Economic growth beyond COVID-19 with an emphasis on Productivity, Competitiveness and Sustainable Growth

Keynote address to Productivity SA webinar to mark October 2020 as ‘Productivity Month’
Professor Raymond Parsons
North-West University Business School
Johannesburg
9 October 2020

1. Introduction
My thanks go to Productivity SA for this great opportunity ‘to set the scene’ for your webinar today. As the Chairman has said, we are debating these major issues at a crucial time for the SA economy. SA is experiencing very difficult economic and political times, but the solutions lie in active involvement in helping to define the way ahead.

I am indeed honoured to be sharing the platform today with several key speakers who will add great value to the theme of our session. My task here is really not to duplicate the areas they may cover but rather to ‘set the scene’ broadly around some of the relevant productivity issues to be debated today. I liked the description in the media release yesterday about this seminar which referred to me as ‘headlining’ key productivity dimensions for today’s session. That sums it up well!

When I was researching material for my contribution today, I found that ten years ago – in fact, in October Productivity Month in 2010 – I gave the keynote address to Productivity SA’s annual dinner in Midrand. It was intriguing to read what I said on the subject a decade ago. The wheel has come the full turn for both the economy and productivity and it seriously reminds us of the issues at stake.

It seems to me that, as the Chairman remarked earlier, more and more, the lesson must be driven home that high productivity is the indispensable condition of rising standards of living and sustainable employment in SA, as in fact it is elsewhere in the world. One of the major reasons for SA’s inability to create sufficient job opportunities in past years is its poor productivity performance. It seems that ‘productivity’ has become the Cinderella of the economic debate in SA.

That is why productivity is one of the chapters in the recent book that I edited. Some of the recent economic developments in SA reinforce the message of the book, Recession, Recovery & Reform: SA after Covid-19, and to which the Chairman referred earlier. The SA economy is in trouble partly because in recent times it has drifted away from policy fundamentals like efficiency, stability and consistency, in which productivity plays a big role. The chapter in the book on this aspect therefore underscores the importance that must be attributed to what productivity and competitiveness ultimately have to contribute to a country’s economic performance.

And when we look at the big economic picture, we need to understand that the battle for productivity growth is never won ‒ it’s an ongoing challenge ‒ and as suggested earlier, must now be faced in SA more than ever before. We should also recall that nothing is permanent about economic gains ‒ they can be won or lost within a few years. In a nutshell, if I had to sum up in one word the gap between SA’s undoubted growth potential, on the one hand, and its poor economic performance on the other, it would be: productivity.

We therefore just need at the outset to remind ourselves, as the Chairman has also emphasised, that productivity gains in their various facets are crucial to the achievement of socioeconomic goals such as:
* improving standards of living
* generating higher economic growth
* creating gainful employment
* ensuring internal and external competition
* curbing inflation

These are, of course, the ideal outcomes.

Yet we should also recall that the importance of productivity in creating a bigger, stronger and better economy is a notion that cuts across all schools of economic thought. Productivity is indeed a notion that has no ideological fatherland, nor any political colour. It is the only concept accepted by both Marxist and neo-liberal theories, provided the benefits of productivity are fairly shared. Even Vladimir Lenin emphasised productivity as an essential component of socioeconomic reform, though his ultimate political aims may not have been endorsed by everyone.

Reverting to domestic circumstances: for SA, Covid-19 has simply reinforced the existing fault lines in our economy of unemployment, poverty and inequality. It has therefore emphasised the need for pro-growth structural reforms to help the country unlock its true potential ‒ to close the gap between its poor economic performance and its inherent strengths. As previously outlined, the gap has to be closed through productivity gains in the generic sense, if we are to make progress.

The constant references these days to urgent economic reforms are in fact to ensure that the SA economy will function better. In other words, that the productive performance of the economy will be strengthened by whatever is decided and implemented. What might now be regarded as SA’s pending internal ‘structural adjustment programme’ is ultimately therefore nothing more, and nothing less, than a roadmap hoping to achieve higher levels of productivity to underpin sustainable economic growth.

2. Seven points of leverage for productivity
So I think we are all basically on the same page here today. We are gradually moving into the post-Covid-19 phase in SA and want the country to be well-equipped to deal with it. So what?

I would like to offer today are seven ‘headline’ levers that might be accessed or deployed to widen and deepen the concept of productivity in decision-making in SA.

If we can succeed, these efforts would then hopefully enlarge the sphere of influence that productivity must exert, as we move ahead to fix SA’s economic future. The subsequent speakers will enlarge on key dimensions of the productivity profile in this country. But what I would like to present here are these seven pillars on which further action about productivity in SA might be built.

