South Africa’s Reserve Bank has warned that the severe debt burden will reduce growth to two percent by 2023. (Waldo Swiegers/Bloomberg via Getty Images)
meIt is hard to imagine the South African economy being more laggard than it is today. However, last week, one of the predictions suggested may be the fate of the country.
After several meetings between the treasury and the International Monetary Fund (IMF) earlier this month, staff from the institution concluded that South Africa’s growth will slow down to just 0.1% – almost no movement – in 2023. Growth, according to the IMF , will be intercepted by the usual suspects: burden.
Excluding 2020, the last time the economy recorded modest growth was in 2019, when GDP grew by 0.3%. In general, I do not expect positive economic news this year. After all, the South African Reserve Bank has warned that severe austerity measures will reduce growth by two percentage points by 2023.
The IMF forecast, however, adds another layer of pessimism to the country’s prospects.
As someone who tends to be cynical, my attention is often drawn to things that don’t exist. Currently, and for some time, South Africa’s economy lacks growth. But the IMF forecast has forced me to resist another attack of economic pessimism – as John Keynes said – and instead to question whether there is still any virtue in growth.
Growth became something of a lodestar for economic policy makers during the 20th century. There is one good reason for this fixation, which is the association between economic growth and welfare.
A 2001 paper prepared by the IMF and the World Bank describes economic growth as the “poverty reduction engine”. The paper, launched during the period of the Washington Consensus – which some see as spanning from the 1980s to 2008 – emphasizes macroeconomic stability as a cornerstone for growth.
At the end of the Washington Consensus year, South Africa experienced some of the best growth. Between 1999 and 2008, the country’s GDP growth averaged 4% per year, according to research led by Ricardo Hausmann, founder of Harvard’s Growth Lab. This is enough to support an average income of 2.6%. The unemployment rate began to decline steadily after 2003, reaching 22% in 2008, a low that the country has not seen since.
In 2008, the world economy collapsed, due to the global financial crisis, and growth stopped. South Africa’s GDP growth slowed to just 1.7% a year in the decade before 2019, which allowed average income to grow by just 0.15% a year. The country’s unemployment rate has since risen to record levels seen in recent years.
A prolonged period of economic growth has had an insidious effect. That much is clear. Some analysts have suggested that South Africa’s economic stagnation, in the context of a growing population, has accelerated it into a failed state.
But another lesson of the Washington Consensus years is that growth is not all it’s cracked up to be. Although the period leading up to the 2008 financial crisis was associated with generally strong growth – as well as some major changes in the shape of the global economy – it also coincided with high levels of inequality.
In the early 2000s, there was considerable debate about the extent to which the growth that countries experienced during globalization actually benefited the world’s poor.
Several papers commissioned by the World Bank suggest that growth is the tide that lifts all ships. A paper, titled Growth is Good for the Poor, found that the income of the poor is strongly correlated with overall income and thus growth benefits this group as much as others. The paper also suggests that liberal economic policies, such as fiscal discipline, are pro-growth.
The paper was launched in response to arguments that the potential benefits of economic growth for the poor are undermined by the rise in inequality that accompanies growth. In 2000 letters to the editor from The EconomistJustin Forsyth, who worked for Oxfam at the time, wrote that there is “a lot of evidence that the current pattern of growth and globalization is widening income disparities and thus acts as a brake on poverty reduction”.
After more than ten years of silent growth, it is quite difficult to know whether inequality will be eased or worsened in South Africa as a result of economic expansion. What we do know is that, although it has seen some growth, the poorest parts of the economy have largely deteriorated since the 1990s. According to the World Inequality Report 2022, since 1990, the bottom 50% in South Africa have no wealth.
So, if growth does not guarantee the equality that all economies should strive for, why are our economic policies so preoccupied with achieving this metric? This question is at the center of the view that, perhaps, the global economy has, as economic anthropologist Jason Hickel suggests, outgrown growth.
Arguments against the seemingly Sisyphean battle for growth are growing in popularity as we understand the cost of rapid expansion – climate change.
According to Hickel, the strong insistence on economic growth makes avoiding climate damage more difficult than it needs to be. “It’s like choosing a life-and-death battle while climbing a mountain, blindfolded, with both hands tied behind our backs. We voluntarily sabotage our chances of success,” he wrote in 2020.
Perhaps the same can be said about the pursuit of equality in the fixation on growth. After all, we are willing to make great sacrifices – until now to grow ourselves – because of the good promise that growth will come if we stick to structural reforms and fiscal consolidation.
In his 1930 essay, Economic Possibilities for Grandchildren, Keynes envisioned a world that had outgrown its insatiable desire for expansion. In this world, we will achieve freedom from economic concerns “living wisely and agreeably and well”, hypothesized Keynes. If this is not for growth, what is the point?