We need different frames for SA’s economic challenges

In launching his reform drive in China in the late 1970s, Deng Xiaoping borrowed an aphorism from Mao: “practice is the sole criterion for testing the truth”. While this statement might not apply to all aspects of life, it framed a standard for how China would measure its social and economic progress – through pragmatism. The Chinese leadership would, in a matter of three decades, lift over 500 million people out of poverty. Adding another decade, China almost doubled the number of people who escaped poverty to an estimated 800 million. This achievement is historically unprecedented.

Next year, South Africa will be marking three decades since the onset of its democracy. We need to reflect on what would constitute a significant marker of the country’s economic achievement. I will return to the the tasks that face South Africa in the current juncture.

China framed its development path differently from the West, preferring heterodoxy rather than a linear, strictly market-based approach. The elites took some lessons from the US in the 1980s on reforming large state-owned enterprises. They drew insights from Singapore on building a meritocratic public service. Yet they gave the country’s reform agenda a local flavour, couching it as “socialism with Chinese characteristics”.

Effectively, the Chinese government practised a model of state capitalism, where the government guided the markets, opening them gradually, keeping them in check, while supporting the country’s development framework. Planning was not an end; establishing credibility through performance legitimacy was the ultimate objective and mode of work.

As a result, the country had a long-running streak of growth, became a major exporter on the back of cheap labour, invested significantly in infrastructure and structural reforms, and created untold opportunities for many who were buffeted by poverty in the countryside. Later, the country registered productivity gains, gradually progressed up the value chain, and promoted innovation while supporting services and high-technology industries to compete with the West.

Of course, the Chinese growth model has reached its exhaustion point and is convalescing from multiple crises domestically: its zero-covid restrictions have eroded its growth base and induced angst in sections of its population. It has also suffered challenges in its debt-fuelled real estate market, exhibiting signs of a bubble. The Chinise economy could yet come under severe pressure on the back of geoeconomic rivalry with the US as some of the large Western tech firms contemplate diversifying their supply chains as insurance against geopolitical shifts.

The point is not to copy a Chinese model or any other best practice devoid of context. There are many lessons about how rich countries got to be where they are today and how developing countries got stunted. Some of these emphasise geography, while others stress the role of human capital, technology, and institutions.

The most powerful lesson, however, lies in what Kenneth Cukier and his colleagues refer to, in their book Framers, as the power of framing in decision-making. In policymaking, framing is how reality is conceived and presented. We make better decisions by being better at framing, according to Cukier. Put differently, we will not achieve the desired policy outcomes if we base our decision-making models on wrong questions and assumptions.

Returning to the South African story, it is clear that our standard practices and their assumptions for governing are no longer working. Some of the examples are assumptions about economic policy; sectors to support through industrial policy; ideas about the role of small enterprises in the economy; investments in the country’s infrastructure and how best to do it; the role of state-owned enterprises and development finance institutions in driving development; and the correct pathways to, and balance between, energy security and decarbonisation.

When assumptions and their practices do not work, we need to find new frames and adjust our actions accordingly. There are no simple out-of-the-box answers to what precisely our new governing models should be. That is never the starting point for those countries that have successfully achieved sustained growth and narrowed the gap between the rich and the poor. They exhibit traits such as flexibility – or pragmatism – in making policy choices, bias towards action, and continuous improvement.

The capacity of the state to deliver is one obvious obstacle, but this does not explain why there has been limited progress in addressing South Africa’s developmental challenges in nearly three decades. If capacities are not adequately channelled to deliver on priorities, success will be scant; and if priorities are framed wrongly, there will be much activity but with no notable outcomes.

For example, when Norway, in 1966, discovered oil, there was no single petroleum engineer in the country. It imported technical skills, but made provisions for skills transfer and diffusion of learning across the country’s budding small and medium enterprises. By the late 1970s, the government was dictating terms to multinational oil companies and had created a decent human capital base, insisted on local content, and grew sustainably.

Within 6 years of its discovery of oil it had established a state-owned oil company, Statoil, which grew to become a global powerhouse that is at the leading frontiers of technological innovation. From being a backward fishing and hydropower country, Norway is among the top 10 richest countries per capita today.

Closer to home, when South Africa produced armoured vehicles, the Marmon-Herrington, in the late 1930s to early 1940s, it had demonstrated possibilities of making a technological leap. The country had no pre-existing industrial capacity for consumer vehicles. Rather, there were clear priorities framed around World War Two and a commitment to using this window of opportunity - a crisis for other countries - to develop industrial capabilities and achieve higher employment levels.

In both cases, it was framing the challenge and solutions differently from the models that had previously existed. Rather than endless deliberations, getting things done is a source of knowledge for continuous improvements.

South Africa suffers several limitations, apart from the corruption that is becoming endemic. The first is that we allow dysfunction to take root and become a convention. Government departments can be at loggerheads over a crucial decision, for example, restructuring the energy sector, without any traction on decisions made.

Personalities and factional politics become the frame that creates obstacles to the decisions necessary for reforms. Further, decisions about fiscal allocations are trapped by path dependence. While conventional economic models play a role of a crutch in navigating economic challenges, they do not help us to find new sources of economic vitality.

If the first question that comes to mind is what will the markets think, rather than what could be the best possible outcomes for economic change if we invest in new sources of growth and innovation, then our frames will remain limited.

In about a year, South Africa will be 30 years old. The country will need something to show for in its three decades as a democracy, or the political leadership will face a red card. Many, especially the youth, will no longer take seriously the explanations that the socio-economic challenges are due to the apartheid past, even though its scars are still visible in its spatial arrangements and racist practices that continue to persist in society and the economy. The youth will ask, what have you done about the past? And what is your account for corruption and mismanagement of resources under democracy?

We still have an opportunity as a country to get to grips with our challenges and lay a solid basis for institutional change and economic progress. We just need to change our frames and get things done. The time is ticking.

This article first appeared on the Mail and Guardian Newspaper on the 27 January 2023

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