessman explained to me why some Latin American countries were getting it right economically. "Some of our smarter politicians have mastered the art of violin playing. To make good economic music, you must hold the instrument of state in your left hand, and let it be played by the right. The trouble with (Hugo) Chavez and (Fidel) Castro is that they grabbed power with the left and tried to play their violins with their left hands too, the result being truly terrible for the people of Venezuela and Cuba."
His point was profound: in today’s world, you cannot make economic music without the labour-rich left playing its full and proper part in the development process. But neither can you make melodious music without letting the capital-rich right play its role either; each side alone creates the equal of the sound made by one hand clapping. This was the extraordinary insight of departing Brazilian President Luiz Inacio Lula da Silva , a man born of the left; his successor, Dilma Rousseff, seems set to follow his example.
SA’s recently released New Growth Path is the sheet music that will hopefully be used to make the people of SA and its economy hum. It is not yet note-perfect — even Beethoven revised his symphonies. And there is much work to be done in getting our national economic orchestra to play together — the strings of private capital must work with the brass of labour and the percussion of the government. And hands — both visible and invisible — will always be needed to conduct this orchestra.
But we will not even have a rehearsal if our chattering classes carp at the composition without having first done their homework.
So please, Mr Politician, Ms TV Commentator, Dr Economist and Miss Journalist: look around you before you glibly dismiss what is trying to be achieved here. And when you do, dare to look beyond your familiar to your unfamiliar and find out what is happening on this plural planet of ours, this whole planet and not just that traditional part you know so well, quote so often and admire so much — not least because much of what you know, quote and admire is a busted flush economically and hardly a good role model for a resource-rich, developing country on the other side of the world.
* Michael Power is a strategist and served on the advisory board that helped frame the New Growth Path.