SUNDAY TIMES - How Count Basie can help SA call the tune
Sunday Times Opinion By Jabulani Sikhakhane, 2016-02-14 00:00:00.0

How Count Basie can help SA call the tune

South African policymakers would do well to emulate Count Basie's approach to making music. They could also learn a lot from how Turkey pulled itself out of an economic crisis in the 2000s that was worse than what South Africa faces.

These lessons are important as South Africa seeks to restore investor confidence in its economic path by embarking on budget cuts and broader economic reform.

Basie, the great American jazz pianist, made music like an old-style cook would make soup.

Guided by his taste buds, the old-style cook would add more ingredients until he got the taste right. Basie had a similar approach, except that he did in reverse what the cook would do. Instead of adding to a tune, Basie would pare it down to its bare essentials. And the essentials were the few notes that Basie played, beautifully so, to say what there was to say musically.

Those few notes are what made Basie stand out from the crowd of pianists.

The same approach is required if South Africa is to fix its myriad problems - poor public services (education, health, policing), high unemployment and very low economic growth.

Not all can be fixed immediately, nor can they be fixed at the same time. Hence the key is the careful choice of a few stumbling blocks whose removal will lift economic growth.

This is the same approach advocated by economists Ricardo Hausmann, Dani Rodrik and Andrés Velasco. Countries, they have been arguing, must identify one or two of the most binding constraints on the growth of their economies and focus all their energies on lifting these.

Hausmann, a former planning minister of Venezuela, is the director of the Centre for International Development and professor of the practice of economic development at Harvard University, where Rodrik is professor of international political economy. Velasco, Chile's former minister of finance, is professor of professional practice in international development at Columbia University.

"Presented with a laundry list of needed reforms, policymakers have either tried to fix all of the problems at once or started with reforms that were not crucial to their country's growth potential," Hausmann, Rodrik and Velasco wrote in 2005.

"By focusing on the one area that represents the biggest hurdle to growth, countries will be more likely to achieve success from their reform efforts."

Turkey may today not look like a country from which South Africa can learn anything. In addition to its domestic political troubles, Turkey is caught in the middle of the Syrian civil war. But back in the early 2000s Turkey recovered from an exchange rate that had collapsed, inflation in the 50%-60% range, and interest rates that had shot up above 1000%.

And Kemal Dervis, the man who helped pull Turkey out of this economic abyss, has some words of wisdom that South African policymakers would do well to heed. Dervis was Turkey's minister of economic affairs from 2001 to 2002.

In a working paper for the UN University's World Institute for Development Economics Research, Dervis makes the common-sense point that the restoration of investor confidence was essential to Turkey's quick turnaround. But it was not fiscal policy alone that restored investor confidence.

The other key element was structural reform, including the clean-up of the banking system, introduction of a new public procurement law, as well as energy, telecommunications, civil aviation and agricultural policies.

"All these policies [were] aimed at a gradual but clear and determined effort to change the nature of the Turkish economy from a rent-seeking crony capitalist system to a truly competitive social market economy," Dervis says.

Structural reforms are more important than a one or two percentage point change in the budget deficit, Dervis says.

He adds that for confidence-building it is better to set realistic targets and achieve them, than it is to have ambitious ones and miss them.

Dervis's other key point relates to communication, for which he credits the advice he got from Guillermo Ortiz just before he left the US to lead the Turkish economic team. Ortiz was Mexico's treasury secretary during the 1994 "tequila crisis", which was triggered by the Mexican government's sudden devaluation of the peso against the US dollar.

Dervis credits "the very activist communications policy" he adopted for garnering early political support for the reform package.

"That early support created a virtuous circle where a relatively early return of confidence prevented social unrest and allowed the structural reforms to be enacted and then gradually implemented almost without disruption or serious opposition," he says.

He cautions, though, that confidence-building is not a magic trick that can be pulled out of a hat when the reform programme is ill-designed.

Dervis's advice on communication is supplemented by Montek Ahluwalia, the former deputy chairman of India's Planning Commission. Ahluwalia explains, in a World Institute for Development Economics Research working paper, that if a government proposes a reduction in the budget deficit that is less than what the market expects, "the logic underlying the government's decision needs to be well explained, both to the public and to international investors and ratings agencies".

The policy choices South Africa makes and announces over the coming weeks, but most importantly the success it has in implementing these, will determine whether investor confidence is restored.

Sikhakhane is deputy editor of The Conversation Africa