A Capitalist Future for South Africa

by Dr Gavin Lewis, DA spokesman in Economic Development, Gauteng.

For many policymakers in South Africa, especially in the trade union movement, what is happening in the world today seems like the end of capitalism. Are we in the last days?



The answer must be 'No". All the leading global economies, from Beijing to Sao Paolo, and from Washington DC to Prague, remain capitalist economies. There is much talk about China being a communist state, but this ignores the reality that it is in fact a very capitalist state indeed. The difference is that in China the capitalist is the state bureaucrat.



There is no existing viable left alternative, and even the outer fringes of social democrats are affected .



In addition, through following market principles, even amongst the crisis in financial capitalism, many developing countries continue to flourish under capitalist principals, some of them in Africa today.



In this context, it is worth reminding ourselves of how centrally planned economies did collapse in the former Soviet Union not so long ago.



Because of its sole focus on the importance of primary industrial output the Soviet bloc missed the intensive high value production that transformed, and continues to transform, western economies. Nobody who had any choice wanted to buy their obsolete products. All of this lay with the core problem of central planning, under Gosplan, the main Soviet agency for this purpose.





Fixed price systems made it impossible to work out real costs, administrators had no interest in innovation, because these might damage their chances of reaching the numerical targets set from above, besides, they we secure in their posts(after the Stalinist age of terror); they were not accountable to anyone. Numerical targets set by Gosplan made no sense because the ignored all the other factors including quality, so that in one famous case the biggest producer of tractors in the Soviet Union was making tractors that did not work.



In the end, this produced vast and entrenched networks of sustained corruption, because even though you could not own property, position gave you power that made you wealthy; it became a case of not what you owned, but who you knew. Sounds familiar ?



The fact of the matter is that it is very difficult for even a highly competent, technologically adept state to deal with the amount and range of information a modern economy throws up daily. Market replacing micromanagement of a whole economy is impossible, which produces sluggish and even falling growth rates overall.

Recently our MEC for Economic Development in Gauteng has made the announcement that no investors will be allowed into the capitalist paradise that is Gauteng without committing to sourcing 90% of their investment locally. Similar efforts apply to procurement by the State. Yet not so long ago there was a controversy over the Brazilian busses imported for our BRT system. Buy local, was the populist outcry. But the fact is we got the busses for less that they would have cost to source locally because the Brazilian taxpayer paid for the export subsidy that made them so attractively priced in the first place. The money thus saved could then be utilised in other areas of our local economy.



The age of mercantilism is over. With the current era of globalization, investment capital now flows wherever there is opportunity, regardless of nation state boundaries. In 1980 the sum of all money lent by international reforms and banks was $324 billion a year; by 1991 it was $7.5 trillion – a 2000 per cent increase in just over ten years.



In recent years the State has moved aggressively to intervene in capitalist economies to shore up demand. But that tide is turning as well, as the austerity measures of the successful German economy attest. The financial crisis is not a license for an overweening, know it all state to continue expanding its role within a mixed economy forever.



On the jobs front the outlook for countries like South Africa is less reassuring. The pendulum is swinging back as innovation and knowledge production increasingly form a larger and larger part of the leading economies = return of investment to high wage but high knowledge economies. These are epitomised by new technologies, such as software plus robots plus 3D printing systems fopr manufacturing. These are the latest disruptive technologies. Factories of the future won't have oil and grease stains . They will be run by white coated people, with few employees. Jobs will be in design, marketing, IT, engineering, logistics – all need more skills.



Low wage economies will lose their competitive advantage. Ideas – centred, not labour centred will be where the growth is. And for entrepreneurs and people with new ideas, the government simply cannot keep up.



What does this mean for us ? South Africa must move with urgency to properly educate and up skill its workforce. We cannot continue to have illiterate matrics and a 50% drop out rate at schools before kids reach matric. There simply is no going back. We must focus on stopping the new divide, between the insiders, the unionised public sector workforce plus the state bureaucrats, those mainly concerned with the distribution of wealth, not its production, against the outsiders, the private sector and the entrepreneurial, and the unemployed majority. Otherwise we will end up just like the Soviet bloc in the 1980s, and for essentially the same reasons. Either way, with us or without capitalism remains for the foreseeable future the only game in town.