They are:
2.1. The forthcoming Medium Term Budget Policy Statement (MTBPS)
The Minister of Finance has already warned SA that, unless current trends in its public finances are reversed, we face a sovereign debt risk crisis in a few years’ time. Whatever steps will be taken in the MTBPS and in the main Budget in February 2021 to remedy the situation will inevitably be difficult and unpleasant, whether on the spending side or on the tax side. The basic fiscal mantra now is to ‘do more with less’. One way to lessen or soften austerity measures is to improve productivity ‒ to make that extra rand spent by government give better value for money.
Although this is something the National Treasury may preach, responsibility for making it happen cannot rest on its shoulders alone. The Ministry of Monitoring and Evaluation in the Presidency has a vital role in ensuring that productivity standards are upheld in the sector, complemented by the auditing efforts of the Auditor-General. Productivity, especially in the public sector, is the top priority here as fiscal circumstances have basically changed to strengthen the role of productivity in helping to ‘close a gap’.
2.2 The anticipated growth plan
The expected new economic recovery plan which is now being finalised by the Cabinet is intended to turn the economy around, to implement key economic reforms, build investor confidence and put the country on a higher growth trajectory. This may be an opportunity to ensure that many of the proposals, such as those emphasising infrastructural development, will indeed add productively to the economy. (Unlike the Egyptians, we do not want to just find ourselves building pyramids.) Both the maintenance and development of infrastructure need to embody productive national assets which will yield good returns and useful jobs over time.
Much of the success of any new planned infrastructural development will not only depend on the response of the private sector but also heavily on the capacity of the state to implement on its commitments and to deliver on them. The same applies to the outcomes of recent job and investment summits, where a more deliberate focus on their productivity implications would have enhanced outcomes.
Any new economic recovery plan needs to ensure that the ‘payoff’ will have tangible results that make a difference on the ground. At the end of the day, it is the private sector that has to create the bulk of jobs, for which it needs policy certainty and a reasonably predictable policy environment.
2.3 Public sector productivity
On all sides it is now agreed that efficient delivery, especially at local government level, remains a serious challenge in SA. Widespread corruption has further destroyed and distorted delivery capacity at all government levels. We live in a mixed economy, one that combines market features and government intervention. But as we embark on a renewed infrastructure programme, we need to be driven by more practical tools to promote productivity and implementation, thus eliminating much of the current frustrations and disappointments being experienced in this regard.
For example, we need to expand the role of public-private sector partnerships (PPPs) to get more cost-effective delivery within reasonable time-lines. Presently, public-private sector partnerships cover only about 2% of infrastructure spending in SA. PPPs need to be set in a realistic productivity context and we must adopt a problem-solving attitude towards their involvement. There is an enlarged opportunity for government and business to collaborate, although PPPs are only part of the answer.
Successful implementation remains the overarching goal and the ‘name of the game’ for people-driven outcomes. Efficiency and social justice actually converge here ‒ if you cannot ‘deliver’, then social justice is not well served. State capacity needs to be more productive. It needs to be more of a platform for efficient service to the public than just a faulty bureaucratic machine.
2.4 Role of state-owned enterprises (SOEs)
In SA, many SOEs have steadily been starved of productivity gains. SOEs like Eskom, SAA, PRASA, Denel and others have been in the news for all the wrong reasons. There is a place for SOEs in the economy but they still need to meet efficiency criteria if they are to continue in the national interest. If they fail to do so, their performance needs to be reviewed and their role reassessed in a rapidly changing world.
At their best, SOEs can help to achieve a country’s socioeconomic goals. But at their worst, as we have now found in SA, they need large bailouts from taxpayers and they end up hindering instead of helping economic growth. This is the version SA has now broadly experienced, which has boiled down to bad governance, weak accountability and poor productivity among many SOEs.
And when a government is under increasing economic pressure and struggling with rapidly rising national debt, as the SA government is currently experiencing, the core principle must be for SOEs not to waste public resources. This therefore does require a serious rethink. It means evolving a new framework for many of them in SA ‒ such as Eskom ‒ to develop more contestable markets to sharpen their efficiency. More competitive markets are needed to promote productivity.
Workable competition is a source of discipline and efficiency. Otherwise, the costs to society and the economy are large, especially for a country like SA which has other pressing socioeconomic priorities. We now need to constantly test SOE performance along these lines if we are to close the ‘delivery deficit’ in our economy. There has to be more widespread acceptance in SA that tolerating SOEs without efficiency constraints cannot endure for long, as such institutions are intrinsically brittle.
2.5 Productivity targets and accords
To advance the cause of productivity both nationally and broadly in the workplace, we should bear in mind:
* National economic policy decisions can either have a positive or negative impact on productivity. Why doesn’t government then specifically select productivity improvement as a key directive? In other words, government could think of setting a definite productivity goal of, say, 3% per annum and policy decisions should be evaluated in the light of this objective. I’m not wedded to a specific target, but instead emphasise the principle or concept. This target should become the objective of the nation as a whole, not just the government.
* Then, at the workplace, employers and employees should expand the role of ‘productivity accords’. Low productivity means high costs. The best productivity performance is achieved where full cooperation exists between participating stakeholders, especially business and labour, in promoting it. The benefits of productivity gains broadly accrue to shareholders, workers and consumers. The challenge is to ensure that they come across as a ‘win-win’ situation and not through lopsided or distorted outcomes that promote conflict instead of consensus
2.6 Socioeconomic assessment mechanisms
Several years ago, indeed it was as long ago as in 2007, the government committed itself to the use of the regulatory assessment impact (RIA) tool to evaluate new laws and regulations. The title was subsequently changed to ‘socioeconomic assessment’ investigations. This is basically a process that evaluates the impact on the economy ‒ in terms of costs, benefits and risks ‒ of any proposed law or regulation, and is used in several countries to improve the quality of law-making.
In SA in the past few years, we have seen enormous costs and widespread embarrassment caused by laws and regulations that simply failed in their purpose, because there was no prior socioeconomic assessment. And the need to lighten the regulatory burden on the economy, especially for small business, as the Chairman has also stressed, must now also be a high priority. Yet unfortunately, socioeconomic assessments have fallen into disuse and have seldom been used in recent years.
Just think of the policy errors in the past few years, often on a big scale and damaging to business confidence, that might have been averted through an independent and credible, preliminary socioeconomic interrogation process. We need to revive the use of this mechanism and in the process give the productivity dimension ‘a seat at the table’ of socioeconomic assessments. ‘Prevention is better than cure’, as the saying goes.
This also creates the opportunity for ‘smart tape’, rather than ‘red tape’ to shape the regulatory framework in SA. Evaluating this cost burden in advance not only makes for better policy-making overall but also has a favourable impact on productivity and business confidence. It becomes an indispensable tool for government wanting to get more things right the first time around, apart from creating the more business-friendly environment SA needs for investor confidence.
2.7 Mobilising existing advisory structures on a larger scale
To raise awareness about productivity, and to create a stronger ‘productivity culture’ in SA, there are a number of existing or new advisory structures that need to be exposed to inputs from Productivity SA and become more aware of its basic message.
I think here, for example, of the:
* Presidential Economic Advisory Council
* SOE Advisory Council
* National Planning Commission
* Financial & Fiscal Planning Commission
* Nedlac
to mention only a few…..

