Perfect storm of economic, political developments is avoidable

12th June 2013 By: Aubrey Matshiqi

Perfect storm of economic, political developments is avoidable

Worries about the current economic situation and the possibility of more instability in the mining sector must be understood in terms of the economic impact of political uncertainty and the political impact of economic uncertainty. Put differently, is South Africa heading towards a perfect storm of negative economic and political developments? Is this perfect storm inevitable or avoidable?

The answer, I suppose, is both simple and complex. It is simple if the recognition grows on the part of the government, the ruling African National Congress (ANC), business and labour that the economic and political storm is avoidable as long as we engage in appropriate and collective national behaviour.

But the answer is complex when it comes to the specific content of collective national behaviour, policy measures and decisions that must inform our response to economic and political problems in the short, medium and long term. The alternative is to continue doing what we are doing now, that is; to focus on maximising our narrow, sectional and factional interests at the expense of the national interest, the greater good and the interests of citizens, particularly the poor and unemployed. If we do not change course, economic and other opportunities in the national, continental and global spheres will be swept away by a perfect storm of economic and political instability and decline.

Once this happens, South Africa will become vulnerable to a ‘shock doctrine’ on the basis of which economic policy options will be limited mainly, if not exclusively, to economic policy content that is imposed by those who are the pied pipers of the global and domestic economy. This, in turn, might cause our sovereignty as a people and country to be undermined in realms beyond the economic since the principle of a shock doctrine is founded on the belief that the best time to impose policies that may otherwise be unpopular is when a country is going through a crisis.

If we do not change our national behaviour, our future in the short to medium term is going to be characterised by economic decline, a fall in profits, rising levels of poverty and inequality, and political instability. In the very short term, we must make a choice between perfect ideology and imperfect pragmatism. This choice probably applies the most to business and labour because it is mainly a choice between maximising profit and wages at all costs, on the one hand, and sustainable growth and development, on the other. Business and labour need to know that to be pragmatic is to know that there is point beyond which maximising profits and wages at all costs in the present will erode profits and wages in future. But the problem we have at the moment is the trust deficit between labour and business.

The feeling of workers, which is based on their experience of the period of economic growth prior to the onset of the global financial and economic crisis in 2008, is that when times are good, business does not share the harvest equitably with workers, but when times are tough, the belts of workers must be tighter than those of employers.

For its part, business believes that wage demands are not matched by requisite levels of productivity, and that the unit cost of labour is too high compared to other emerging markets. To make things worse, we still haven’t found a remedy for the low levels of trust between business and the ANC government. If we were to be brutally honest, we would have to concede that the trust deficit is caused by the fact that some in business and the business media do not think that the ANC knows what it is doing. On the other hand, there is a growing number in the ANC which believes that business is too committed to its selfish interests to be a reliable partner in the battle against inequality, poverty and unemployment. Therefore, the first task of leadership, across the board, is undoubtedly that of perception management. While this task is important, these social partners must not spend too much time on their perceptions of the other and how the other perceives them.

In the end, what is going to count is the management of the perceptions of investors, fund managers and rating agencies. Because of internal political battles in the Congress of South African Trade Unions, inter-union rivalry in the platinum sector and general instability in the mining sector, some investors strongly believe that the instability will engulf the economy as a whole.

As a country, what we are called upon to do is to think and act collectively, avoid parading our narrow interests as economic analysis and, most important of all, change our national political behaviour in ways that are properly aligned to our national strategic goals.