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Patel defends new growth plan

Nov 28 2010 11:01 Andile Ntingi

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Johannesburg - Economic Development Minister Ebrahim Patel has defended the government’s new macro-economic policy amid concerns the state wants to control how much people are paid, how much they save and how they spend their money.

"A huge part of the document is about facilitation. We are attempting to use a partnership approach to tackle inequality and unemployment in our society. This is an opposite of central planning," Patel said.

A paragraph in the new economic strategy, the New Growth Path (NGP) document, suggests that Patel wants the government to play a central economic role.

The document proposes that the state intervenes to compel all employed South Africans to save and so boost the country’s low savings rate. A savings-oriented culture could also be encouraged through policies that discourage the consumption of luxury goods.

"National Treasury, working with the Department of Trade and Industry and the Economic Development Department, will explore ways to disincentivise high personal debt, especially for luxury items and high-end property," the document reads.

The section that proposes salary caps has drawn the biggest resistance. Business leaders are unhappy about the proposed freeze on bonuses and salaries for senior executives who earn more than R45 000 a month, arguing that such a cap would be disastrous for productivity and could demotivate hardworking employees.

"We expected there would be concerns with some of the proposals. Government is not going to impose salary caps but will seek consensus on the proposals," Patel said.

The overarching aim of the NGP policy is to grow the economy at about 7% over the next decade and create five million jobs during this period, mainly in six key sectors: infrastructure, agriculture, mining, manufacturing, tourism and a new sector, the green economy.

The document also proposes the setting up of a mining company, a bank and a sovereign wealth fund, all to be owned by the state.

Neren Rau, chief executive of the SA Chamber of Commerce and Industry, questioned the government for proposing an economic model that was too interventionist.
 
"This is too extreme. The world is moving towards freer market models and less intervention, and we are running in the opposite direction," Rau said.

He warned the salary caps were inappropriate for a fledging democracy such as South Africa, where people were motivated by wealth creation.

“Our people still want to see a relationship between work and reward. We are still dealing with people who want to create wealth because they were deprived from doing so in the past. If you try to control people by limiting their ability to generate wealth they will leave the country,” Rau said.

Investec economist Annabel Bishop said the NGP appeared to be a watered-down version of Cosatu's proposals in which the labour federation appeared to be proposing a growth path for South Africa that was based on a closed economy.

Bishop argued: “The NGP proposes a move towards socialism via greatly increased state control. The NGP intends to impact the way of life of all citizens, from state control on personal remuneration to the price of basic goods and the way businesses operate.”

She also warned that salary and bonus caps for senior executives could remove the incentive for entrepreneurship and demotivate workers who wanted to outperform, reducing company profitability.

“Private sector companies will not use monies saved from this source to increase employment unless staff are so demotivated that productivity slumps. Companies typically expand only when demand increases, and this is unlikely if demand drops off,” she said.

The NGP document is not clear on whether the inflation targeting policy will be ditched. Patel neatly sidestepped the question, but he pointed out that the NGP document was calling for a more loose monetary policy that also sought to avoid inflation.

He said the government was looking at alternative ways of curbing inflation, such as using the competition policy to root out excessive pricing in the economy by predatory businesses.

“We are also asking for a broad consensus between labour and business on wages and prices so that they can help the Reserve Bank with its monetary policy and keeping inflation low,” Patel said.

Reserve Bank governor Gill Marcus welcomed the document and said it created a basis for the country to work towards a unified goal. 
ebrahim patel  |  growth plan
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