As SA comes to grips with the post-Covid-19 phase, and together with a range of new policy initiatives in the near future, the subject of productivity needs to be prominently on their agendas. Productivity is, after all, eventually the cross-cutting component of all efforts to do things differently and better in SA. To raise awareness of the key role of productivity in SA’s economic performance therefore now requires a greater mobilisation of other key structures that advise government on policy and projects.

May it not be a good idea to begin by making the transcript or video of today’s Productivity SA webinar available to members of those institutions and structures?

3. A final word
I’ve highlighted seven possible areas in which more leverage about productivity could hopefully be exercised in SA in the near future. To briefly recapitulate, they are:
* the forthcoming MTBPS (and of course the main budget in February 2021)
* the new ‘growth plan’
* public sector productivity
* SOEs’ performance
* productivity accords and targets
* socioeconomic assessments
* interaction with other policy advisory structures

My basic message is, indeed, that productivity is now even more important than it was before Covid-19. A large part of SA’s current economic problems has arisen because the country has in recent years drifted too far away from fundamental concepts like productivity. It needs to find its way back. Only by better promoting higher productivity will the true economic potential of SA be realised and the necessary job-rich growth achieved. There is still the potential to make a difference.

We now nonetheless have a number of new policy opportunities in the near future where we can vigorously inject productivity concerns back into decision-making processes in both the public and private sectors. Policy-makers may be more amenable to these inputs. Interestingly, the National Treasury’s 2019 growth plan resonates with much of we want here today, i.e.:
* inclusive growth
* economic transformation
* competitiveness

Let me then conclude with a quotation from the iconic management guru, Peter Drucker, who said:
‘Growth that adds volume without improving productivity is fat. Growth that diminishes productivity is cancer.’

If we broadly follow that mantra at a practical level, we can give the SA economy the flexibility and adaptability it needs to successfully manage the changes it requires to create a better life for all in the years ahead.

Thank you!