We enter 2011 with much global economic uncertainty. South Africans should consider the country’s economic policies and activities within the context of an uncertain and volatile global economy.
Since the 1980s, advocates of economic globalisation have been gung-ho and the major economic powers and international financial institutions have pushed, cajoled and even forced developing countries into liberalising global trade and finance.
The more open global trade and finan- cial systems provided opportunities and threats to individual countries. Unfortunately, the global and domestic cheerleaders for openness focused on the advantages. The financial and economic crises of the last three decades reminded us of the threats. Many developing countries have chosen to be more careful about how they are integrated into the global economy, not only because of the risk of financial and economic crises but also to support economic development policies. Their States actively manage their global economic relations, particularly global financial transactions. South Africa has neglected this aspect of economic policy and, as a result, has had less success in achieving the country’s economic development goals.
The main goals of South African economic policy are reductions in poverty, inequality and unemployment. The main means for achieving these goal would be the promotion of investment, employment and economic growth through building infrastructure and supporting industrial development. Improvements in education and training are necessary to achieve these goals.
The overall approach to economic policy since the attainment of democracy in South Africa in 1994 has been to assume that improved infrastructure and broad micro- economic measures to support business would lead to economic growth and employment. It was assumed that trade liberalisa- tion and promoting foreign direct investment into South Africa would lead to economic growth and employment. Policymakers thought that all we required were macro- economic policies that were ‘credible’ to foreign investors and international financial institutions.
There is now broad agreement in government that this approach to economic policy has not supported investment and employment creation but has actually increased inequality. South Africa has not had a major progressive economic transformation. There have been declines in mining and manufacturing and associated productive services sectors and growth in financial services.
Failure to achieve adequate employment and poverty reduction has meant that government has had to spend more on transfers to the elderly and children. Our increased integration into global trade and financial markets has increased uncertainty in the economy and made it more sensitive to booms and crashes elsewhere.
At the same time, increased speculative foreign short-term financial flows into South Africa have caused volatility and uncer- tainty in our economy. Our domestic indus- tries and employment have suf- fered because of a widespread shift to export orientation in other developing economies, which has kept the prices of imports low – often artificially low. Policymakers agree that we need a new economic growth path.
The global financial and economic crisis has made it clear that totally free global trade and financial markets are not desirable. There should be global coor- dination and regulation of trade and financial markets. The experience with the World Trade Organisation teaches us that it is hard to develop a global system that will be acceptable to all countries and that the system usually benefits the powerful economies at the expense of the developing economies.
We cannot expect a quick resolution to coordination and regulation of the global financial system. South Africa has to take the lead from other developing countries, particularly our Bric (Brazil, India, Russia and China) partners, on how best to achieve economic development goals and put in place policies, regulations and controls to manage integration into the global economy in a manner that best supports the achievement of these goals. We have to take advantage of global trade and finance opportunities but we also have to protect our economy from the risks to our economic development emanating from the global economy.