Date: 01/07/2011
Source: The Democratic Alliance
Title: DA: James: Address by the federal chairperson, at a community meeting, Port Elizabeth



Seventeen years ago we won our political freedom, but our economic liberation remains elusive. Twenty-five percent of the South African labour force is unemployed. Most young people leave school without any hope of finding employment. And the number of citizens requiring social welfare grants has increased by about one million people per year over the last decade. Indeed, poverty appears to be rising despite the government's efforts.
So how do we overcome this poverty, this terrible legacy of our past, this stubborn fact of our present?
Should we nationalise the mines and the banks as the ANC Youth League suggests, and redistribute their assets to the masses? Do we expand the public service and turn the government into an employment centre, as the ANC intends? Or do we seek investment and private enterprise to grow the economy and create more jobs, as the DA believes?
To answer this, we need to distinguish between alleviating poverty in the short-term and eradicating poverty in the long-term.
To alleviate the effects of poverty, the government – whether the ANC or the DA – provides several types of social welfare grants to South Africans, such as for old age, disability, child support, foster children, care dependency, grants-in-aid, and war veterans. For many families, these grants provide their only source of income, thus they are absolutely necessary for survival.
Municipal governments have also put in place indigent policies that provide free basic services to those who cannot afford them. Depending on a household’s income or standard of living, the city delivers to it free water, electricity, sewage treatment and waste disposal. In fact, the DA-led City of Cape Town has the most supportive indigent policy in the country.
Beyond this, the government also provides free housing, which goes a long way in minimizing the difficulties of poverty. But the need is massive and the resources are few. For instance, though the DA has managed to double the number of houses delivered each year since taking over Cape Town, we have to rely on the limited funds we receive from the national Treasury to achieve this.
Let me say that all of these efforts are important. And at their best, these measures offer struggling communities a stepping stone to better opportunities. But at their worst, they can create conditions of dependence as people spend their lives on grants, never able to survive without them.
Indeed, in 2005, less than 11 million people were dependent on grants; now there are 16 million. And the cost to the state is over R100 billion. We need to reverse this trend.
For the DA, these alleviation measures are simply a means to an end, not an end in itself. We understand that this massive redistribution scheme cannot eradicate poverty on its own. To do that, the economy must grow. Investments must flow in. Businesses must prosper. And jobs must be created.
But lately, the government’s inability to eradicate poverty has led the ANC Youth League to call for the nationalization of the privately-owned mines and banks, as well as the expropriation of commercial farmers’ land without compensation. They argue that these assets could be redistributed to the poor, or operated by the government, so as to answer our poverty conundrum. It’s a provocative argument, borne certainly out of frustration with our challenging economic circumstances, but it also reveals a key misunderstanding about how economics works.
The Youth League’s ideas, similar to the ANC’s, are based on a 'scarcity mentality'. In their view, the national economic pie is fixed. The government’s job is not to make the pie bigger, but simply to slice it up and distribute the pieces. This approach therefore focuses more on poverty alleviation rather than eradication.

The call for a government takeover of mines and banks exemplifies the scarcity mentality. It believes that nationalizing highly-productive capital-intensive enterprises will reverse the poor’s fortunes. But it would actually achieve the opposite. For nationalisation will not grow the economy, it will not create jobs and it will not eradicate poverty.
Zambia shows us why. In the early 1970s, the Zambian government nationalized the mines with the belief that their profits could be siphoned off into other state projects. But when the copper price plummeted, the mines became a burden. Production declined and the state lost $1 million per day just to keep them operational. This lasted for three decades. When the mines were finally sold to a private company recently, the government began to reap $1 million per day in taxes and royalties. What a turnaround.
The reason why governments do not run businesses well is because they make decisions based on political rationales (like dispensing profits to loyal cadres) rather than economic ones (like investing in new equipment or exploring new mineral deposits). Struggling governments are also tempted to treat nationalized assets as cash cows to be milked for patronage, rather than just enjoying the taxes, royalties and job opportunities which flow from the enterprise. For instance, South Africa’s mining industry paid R17,1 billion in direct corporate tax to the state last year. It also spent over R400 billion in operational costs within the country, spurring on the national economy. If the government tries to take over this sector, it could end killing the goose that lays our literally golden eggs.
Nationalisation will not create sustainable jobs either. The experience of Alexkor, South Africa’s only state-owned mining company shows that, indeed, government ownership is no guarantee of job creation. In 2000, Alexkor employed 691 permanent workers. By 2010, this number was just 105. And the company had to be bailed out on multiple occasions with public funds. If the government were to run all of the other mines in this fashion, we’d be in the same position as Zambia, losing thousands of jobs and millions of rands.
So if nationalisation cannot grow our economy, create jobs and eradicate poverty, then what can? The DA answers this question with an 'abundance mentality,' meaning that we believe that everyone can prosper together if we grow the economic pie larger. The government's role should be to create optimal conditions to do that, for it is only through sustained economic growth that we can attract more investment which will create more jobs and allow the poor to escape the dependency trap.
This is a lesson that the other BRIC nations have already learned. Once they offloaded their nationalized industries and released their economies from the stifling hand of government control, they saw their economies grow and their poverty rates decline. India, for instance, enjoyed 7-8% economic growth over the last decade and pulled 100 million people out of poverty. Think about that: 100 million people in 10 years. There’s a powerful lesson in there for us. The story in China is the same, if not more impressive. But they achieved this not through nationalisation, but through privatization and foreign and local investment.
That is why South Africa’s meagre 2-3% growth rate over the same period has only deepened our poverty. We will never progress in a meaningful way at this pace. But imagine if we could achieve 7% growth for a decade. We could break the spine of poverty in this country.
To do this, a pro-poor, pro-growth economic strategy would seek to make South Africa an attractive place for businesses to invest. We should provide tax incentives and rates rebates and create export development zones to allow for sector clusters – as we have here in PE with the automotive industry. Our labour regulations would need be adjusted for the fact that we are just too expensive to compete globally. We would have to focus more on infrastructure-led growth, which skills up our workforce while establishing the services platform upon which businesses and individuals thrive. And we would have to maintain inflation targeting and low budget deficits, so as to keep our growth stable.
Government would also have to operate in a clean and efficient manner, delivering utilities that are reliable while enforcing regulations that are reasonable and competitive. It would offload our unproductive state-owned enterprises and make capital available to local businesses. And it would focus on getting the basics right with an outstanding education system and skills development programs, including offering a youth wage subsidy so that businesses feel encouraged to train up first-time employees.
This is what we have tried to do in the City of Cape Town and other municipalities that the DA runs. That is why, last year, the City of Cape Town secured R1.7 billion worth of direct investment. Similarly, DA-run Midvaal’s improved infrastructure standards have attracted multi-million rand job-creating investments from companies such as Heineken, BSI Steel, Basil Read, Ferrero Rocher, Oprah Winfrey’s Leadership Academy for Girls and Greg Norman’s Eye of Africa Golf Estate. Indeed, the Heineken investment alone created 5000 jobs, of which 500 were permanent.
The DA believes that the only pro-poor policy is one that is pro-growth. That means that we allow businesses to earn a profit without threat of expropriation. We need to move away from the cynical and suspicious view that sees business as antagonistic to working people and consumers. Our fates are intertwined. Without business investment in South Africa, we cannot grow our economy on the scale necessary to create jobs and eradicate poverty.
The DA’s goal is to find win-win solutions that address the needs of the poor while allowing businesses to flourish and grow our economy. Ultimately, this is the only way to sustain growth while reducing poverty. The DA’s vision offers poor people a hand-up, not the hand-out of the nationalisation mirage.