Regulations aimed at saving lives brought a loss of income
The National Planning Commission (NPC) hosted a round-table discussion this week on the review of the economic progress towards the National Development Plan’s (NDP’s) 2030 vision, and gave recommendations for course correction. My addition to that discussion is as follows.
The economic crisis we have is not a financial crisis, or an outcome of economic misallocations or the greed of the private sector. It is an outcome of the government’s policy before the pandemic and its response to a health disaster that all countries are dealing with. This is a crucial point, because it has important implications on some of the widely debated policy decisions government has to make if we are to minimise the gap between the NDP’s vision and what we end up with after the Covid-19 pandemic.
In this respect, let me make two points: First, out of necessity, government enacted regulations that stopped economic activity. These were aimed at preserving lives, but brought loss of income to corporates and households. Second, while saving lives, the resulting company closures and job losses directly due to lockdown regulations have resulted in the loss of incomes, particularly for those already on the lower end of the income spectrum — informal traders, unskilled and semi-skilled workers, who have little to no job mobility.
One of the NPC’s messages is that achieving the goals of the NDP cannot be suspended because of the pandemic. This implies at least two policy positions:
· The Temporary Employer/Employee Relief Scheme (Ters) must remain in place as long as we are still in a state of disaster and government is imposing lockdown regulations that close certain sectors of our economy and result in job and income losses.
· Ters must be better targeted given the financial constraints that exist. In this respect, the duty of government is to citizens’ lives and livelihoods, not to corporates. Given the support, it is individuals that will dictate which corporates get to survive post the pandemic based on the value they place on the goods and services they supply. This can be a way around avoiding supporting zombie corporates that would die anyway without the support of government after the pandemic.
While the pandemic has set the economy back many years, it has also turbocharged our world a couple of years into the future. The digitisation of the economy will not be reversed. The global economy that will emerge after Covid-19 will be different to what we had before the pandemic. Value chains will be closer to consumption places. The skills and jobs that will be required in future will be different to the jobs that have been lost during the pandemic. This calls for a reset, not just a course correction, because our path has fundamentally changed — though our destination and the NDP’s vision remain the same.
The investment decisions we make must always take these factors into account. To be blunt, what could be the return of laying down R10bn worth of fibre network across the country, particularly in areas outside cities, relative to bailing out SAA? This calls for hard choices in the use of public funds, which government has failed to make.
That said, to quote the inaugural address Ronald Reagan delivered on January 20 1981: “In this present crisis, government is not the solution to our problem, government is the problem.” The private sector needs to play a bigger role in the future of the country, looking beyond profits and strategically considering the sustainability of the SA economy and its people. Profits and development can be achieved jointly.
The external posture of listed companies in particular, where about 70% of their revenues are derived offshore, implies that they had to make investments outside the country that could be made locally. Yes, they are in search of opportunities, but investing locally can create the market they seek offshore.