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"The Policy Proposals and the Implications of the Developmental State"

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Speech by Leon Louw, executive director of the Free Market Foundation

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"The Policy Proposals and the Implications of the Developmental State"

  1. 1. FW de Klerk FoundationDevelopmental State Leon Louw 25 July 2012
  2. 2. BackgroundRDPGEARASGISANEPADNGPIDPProvincial programmesLocal government programmesetc
  3. 3. Background• Pre-Polokwane (2007): NDR etc• Not Freedom Charter• Polokwane: • Decent jobs (not jobs per se) • Reducing poverty • Spurring rural development • Land reform • Improving health, education, public service delivery • Cutting crime • Creating economic growth
  4. 4. BackgroundZuma: ‘The key to achieving these priorities will be the building of an effective, developmental state.’• Proclaims monumental failure• Curious references to Asian Tigers, BRIC• Special Economic Zones (SEZs)• Lack of reference to rapidly developing countries, especially Africa
  5. 5. DefinitionsDevelopmental State: Government “plays anactive role in guiding economic developmentand using the resources of the country to meetthe needs of the people … tries to balanceeconomic growth and social development …uses resources and state influence to attackpoverty and expand economic opportunities”.
  6. 6. DefinitionsDevelopmental State:• ‘Greater role for government’• More government ownership and control• More: • consumption of wealth • Inefficiency • corruption • patronage• Less: • Wealth • Efficiency • freedom
  7. 7. Developmental State• Some detailed, most amorphous• Much is extreme • NHI = NHN • Land • Mining • Finance • Dependency etc• Intensely racial• Related pernicious myths: • Lack of transformation • China • Financial crisis
  8. 8. Definitions• Development: Improvement in welfare, quality of life, well-being; satisfying needs and wants (socio-economic indicators)• Socio-economic development: measured with indicators such as GDP, life expectancy, literacy, employment … and less- tangible factors such as personal dignity, freedom of association, personal safety, participation in civil society.• Economic growth: Increase in value of goods and services produced (GDP)
  9. 9. DefinitionsSustainable development: Development thatmeets the needs of the present withoutcompromising the ability of future generations tomeet their own needs (mainly environmentalindicators)
  10. 10. DefinitionsEconomic development: sustained concertedactions of policymakers and communities thatpromote the standard of living and economichealth … the quantitative and qualitativechanges in the economy … humancapital, infrastructure, competitiveness, environmental sustainability, socialinclusion, health, safety, literacy, and otherinitiatives. Differs from economic growth …policy intervention …
  11. 11. Development Indicators250 indices of conditions; 150 of policies eg:• Access to safe water, housing, infrastructure• Access to internet• Cars, doctors etc p.c.• Crime; Corruption• Food and energy consumption• Health, life expectancy, obesity etc• Literacy and higher education• Clean and safe environment• Personal satisfaction and welfare• Environmental sustainability
  12. 12. Wealth means ‘Everything is better 100 90 80Everything 70 60 50 40 30 20 10 0 1g 5g 10g 15g 20g 39g 35g 40g 45g Wealth ($ GDP pc)
  13. 13. Wealthier is more Literate 50% 45% 40% 35%Illiteracy 30% 25% 20% 15% 10% 5% 0% Poor Rich
