Integrated social development as an accelerator of shared growth

Abstract

South Africa has embarked on an initiative to accelerate economic growth in support of shared income (ASGI-SA), which succeeds the RDP and GEAR strategies. The latter policies, which focussed on macroeconomic stabilisation and trade liberalisation, have contributed significantly in improving the economic growth performance in South Africa over the past decade. The recent momentum in GDP growth has been predominantly propelled by demand-side stimuli, like lower interest rates, reduced tax rates and enhanced accessibility to credit and financial markets. However, despite the increases in GDP growth rates, economic growth has proven to be unsuccessful in making significant progress towards eradicating poverty by addressing the unemployment, redistribution and associated socio-economic problems in the economy. Focus 55 builds a case for the persistent prevalence of structural rather than cyclical impediments to employment and consequently shared output growth. Cyclical factors are contributing very little to the current high and unresponsive rates of unemployment. The inability of output growth to translate into significant employment creation and poverty reduction has created a dualistic economy. A “second economy” has consequently emerged with distinctly different features, based on unstable fundamentals and offering limited social protection to those forming part of this economy. The more stable and robust first economy represents the basis of the “era of hope” with high levels of output growth, low inflation and fiscal debt, buoyant financial markets and strong consumption spending. However, the crumbling foundation, or second economy, with high and sticky unemployment, unacceptable levels of extreme poverty associated with poor socio-economic conditions for the larger part of the population, have all contributed to a poverty trap – a situation that requires innovative and targeted external interventionist programmes. It is furthermore imperative that this poverty trap is eliminated in an effort to unlock South Africa's ability to grow sustainably at levels of 6 per cent. Policy making in South Africa has to find a new paradigm - one where employment creation and resultant poverty alleviation is not merely accepted as a by-product of economic growth, but where employment creation is viewed as a key accelerator of economic growth. Social development targeted at mobilising and empowering the unemployed needs to constitute the backbone of any growth, employment and redistribution policy. This calls for an integrated strategy on social development to address the imbalances and structural impediments of the past facing the poverty stricken communities. The focus here should be on designing and implementing policies that truly empowers and mobilises this untapped potential of society towards spurring higher levels of future economic growth rather than merely awarding handouts. The innovative and skilful redesign of existing policies will significantly impact on the returns of social spending on employment and growth. Focus provides empirical evidence that a 10 per cent improvement in the socio-economic environment would increase South Africa's growth potential to about 6.5 per cent, thereby generating sustainable levels of output and shared income growth. These results clearly highlight the importance of job creation through socio-economic development as a key accelerator of growth. The proposed policy paradigm is based on an integrated national strategy for social development, where growth initiatives focus more intensively on employment creation. This broad based approach will ensure that any future accelerated income creation is truly “shared” by all levels of society. It also represents the only way to eradicate the growth and poverty trap once and for all and to realise goals envisaged in ASGI-SA