Faulty assumptions, if unchecked, lead to ruin

First Published in Business Day on   July 3rd, 2020   |   by   Isaah Mhlanga

Faulty assumptions, if unchecked, lead to ruin
Phill Magakoe/AFP

Assumptions play a role in how societal challenges are dealt with. They are the pillars that hold proposed solutions together, both when the solutions successfully address society’s issues and when they fail. In the SA policy discourse many crucial assumptions are implicitly made, but sadly they have not resulted in the hoped for outcomes over the past two decades.

There are a number of assumptions we make as a society that are detrimental to progress. The adjusted budget, which is still subject to disapproval by some sections of society — including some fellow economists — reveals one of the most contentious assumptions.

Due to the need for social spending, there is a belief that the government has a bottomless coffer where funds never get depleted. This is demonstrated by calls for increased government spending, with little regard to how the spending will be funded. The funding proposals presented so far — money printing and raiding workers’ pensions — appear to be ignorant of the harmful consequences.

In effect, they put the burden to deal with the consequences on future generations. This is a sure way for society to regress over time, especially relative to other countries. During this time of Covid-19, where spending on front-line services is required, the departure should be to accept that there is no bottomless coffer and that uncontrolled spending without the means to generate revenue will eventually lead to bankruptcy.

For some odd reason there is over-consultation, even on policy measures that are obviously to the benefit of the majority. An implicit assumption made here is that everybody needs to agree on policy positions before they are implemented. Everybody does not have to agree, but the majority must, as long as basic constitutional rights are preserved. At times this assumption delays, or outright prevents, the implementation of good policies that would otherwise help the poor segment of our society.

There is a tendency to ascribe the less-than-desirable economic outcomes to the failure of previous and existing policies. This is the view advanced by the heterodox economists, who go as far as saying the whole macroeconomic policy framework as it exists today is defunct and must be discarded. There is no truth in this assumption. The existence of a good policy does not automatically translate into outcomes without ruthless implementation. The past two decades have been largely a failure of implementation rather than of policy itself.

Related to the above, there is a plethora of suggestions on how to revive economic growth, which assumes we need new policies and development models for the economy to grow. In truth, we do not need new policies. We need to implement the existing policies better and in a way that ensures inclusivity. There are those who assume transformation is detrimental to growth, or is a cost for business. Yet without transformation the social fabric of this society is not sustainable.

To take it to the extreme, those who hold this view are in the same place as those that thought slavery, colonialism and apartheid could sustainably exist and that the abolition of these was a cost of doing business. Transformation is the only business case for this country — there is no other way around it. Leaders in business and government who fail to effect transformation when the means exist will be judged by future generations in the same way as those who sustained apartheid and colonialism are judged today. Their statues are falling all over the world.

As we grapple with Covid-19 and crafting a post-Covid economy, we must take as given that financial resources are limited; there must be intergenerational equity; it’s not necessary to have absolute consensus; bad outcomes do not necessarily mean the policies are bad; and that transformation is a business case.    

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Phibeon Mutibura (05:07:42 - July 6th, 2020)

Thanks Isiah. SA democracy stifles implementation of anything. What makes political alliances, such an important factor even in business decisions. Can there be a time when economics lead politics in Africa?

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Itumeleng Shabangu (11:07:59 - July 6th, 2020)

I'm not an economist, just a mere civil engineer, but when I read the article from the economists who were calling for parliament to oppose Titos supplementary budget, I also thought, MyGoodness? Where do they think this increased spending is going to come from. There is no free lunch in this world!!! Thanks for clarifying and reiterating that we don't have a bottomless coffer. Thanks Isaah. Great article.