Make peace with the radical economic transformation bugbear

30 April 2017 - 02:00 By Mark Barnes
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Radical economic transformation has everyone's knickers in a knot. It shouldn't have, it's simply a challenge we have to face and sort out. We have no choice.

We have to define it unambiguously lest it divide us, rather than unite our economic efforts.

It requires a mind-set change. Success will come only once every participant across the economic spectrum has reached clarity of purpose in radical economic transformation.

The objective must be common cause if we are to have any hope of getting there. Only once we have all seen the destination and agreed on its overwhelming virtue, and the better life it will bring for all, can we talk implementation specifics and timetables.

The objective is a statistically normal distribution of wealth in our society. Our distribution now is skewed and polarised - and simply not sustainable, like it or not. Absent common cause, an economically divided society will not right itself. Left to its own devices, inequality will become further entrenched. Who cares? We'd all better care.

A polarised society cannot elect a cohesive government - priorities are just too different. Without cohesive investment strategies we cannot achieve economic transformation. As a major participant in the economy, not only as regulator and policymaker but in terms of purchasing power and cost of capital, the government has to be part of the deal.

In fact, it has the lead role and cannot abrogate that responsibility to the private sector, whether in the name of competitiveness or any other constitutionally defensible reason for not getting it done.

The problem is systemic. The solution is to be found in logic, not politics.

Ironically, it is the poorest who pay the most per unit of consumption. They can neither buy wholesale, nor provide security to raise capital at anything like a serviceable cost. The margin charged on a single apple (not the computer), or a cigarette or a minute of airtime is seriously higher than it would be for a box or a packet or a contract. This is how the circle of poverty manifests.

Of course, we must invest in major capital projects - to create jobs and ensure we benefit from being the low-cost producer where we have a natural advantage.

But there is a limit to how much of that capital appreciation filters through to the individual, to create personal wealth. We have progressive tax and there's talk of wealth tax - the limitations of wealth transfer compared to net wealth creation are obvious.

State policy initiatives have a role, but only to get natural economic momentum going.

All of this, however, will come to naught if we don't create the capacity for individual economic prosperity. The formal economy has chosen not to invite the informal economy in. So be it - no amount of interference with established banks can force that change.

The informal economy survives, despite being hamstrung by a cost of finance ridiculously higher than that available to the banked market and with an almost total absence of structured access to equity capital.

Financial inclusion requires a move away from traditional risk metrics - but there are plenty of cash flows in the informal sector, and if we took the trouble to understand them, I bet we'd find they're bankable, at the right cost.

The reward for the state won't just be in the finance margins or returns on capital. It will be the creation of a bigger tax base and middle class - a foundation for a peaceful democracy.

Barnes is CEO of the South African Post Office

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