  14. 14. Wealthier is more Developed (UN-HDI) 1Human development 0.8 0.6 0.4 0.2 0 Poor Rich
  15. 15. % people with sanitation Wealthier and Cleaner 100% 80% 60% 40% 20% 1 2 3 4 5 6 7 8 9 10 Poor Rich
  16. 16. Wealth and Safer (purified water)% people with safe water 100% 90% 80% 70% 60% 50% 1 2 3 4 5 6 7 8 9 10 Poor Rich
  17. 17. Wealthier is Healthier (life expectancy) 80Life expectancy 70 60 50 40 30 1 2 3 4 5 6 7 8 9 10 Poor Rich
  18. 18. Wealthier is Happier 10 9 8 7Happiness 6 5 4 3 2 1 0 1g 5g 10g 15g 20g 39g 35g 40g 45g Poor Rich
  19. 19. 20:20 AnalysisHow to be wealthy? = grow! How?
  20. 20. Economic freedom and wealth 20,000GDP per capita (US$) 15,000 10,000 5,000 0 Unfree 2 3 4 Free Quintiles
  21. 21. Economic freedom and growth 3%GDP growth per capita 2% 1% 0% -1% -2% 2 3 4 Unfree Free
  22. 22. Economic freedom and ‘poverty’ 45Human Poverty Index 40 35 30 25 20 15 10 Unfree 2 3 4 Free
  23. 23. Economic freedom and equality (0 = equality; 100 = inequality) 45‘Gini’ coefficient 43 41 39 37 35 Unfree 2 3 4 Free
  24. 24. Freedom and corruption 8 7 10 = corrupt, 0 = not corrupt 6Corruption 5 4 3 2 1 Low 4 3 2 High
  25. 25. Freedom and investment $5,000Investment per capita $4,000 $3,000 $2,000 $1,000 $0 Low 2 3 4 High Rule of law
  26. 26. Freedom and child labourPercentage of children (10-14) 21 18 15 in labour force 12 9 6 3 0 Low 4 3 2 High
  27. 27. Freedom and political stability 1.5Political Stability (2004) -2.5 =low; 2.5 =high 1.0 0.5 0 -0.5 -1.0 -1.5 Low 4 3 2 High
  28. 28. Unemployment (% of total labour force, 2000-2002) 11 5 6 7 8 9 10 12 13Low432 Freedom and unemploymentHigh
  29. 29. Growth vs. freedom + change 0.14 FreedomObserved values 0.1 and 0.06 Change 0.02 Change -0.02 Freedom -0.06 -0.1 -0.06 -0.04 -0.02 0 0.02 0.04 0.06 Predicted values
  30. 30. Growth vs. freedom + changeGrowth & EFW Growth & change 0.14 -0.091 0.1 -0.083 0.06 -0.074 -0.065 Growth 0.02 -0.057 -0.048 -0.02 0% -0.039 -0.031 -0.06 -0.022 -0.013 2.5 -0.005 1.5 0.004 10 0.013 0.06 9 8 0.021 0.02 7 6 0.030 -0.02 5 0.038 4 -0.06 2 3
  31. 31. NDPAll-embracing; ambitious‘South Africa can eliminate poverty andreduce inequality by 2030’440 pages; 15 ChaptersDevelopment IndicatorsDiagnostic OverviewRequires big changes, lacks specifics(to be addressed in submissions)
  32. 32. Employment Obtuse references to labour policy reform 5,4% growth needs ‘very low-income employment, survivalist activities and public employment schemes’ Bargaining that’s ‘conducive to investment’
  33. 33. Poverty and Inequality
  34. 34. Chapters1. Key drivers of change2. Demographic trends3. Economy and employment4. Economic infrastructure5. Transitioning to a low carbon economy6. Inclusive rural economy7. Positioning South Africa in the world8. Human settlements9. Improving education, innovation and training
  35. 35. Chapters10. Promoting health11. Social protection12. Building safer communities13. Building a capable state14. Promoting accountability and fighting corruption15. Transforming society and uniting the country
  36. 36. Confused responses‘Zille gives NDP the nod’‘NPC to ignore DAs statement’NGP vs NDP vs DS!No reference to key globalindices/determinants
  37. 37. NDP ‘Transformation’ ‘The longer-term solution to skewed ownership is to growthe economy rapidly enough to focus on spreadingopportunities for black people’ Eg ‘financial inclusion’
  38. 38. ConclusionHayek: Government can do morefor the people by doing lessLouw: When things are in thehands of the state they’re in a hellof a state
  39. 39. End

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