NOW IS THE TIME: President Jacob Zuma speaks at the ANC  ‘cadres’ forum’ at the University of Zululand in early December. Picture: SUNDAY TIMES
NOW IS THE TIME: President Jacob Zuma speaks at the ANC ‘cadres’ forum’ at the University of Zululand in early December. Picture: SUNDAY TIMES

IT IS a truism of politics in democracies that governments do not make dramatic policy changes unless their grip on power is threatened. Wise leaders may occasionally take pre-emptive action when disaster is looming but, in general, the path that is chosen will be the one that offers least resistance and is believed to appeal to the constituency that is most likely to re-elect the incumbents.

That is not necessarily a bad thing in the long run, even if it does produce short-sighted policies on occasion; democracy is merely the least bad system of governance, after all. Myopic, self-serving or populist policy-making will eventually be exposed and those responsible punished at the polls. However, a lot of damage can be done in the interim.

This explains why the Organisation for Economic Co-operation and Development’s (OECD’s) third South African economic survey, released in Midrand on Monday, is unlikely to find favour with the African National Congress (ANC) and its alliance partners, despite containing some carefully considered and earnestly motivated proposals. The problem is not that the OECD has failed to diagnose SA’s economic ailments accurately, or that its suggested remedies are impossible to implement, although some are certainly contentious.

The reason its call for decisive action to stimulate the economy and unblock the bottlenecks that are preventing business from expanding and creating more jobs is unlikely to be heeded is that most of the required interventions are politically and ideologically unpalatable to the ruling party.

In addition, there is more than a little truth in the OECD’s contention that SA’s lack of competitiveness is as much the fault of the business establishment as of the trade unions, which are as guilty as each other of protecting vested interests and keeping potential competitors out.

From the government’s perspective, while it is clear the public service is bloated, inefficient and overpaid, and that cutting it down to a more manageable size and demanding accountability would go a long way toward reducing the budget deficit and freeing capital for more productive use, this is not a suggestion that is going to fly with an election just around the corner.

Public servants and social welfare recipients are the core of the ANC’s constituency — that is why both budget items have swelled so alarmingly over the past 18 years.

This is unlikely to change as long as that constituency is benefiting from the ANC’s policies.

The question wise party leaders should be asking themselves is how long that will be the case if economic growth continues to sputter along at well below the potential rate, and the productive side of the economy is simultaneously squeezed for revenue and crowded out by the state. What if such state largesse is unsustainable, as last month’s annual budget so clearly indicated? Would it not be better to take decisive action now and fight the internal political battles while they can still be won than to pay the price at the polls later?

The wisdom of some of the OECD’s suggested economic reforms is debatable, although that does not mean they should not be seriously considered. Lowering interest rates would be popular among many in business, labour and the political establishment, but there is no such thing as a free lunch. While the rand exchange rate is affected by a number of factors in addition to interest-rate differentials, and foreign capital flows have certainly been a prominent factor in recent years, this is a notoriously risky market to dabble in.

Forcing interest rates lower would risk re-inflating the consumption and asset bubbles that plagued SA before the 2008 crash. Only fools and speculators rush in where angels fear to tread.