The majority of our country’s politicians and economic commentators have painted themselves into a corner of empty promises and ineffectual policies by telling us the only way to create jobs and reduce poverty is to grow the economy at much faster rates.
The Minister of Finance, Pravin Gordhan, said in October last year that the economy must grow by seven percent a year. The Democratic Alliance maintains that a growth rate of eight percent is necessary. In November the Development Bank of Southern Africa said GDP must grow by 10 percent a year for a decade to create the 5 million jobs targeted by the government.
And yet in the national budget presented by Mr Gordhan on Wednesday, the 2012 growth forecast was revised down to 2,7 percent from the 3,4 percent projected last October. The growth rate is now forecast to increase moderately to 3,6% in 2013 and 4,2% in 2014.
But even these projections seem overly optimistic in the face of several near-term threats to the global and local economic outlook.
The first risk is that the Euro zone will sink into recession as a result of its sovereign debt crises and associated fiscal austerity measures. President Zuma has correctly warned that SA will not be able to escape the economic troubles in Europe, given that the region is our largest trading partner.
The so-called ‘economic recovery’ in the United States has also yet to deliver anything meaningful more than three years after the financial crisis. The US unemployment rate lies somewhere between 9 and 20 percent, depending on which definition you choose. Even powerhouse China’s economy seems to be coming off the boil, and the country may face a bursting real estate bubble similar to the one that landed Japan in the economic doldrums in the 1990s.
The second major category of risks consists in festering geopolitical tensions. The hottest spot of the moment is as usual the Middle East. The violence in Syria continues to escalate and threatens to draw in troops from other countries. But Russia and China – wary after the west’s military intervention in Libya – have drawn a line in the sand by vetoing the UN resolution calling for Syrian President Assad to step down.
More ominously, the hostile war of words between western powers and Iran over the latter’s nuclear programme continues unabated. The Israeli leadership is still threatening a ‘pre-emptive’ military strike on Iran’s nuclear enrichment facilities. Meanwhile, the United States and Europe have imposed stringent economic sanctions against Iran, whose economy and populace are now clearly suffering.
Should this situation spiral into another regional conflagration, it will have devastating economic consequences for the globe as a whole and for SA in particular – around half of our oil imports are sourced from Iran and Saudi Arabia. Iran has vowed to respond to an attack by closing the Strait of Hormuz, the world’s preeminent oil ‘choke point’ through which one third of the world’s seaborne oil is shipped.
The third – related – risk to the world and SA economy is another spike in oil prices, which in 2011 averaged a record high of $111 per barrel. Already, the price of oil is acting as a brake on the global economy. Spare oil capacity is now minimal and any further disruption to supplies could send prices towards or even above $150.
Most of these medium term threats are symptomatic of deeper underlying trends, namely the depletion of cheap and easily accessible resources and the degradation of ecosystems that provide vital services to human societies.
World oil production has been essentially flat for seven years and looks set to begin its inevitable descent with the next few years. This will be followed by peaks and declines in many other key resources, including coal and rock phosphates. Water and food are becoming increasingly scarce, thanks in part to climatic changes and land degradation, while the world population continues to grow by over 70 million a year. An increasing frequency and severity of natural disasters – many of them climate related – are adding to the economic stresses.
As a result, economies across the world are paying much higher prices for energy and many other raw materials, which is exacerbating financial imbalances and putting extra strain on highly-indebted countries.
In short, the world is encountering ecological constraints on growth. And in the absence of continuous growth, our debt-based monetary systems falter and implode. Thus without a return to cheap and abundant energy – which would require miraculous technological breakthroughs and a war-time effort to roll them out – debt crises and associated socio-political ructions are going to snowball.
So does this gloomy global trajectory mean that the poor of our country are destined to live in worsening deprivation and misery, and that their ranks will be swelled as more households drop out of the middle class?
