Just a few months ago we were all having a raging debate over whether the state should resort to an austerity focus – much along the lines of the European experiment to put a lid on rising debt, or find whatever little space is available to stimulate what’s been a deteriorating economy for the best part of a decade.
There’s no denying the body blows to the economy that would have come from drastically cutting back on spend in the pursuit of fiscal prudence and the eventual return of investor confidence.
But with our high unemployment and an inequality question that all six of our administrations have struggled to answer, you can understand the concerns around a rigid commitment to clawing back state spending in an economy that has been desperately starved of investment for decades.
Despite the apprehension voiced by a few, the austerity argument was the winning ticket. It’s an easy win given the countless examples of wasted billions that have gone into supporting yet another turnaround plan at one of our troubled state-owned enterprises such as SAA or Eskom drafted by some of “Ivy League” consultancy such as McKinsey. These were bailouts taking place against a backdrop of state capture, where virtually all of the state’s key institutions were being hollowed out.
Investment audiences have been more receptive of talks of a smaller government. In his almost one and half years as finance minister, Tito Mboweni has been its most disciplined disciple. From his early dismissive views on the future of SAA, he has been clear that the state should scale back its presence in the economy.
As much as Treasury rails against any suggestion that his budgets have been austere in focus, he has cut back spending.
The truth is Treasury’s course had been set three years ago when former president Jacob Zuma finally managed to fire his then-finance minister, Pravin Gordhan along with his deputy, Mcebisi Jonas. The journey to a “junk” credit rating began that day, and the guillotine finally fell last month when Moody’s lowered SA’s last remaining investment grade rating to sub-investment grade.
Were we in ordinary times, Moody’s decision would have spelled an even deeper dive into austerity to claw back Treasury’s credibility and, in turn, an investment-grade grading. It would have been a particularly slippery slope without the support of a booming Chinese economy.
It was a future foretold in our stars. That was until the Covid-19 pandemic laid ruin to such eventualities.
The shutdown of our economy and that of the much of the globe has sharply changed sentiment around the role of the state. Big government policies of Bernie Sanders, the former presidential candidate of the US Democratic Party and even those of the embarrassed former Labour Party leader in the UK, Jeremy Corbyn, have found an audience.
Reigniting the world’s economy has not only been thrown at the feet of not only the world’s leading central bankers to wield their “magic wands”, but at governments to use fiscal policy.
Stimulus measures are now being sought from every political capital. Even US President Donald Trump is being challenged to do some real work and deliver an additional stimulus package for the world’s biggest economy that has seen jobless claims rising over 22 million in matter of just three weeks.
Terms such as universal basic income are not being dismissed by men such as Mboweni, that disciple of fiscal discipline. Japan’s Prime Minister, Shinzo Abe, has promised to give a one-off sum of about R17 484 to every citizen of his country.
The state is now the only growth play in town, which must feel like a 180 degree change of direction for South African policymakers in particular. It’s a new world from the the one of just a few months ago, where bondholders and the general public was calling for reduced spending.
Corporates the world over are now caught in a state of paralysing fear. Locally, they’ve followed government’s lead in announcing three month salary cuts for its executives, but it’s not unsustainable. Neither are food parcels be a panacea to our problems in the weeks, months and years to come.
Worrying to me is that the lockdown is entrenching new consumption habits in the digital sphere across all sectors of our society. Big banks that for some time have been scaling back on their branch networks and staff because of advancements in technology have just gone more than three weeks with most branches operating with skeleton staff. The MBA management types that unfortunately dominate these organisations amongst others, are taking notes.
In the face of these Covid-19 inspired changes, big government is the remedy being touted not only in SA, but across the globe.
Trade federation and ANC alliance partner, Cosatu, has talked up a trillion rand worth of spend through the use of pensions. Treasury has sourced a $1 billion loan from the New Development Bank, and engagements with the International Monetary Fund will be pencilled into someone’s diary for a future date, if this has not happened already.
All of this firepower is being raised in aid of what will be a broken economy when we emerge from this period. For now we will have to disregard any rise in the debt to GDP ratio, as well as our most recent descent into junk.
Now that we are on this road, the question is whether this administration has the capacity to take full advantage of the change in sentiment towards government’s role. Its most recent track record in tasks such as expanding energy generation capacity leaves one wondering.
It’s telling that we will all be looking to the Presidency and Treasury alone to set the course for our economic recovery. There’s very little regard to plans from the ministries of trade & industry, small business, communications or social development. These are departments that in any other state would have taken centre stage in a coordinated response to this country’s greatest economic test since the Great Depression.
There is a crisis of leadership and it has been with us for well over a decade.
We’ve ignored it and it has remained an inconvenient truth as we’ve looked at a select few in this battle to set the economy on a healthier path. We’ve sought a select bunch of champions to galvanise their ranks for the job at hand of rescuing the economy. It hasn’t proved a successful strategy, evidenced by the most recent ratings downgrade.
And once again, we’ll look at all the President’s Men to jump into the breach. This is not a healthy position. For as long as the supporting cast don’t step up to the plate because of their own political calculations, an opportunity to recast the economy to spur growth will be spurned. We risk finding ourselves in worse debt position with sustained low economic growth in years to come without coordination.
The success or failure of the measures that will be announced by Cabinet will be determined by the strength of leadership. Individuals matter, that’s true, but given the team in the theatre that is our governing party, it’s enough to cause a cold sweat.