When looking to ensure the growth and stability of a countries economy, it is most probably determined by the governance of institutions within the specific economy. The problem faced then is the ultimate effect the government has on these institutions. In the case of the South African economy, the government has proven this statement to be very true. The South African government is known for its unstable manner of handling its economy, with huge amounts of tax money spent on providing the best policies and remedies for the economy without any implementation.
Professor Peet Strydom listed a number of rules for excellent institutions, in the colloquium on the 13 September 2012, at the North-West University of Potchefstroom’s School for Economics, where he emphasised the importance of these institutions for a successful economy. These rules include:
- Rule of law (Securing contracts)
- Protection of property
- Stable and functional government
- Importance of a functional market
- Investment in people (Health and education)
- Macro-Economic stability
Regarding the development of a country, multiple theories come to mind, but the specific one South Africa is using at the moment would be the industrialisation of the domestic economy. The problem with this specific policy would be associated with our government in terms of labour costs and the condition of human investment in the country.
We can thank a certain politician for strikes in the mining sector, ensuring that our labour costs remain uncompetitive. With the contradictory state of job creation and stimulating the private sector, contradicted by the nationalisation of the mining sector, making it counterproductive and not as job absorbent as it would have been. South Africa it would seem, in the government context would be in a “flat spin”.
Focusing towards the 3rd pillar if you will, namely Stable and Functional government, and the effect that this pillar ultimately has on the other remaining pillars (influencing economic growth and prosperity).
The first point that comes to mind is service delivery, if delivery even exists, such as in cases like school text books not being delivered to schools in the Limpopo area until the second term of the year.
How does this influence the other rules for institutions you ask? The basic foundation for a productive work force is education. Only a small amount of the South African work force has received tertiary education, resulting in only a small portion of the work force being highly productive, ultimately influencing South Africa’s competitiveness in the world economy.
An example of a country that enhanced their institutions for the better was Brazil that enhanced Macro-Economic stability combined with investment towards education, with the positive result of reducing poverty by 50.5%. This proves that economic growth favours the educated and discriminates in that matter towards educated individuals. Thus proving that education can relieve poverty.
The second matter that comes to mind is corruption, within the government entities. This has dramatic effect to the actual allocation of funding towards the “excellent institutions”. Corruption, distorts the flow of tax funding towards essential institutions, as again the health and education of the South African people and infrastructure that enhances the competitiveness of South African companies.
The current policies of the ANC have forced some of the educated work force to leave the South African economy to more prosperous venues (Black Economic Empowerment). We like to call this the “Brain Drain”. This forces the portion of highly productive individuals the South African economy has to leave the economy, again influencing competitiveness in the global market.
As Professor Raymond Parsons stated at the same colloquium, “While economic institutions are critical for determining whether a country is poor or prosperous, it is political institutions that determine what economic institutions exist.”
The influence the government has on the productivity, competitiveness and actual condition of the South African economy is obvious, and decisions made by the government have shown its effect on institutions. Will this change? Will the ANC decide to start implementing the policies needed to kick off a growth rate higher than 4%? I don’t know, but the future will tell its tale.