Fixing Broken Institutions and Economic Policy as a Unit Is Key

Cape Times (South Africa), February 22, 2018 | Go to article overview

Fixing Broken Institutions and Economic Policy as a Unit Is Key


NEW President Cyril Ramaphosa's State of the Nation address (Sona) was designed to project an image of hope and change. The new head of state emphasised the fight against corruption, improved governance of state-owned enterprises, expropriation of land without compensation and the rebuilding of the manufacturing sector.

But Ramaphosa and his incoming team are probably well aware that they face the challenge of rebuilding the institutions that were destroyed during the Jacob Zuma area. This is confirmed by references to the appointment of a new board for the power utility Eskom, and a commission of inquiry into the South African Revenue Services.

The challenge that will face Ramaphosa's administration is how to rebuild the institutions as the centrepiece of a new economic policy. The problem is that institution building and economic policy making have been kept separate.

Institution building is about rule-making and governance. Economic policy is about maintaining macroeconomic stability. The groups of experts who cluster around the two focus areas find it hard to understand each other. This will have to change if Ramaphosa's promises are to be realised.

It will be necessary to address institutional reform as an economic strategy.

The Sona did not achieve this synthesis. The dualism persists in the way in which Ramaphosa kept institutional reform and economic policy separate.

For example, he promised a range of interventions, including job creation, land reform, improved education and health insurance. But if past policies are followed and fiscal expenditure remains pegged at around 60% of gross domestic product, will there be sufficient cash for all the action items? And can this ceiling be breached without institutional reforms that drastically reduce corruption and so improve developmental and economic impacts?

During Thabo Mbeki's era the focus was on macroeconomic stabilisation. In contrast the Zuma administration focused on a specific set of institutions - state-owned enterprises.

Their procurement budgets were identified as the key levers for building a black industrial class not dependent on white capital. This is what became the core ideological focus of radical economic transformation.

South Africans know that this also created the conditions for rent-seeking and state capture.

And while this institutional turn was under way for nefarious reasons, the National Treasury became the champion of macroeconomic stability. This was why the Gupta family felt it important enough to offer the then deputy minister Mncebisi Jonas R600 million to take the top job in a bid to engineer its capture.

The institutional focus during the Zuma years had nothing to do with institution building. Quite the opposite.

Zuma presided over no less than 12 cabinet reshuffles. With every one came changes in the top echelons of government departments and agencies.

The average length of service of top officials in a particular position was six to nine months.

This, with boards of state-owned enterprises being stuffed with incompetent loyalists, drove the institutional meltdown that the Ramaphosa administration faces. The biggest casualty was institutional memory. …

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