If current mind-sets, values and policies prevail, the answer is probably ‘yes’. Exceptional socio-economic circumstances call for real paradigm shifts and radical policy innovations. SA needs to abandon its narrow obsession with GDP growth and adopt the broader goals of economically, socially and ecologically sustainable development.
We need an expansion of sectors that are labour-absorbing and energy and resource efficient, such as repair, maintenance and recycling, small-scale agro-ecological farming, localised production-consumption systems, decentralised renewable energy generation, and so on. We need to reduce our dependence on unsustainable industries such as primary extraction, urban sprawl, and financial speculation. In other words, the quality, type and sectors of growth are crucially important.
Although there have been welcome steps taken toward a ‘green economy’ in several recent policy documents, such as the New Growth Path and the Industrial Policy Action Plan, implementation has lagged behind rhetoric. This is partly due to obstruction from powerful vested interests – most notably the ‘minerals-energy complex’ – which are taking SA further down an unsustainable, resource-intensive and polluting path.
But almost all the policy frameworks – aside from the largely ignored National Framework for Sustainable Development – are still operating within an outdated paradigm. The green economy should not be seen as a subsector of industry. Rather the entire economy – agriculture, manufacturing, construction, services, etc. – needs to undergo a fundamental transition to sustainability on a scale equivalent to the earlier agricultural and industrial revolutions.
There are many ways that our economy and policies could be reoriented to deliver more genuinely sustainable development and to bolster society’s resilience to economic and financial shocks.
The first step must be to reduce unnecessary wastage of energy and materials and to boost efficiency and resource productivity throughout the economy.
The government is right to allocate massive funds to infrastructure spending. But this should be geared much more toward renewable energy and more sustainable transport systems such as integrated rapid transit, passenger and freight rail, and non-motorised transport in cities – and less on expanding export rail lines and ports that assume the global economy will continue to grow for decades.
As identified in the National Planning Commission’s Development Plan, the extension of basic services to the poor needs to be accelerated, including clean water and sanitation, health care, affordable electricity and quality education. If we can build world-class soccer stadiums and a high-speed railway, why can we not achieve these fundamentals?
Unemployment could be tackled by massively expanding the Department for Social Development’s Community Work Programme and the various “Working for… ” programmes – such as water, wetlands, fire, energy, etc. These labour-absorbing activities also help to rehabilitate ecosystems that provide essential public goods and services to society.
The crucial agriculture sector must gradually be weaned off fossil fuels and adopt practices that restore degraded soils and conserve scarce water. An army of small-holder organic farmers needs to be trained with a mix of indigenous and modern knowledge and skills.
In the construction sector, sprawling housing developments on the outskirts of cities need to give way to high-density urban redevelopments, sustainable human settlements involving mixed land-use zoning, and green building techniques and materials.
Where will the money come from to fund these programmes?
The government’s fiscus can be augmented through appropriate taxes on resource rents, including a windfall tax on the super-normal profits of synthetic fuel producers and mining companies. Fiscal incentives – mixes of taxes and rebates – can be used to promote firm and household-level green investments. Profligate state spending on bloated salaries and elite privileges must be reined in.
Even more importantly, the transition to a sustainable and more equitable economy urgently requires serious monetary system reform. An obvious place to start is a financial transactions tax to bring speculative capital down to earth where it may be put to productive use. We should also follow the example of Brazil and North Dakota’s state banks, which rightfully place the enormous power of money creation in public hands rather than leaving it to private commercial interests.
If ecological limits mean that we cannot grow our way out of poverty and unemployment, then we must share our way out. The poor need to consume more for their basic needs to be met, while the wealthy should consume less to reduce their ecological footprints. Businesses can contribute to reducing inequality by capping executive pay and introducing employee ownership schemes. Government officials should be held accountable for their use of public funds and receive performance-related remuneration.
This need not be viewed as a fanciful wish list in the face of entrenched ideologies, cultural norms and institutional relations. Rather, it is hopeful call to action for human beings individually and collectively to evolve their consciousness and behaviours in response to a fundamentally changing reality.
Published in the Cape Times, 13 March 2012