Our future growth story is not about a choice between transformation or growth. Instead, we need growth with transformation. Growth without transformation will exacerbate inequality, lead to increasing social tensions and provide fertile ground for the rise of populism. Transformation without growth will be accompanied by disinvestment, rising unemployment, and less wealth and assets to redistribute. Decreased state revenue will lead to reduced fiscal redistribution (for example, on social welfare). Simply put, without growth, transformation will make us poorer; without transformation, growth will exacerbate inequality, which will make the growth itself unsustainable.
The single biggest policy failing since 1994 has been around inclusive economic growth. South Africa finds itself in a middle-income trap, unable to compete in the low-skill, labour-intensive industries where low-income countries enjoy competitiveness, and without the spread of technological know-how and human capabilities to compete with high-income countries in more sophisticated industries and services. The result has been increasing deindustrialisation and a growth slowdown. Poor education, skills and a dearth of innovation outcomes have meant that the country has been unable to transition to higher-value activities. Less opportunity for wealth creation in the real economy has increased the stakes in the parallel, clientelist economy. This, in turn, has weakened the state and those very institutions central to inclusive growth.
Unless this changes, our country will fail to deliver on the needs and aspirations of its people. While catastrophic failure is unlikely, the alternative is just as damaging in the long term: a continuous erosion in a downward spiral of slow growth, uncompetitiveness, increasing exclusion from the formal economy, inequality, institutional decay and disinterest, and growing reversion to extra-parliamentary forms of protest, which could ultimately manifest in Venezuelan-style populism and democratic collapse.
We require a break that must be sharp, deliberate and aimed simultaneously at impacting both on the economy and state institutions. Minor and incremental policy changes at the margins will not be insufficient to change our development path.
