Policy battle over the big ideas - City Press, 6th October 2013.

Oct 07, 2013
Frans Cronje writes about the policy battle between the 'verkramptes' and 'verligtes' in the ANC and increasing evidence that the 'verligtes' could win.

Longtime observers of South African politics will recall the battle between the verligtes and verkramptes in Afrikaner politics of the 1980s.

The verligtes were pragmatists and realised that apartheid South Africa was running out of runway and needed to reform.

The verkramptes, on the other hand, rejected this view and argued the government’s problems arose from precisely such reformist thinking and that a hard line had to be taken, opposing any further reforms.

Well, 30 years later, there are again verkramptes and verligtes, except that this time they find themselves within the ANC where they are slugging out a new “battle of ideas”.

The new verligtes are motivated by the fact that the party they lead is now also running out of runway space.

One challenge their party faces is that, as a share of the potential vote, ANC support has fallen from 54% in 1994 to 39% in 2009.

In that last election, more people chose not to vote than the number who voted for the ANC. In any other emerging democracy, that would be an indicator of voter apathy.

But this is not true for South Africa, as the decline in voter turnout tracks a trend of increasing numbers of antigovernment protests on the streets of the country.

A second challenge is that the labour market continues to perform poorly. Approximately 6 million net new jobs have been created since 1994.

But over the past decade, the labour market absorption rate has fallen by five to six percentage points, to a uniquely low level by some international standards.

The labour market participation rate for black people is 15 to 20 percentage points below international norms. Today, 50% of young people are unemployed.

A third problem is that growth is forecast to slow down to 2% for this year. This is worrying because a sustained growth rate in excess of 5% of gross domestic product is necessary to make any significant inroads into the unemployment rate.

That was the level of performance from 2004 to 2007 – which was also the only post-1994 period that saw a sustained drop in the unemployment rate and in the number of unemployed people in SA.

A fourth challenge is that the budget deficit precludes a significant extension of the welfare system, which now reaches in excess of 15 million people. In 1994, four people worked for every one person on welfare. By 2010, the number on welfare exceeded those working.

Yet a cruel irony for the ANC is that as the proportion of people receiving welfare grows, so the proportion believing government is performing well shrinks.

In what is no doubt a disconcerting experience, the party leadership is coming to realise that the more people get welfare and the more houses are built for them and electricity laid on, the faster public opinion is turning against the government. We call this the curse of rising expectations.

A fifth danger rests in the current account deficit and interest rates. If SA loses the portfolio investment inflows on which it depends to pay for an excess of imports over exports, then the rand slides, inflation takes off, and the ratings agencies hammer us.

Investment dries up and growth stutters to a halt.

A sixth problem lies in the education system. On current trends, only half of all children will reach matric and only a third will pass. Only four out of every 100 children will pass maths with 50% or more.

Though few seem to recognise it, these very pressures, which depress so many people, may become catalysts for policy reform in South Africa. It is here that the example of the verkramptes and verligtes becomes so valuable.

The Afrikaner verligtes realised that their country was approaching a dead end and, if they did not lead the change process, the change process would lead them.

The modern-day verligtes are coming to a similar understanding. They realise that market-based reforms to attract investment and thereby generate growth and jobs are necessary to save not just South Africa but also the ANC itself. They fear that without rapid job creation, the ANC is set to lose a future election – probably in 2024.

The verkramptes reject the view that market-friendly reforms are necessary. They blame markets for the trouble the ANC finds itself in.

If they manage to seize policy control of the Tripartite Alliance, then expect a hard leftward shift in policy that will undermine property rights and wreck the economy.

Scenarios the SA Institute of Race Relations have produced suggest that if the verligtes win, then growth levels can hit 5% of gross domestic product.

Job growth then takes off, domestic markets expand, welfare dependency is reduced, the budget deficit is well managed and investment levels pick up further.

In other words, South Africa assumes a positive upward economic trajectory. If the verkramptes win, the rand crashes, inflation reaches hyperlevels, and living standards dive. It is the archetypal African worst-case scenario.

While many people again fail to realise it, there is growing evidence of reformist thinking within the ANC.

Current attempts by the governing party to undermine union federation Cosatu and turn it into the “labour desk of the ANC”, as Zwelinzima Vavi warns, is one example.

A “tame” Cosatu would allow the ANC to proceed with a host of labour-market reforms such as the recently proposed Employment Tax Incentive Bill.

The bill, which in effect proposes subsidising job creation for young people, is a good example of reform-minded ANC politicians in action. Of course, subsidies do not create jobs – but that is not the reason the idea is so important.

Rather, it suggests that some in the ANC now accept that the labour regulatory environment is so rigid that, without special measures (in this case subsidies) employers cannot create jobs. When they realise the subsidies do not work, they may propose new and more drastic reforms.

A tamer Cosatu in fact creates limitless possibilities for reform across a range of sectors. Once Cosatu is brought to heel by the ANC, it becomes possible, for example, to deal with the SA Democratic Teachers’ Union, which is necessary if we want to reform education. Piece by piece, the reformists could bring about a very different social and economic environment.

To a great extent, the future of SA now rests on how this battle of ideas within the ANC itself plays out. There is little doubt, though, that the reformists have what it takes to place our country on a better social and economic trajectory and that much more needs to be done to strengthen their hand.

First published in City Press on 6th October 2013.

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