SOUTH AFRICA’S ECONOMIC ASSESSMENT THROUGH THE LENSES OF STATE AND MARKET FAILURES DURING THE COVID-19 PANDEMIC

By Dr Jason Musyoka

In search for analytical accuracy

South Africa’s economic progress following the impact of Covid gets mixed reviews, with optimistic and pessimistic perspectives competing for dominance. In general terms, corporate executives and economists caution that recovery will take time. Politicians are making every effort, as they often do, to demonstrate that they are busy trying to generate economic productivity. This practice is even more evident during an election year, particularly one week before elections take place.

A lot has gone wrong in South Africa over the past few years. The economic free-fall over the past decade characterised by the collapse of state-owned enterprises (SOEs), runaway corruption in the government and private sector, the breakdown of the governing party and more recently the “Free Jacob Zuma” protests that dealt a serious blow to the struggling economy are just few of the home-grown growth-suppression factors. The pandemic and environmental changes responsible for the 2015-2016 drought stand out as market storms that further mutilated the already crippled economy.

There is no shortage of economic analyses. Rating agencies, independent analysts, financial institutions and nongovernmental organisations regularly make their case, often focusing on what the government should never have done but offering few, if any, solutions of their own. In a democratic space, such opinions should not only be entertained but promoted. The challenge comes when the public needs to sift through so much divergent information on such an important matter — the economy.

For example, in July, in the middle of the pandemic, Moody’s downgraded six of SA’s eight metros — Ekurhuleni, Cape Town, Nelson Mandela Bay, Johannesburg, uMhlathuze and Tshwane. The rating agency cited liquidity concerns, given that all the 257 municipalities across the country spent R26bn in 2020.

Also, consider the latest data from the Fraser Institute, a Canadian think-tank. Its annual “Economic Freedom of the World” report — which ranks 165 countries according to such criteria as “personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property” — pushes SA down to 84th place in 2021 from 58th in 2000.

The report devotes extensive attention to SA, focusing on property rights and particularly expropriation of land without compensation, government’s increasing (in)ability to protect property rights and adverse government regulations for business. The institute of course has a fundamentally different understanding of economic freedom to that of Julius Malema’s party.

The indictments by such organisations as Moody’s and the Fraser Institute do have merit, but only up to a point. It is true that the government has dragged its feet on a number of issues, including dealing with corruption, fast-tracking the revival of SOEs and attracting investment, among other state responsibilities. By and large, the state is yet to fulfil its own commitment to the latest economic policy document, the Economic Reconstruction and Recovery Plan, the success of which depends on a capable state. SA is a long way from being one.

State and market failure

The cringeworthy excuses given by the government for the intelligence failures during the unrest in July raise serious questions about the ability of the state to fulfil one of its basic roles — protecting its citizens.

Max Weber would be disappointed to read that even with the state monopolising the legitimate use of violence, it was private security firms that constituted an efficient third force during the looting and anarchy. And even more surprising is that the state lacked not only the capability to contain the unrest, but also the intelligence to prepare for it. One can only imagine what would happen if SA was invaded by a foreign power.

This is not a South African problem only. It comes as no surprise that nation states around the world are already locking horns on how policy actions of the more powerful states are distorting global economic recovery. Thus, notions of vaccine nationalism and vaccine inequality pose new challenges to recovery. This is not state inaction, it is state overreach,-which adds to a commission (rather than omission) based state failure.

It is also worth noting that while there is debate as to whether governments or markets bear most blame for the pandemic, clearly, it is the markets that are responsible for the global spread of Covid. Free market economies experienced the fastest spread of the pandemic, and, they faced the greatest challenges to contain pandemic spread internally. To date, market economies are grappling with internal tensions on the meaning of freedom in the context of masks and vaccinations. Widespread rebellion against state intervention has protracted the process of health and economic recovery.

Returning to South Africa, it is fair, however, to point out that like almost every economy in the world, the country is in unprecedented crisis. Rating agencies and the Fraser Institute are among the organisations that fail miserably to “read the times”, and at the very least, adjust their metrics to take into account crisis scenarios. To assume that the performance of the global economy should be measured against a baseline of 2018 and 2019 borders on anti-intellectualism. Also, the lenses these organizations use to measure ‘progress’ is suspect, given the underpinning ideology of marker fundamentalism. Which is to mean, for the Fraser institute, markets are better managers of business regulations and property rights and for Moody’s, governments should balance books during crisis periods like they do during ordinary times.

State action through regulating travel, imposing lockdowns, lowering taxes, providing humanitarian relief in form of social welfare programmes — all these are actions of the state and not of markets. It was necessary even for liberal economies to dust off their copies of Keynes work and implement huge stimuli packages while lowering taxes in order to boost economic output.

John Maynard Keynes, whose ideas on economic recovery dominated in the middle decades of the 20th century, would turn in his grave to hear arguments suggesting that markets are equipped to correct the economic inequities and inequalities caused by crises. He would probably turn the second time to hear arguments which suggest that the state should be balancing books during crisis, and they should be chastised if they do not. The aftermath of the Covid crisis does not allow any government in the world to balance their books. It has attracted both state failure and market failure. This conclusion suggests that none of both should be acquitted.

All told, if governments stepped in to save the crisis that was advanced by markets, and in the process some of these governments failed by overstepping their lines, to advocate for market dominance to help through the crisis such as the present one is to place ideology before pragmatism. It is to place the trailer in front of the bus.

Dr Jason Musyoka is the CEO of The Frontline Group and an associate Researcher at the University of Pretoria.