[Opinion] The end of social compacts?

The notion of ‘social compacting’ and ‘consensus seeking’ have been large parts of President Ramaphosa’s administration and value offering since 2019. While many promises have been made, these have failed to deliver the kind of policy reforms the country needs to unlock higher levels of growth. Adding pressure to President Ramaphosa’s attempts at reform – as well as on the ruling ANC party as the country heads toward national elections in 2024 – it appears that various bigger corporate and labour union players are losing patience with the president’s approach to policy reform. The president’s own 100-day deadline for delivering a new social compact – with the goal of spurring investment and growth – has come and gone.

There are several fundamental problems with consensus-seeking as a model for policy reform. Not all involved will agree on the most important points that need to be achieved. Those with the necessary political pull will receive a greater slice of time and be able to change policies to suit them; the concept rests on the assumption that the state is best placed to ‘manage’ the economy and therefore if it can attain buy-in from everyone, it can make the necessary changes.

This inevitably means that, when a party such as the ANC is in charge of state organs and tools, the default will be toward policies that increase centralisation, taxation, and power maximisation – all of which have wrought havoc on the economy, with a record-high unemployment rate and lower foreign direct investment flows as the prime examples. Finally, the more lofty commitments of social compacts mean getting the growth fundamentals right - investment will increase and jobs will only be created if the conditions are right for such. There is no getting around the need to make concrete changes instead of wishing that matters will change for the positive because we say the right words and make promises.

Increasing growth rates is essential to addressing the unemployment rate; within such a broader macro context, more business formation and investment would take place. However, the kinds of pro-growth reforms we need are unlikely to come from the ruling party, because doing such would require the abandoning of the core tenets of the National Democratic Revolution. There will continually be efforts at surface-level reforms, but nothing in the area of labour laws, for example, which would truly open up people’s economic freedoms.

Instead, it is probable that the ANC will double down on more radical policies as it tries to shore up support heading into the 2024 elections. The Employment Equity Amendment Bill, prescribed assets, pursuing expropriation without compensation through the Expropriation Bill, a National Health Insurance, and the continued pursuit of localisation will drive up business costs, and in turn mean higher growth remains elusive.

Article originally posted here.