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Johannesburg - The controversial political and economic events in South Africa over the last six months have drawn attention once again to the concept of the political economic cycle.
This concept was invented during the 1970s by Prof. JA Lombard and Prof. JJ Stadler of the University of Pretoria. The political economic cycle forms the basis of almost all economic systems today. In a modern economic system there are three basic elements, namely the market economy, government and public opinion.
In a mixed market economic system each of the trilogies of elements has an influence on each other. Each of the elements will evaluate the role and outcome of the other two on society. The evaluation will then lead to counter action on the other.
The market economy consists of the production, income and distribution process and is regulated through prices. These processes work together to satisfy both the demand and the supply of society towards the consumption of goods and services. Private institutions play the dominant role.
The outcome of the market economy creates welfare. These outcomes and can be measured in terms of five criteria.
Firstly, does the market economy produce and distribute enough goods and services for the growing population? It is measured in terms of the country’s final value of goods and services produced - the gross domestic product (GDP).
Secondly, can the market economy produce the necessary goods and services at constant prices? This is measured in terms of Consumer Price Inflation (CPI). Thirdly, can the market economy create enough jobs or employment? This is measured in terms of the unemployment rate. Fourthly, can the market economy distribute the income created more evenly and lastly, can the market economy export enough goods and services to earn enough foreign currency to pay for its imports - those goods and services that the country’s market economy is not able to produce domestically?
Government consists of a collection of economic processes. They are autonomous collective in nature, elected by the people. The government is responsible for the upholding of the constitution, law and order and the delivering of the collective goods and services, like water, education and infrastructure.
Normally, these collective goods and services will not be delivered by the market economy or if delivered, it would be against the price that the majority of the households will not be able to afford. The government, therefore, has the responsibility to create the environment within which the market economy can operate efficiently. The introduction and conducting of economic and other policies govern the actions of the government.
The National Development Plan (NDP) for instance plays an integral role.
Public opinion consists of a collection of information processes like the media (official and social) and non-governmental interest groups, like labour unions, the Organisation Undoing Tax Abuse (Outa), Afriforum and cultural and other civil organisations like churches.
Both public opinion and government evaluate the outcome of the market economy. If the market economy does not perform accordingly, government will introduce policy measures to correct the outcomes of the market economy - for instances through fiscal, monetary, labour, environmental and health policies.
If public opinion feels that the market economy does not perform like it should (income distribution, or too low wages or too high prices) or the outcome is harmful (like the production of drugs) it will also stage public unrest or protests or put pressure on the government.
If public opinion also thinks that government is not suitable or does not uphold the constitution, it will also act by means of the media and or public unrest.
In recent months public opinion has proven to play a major role in the South African political economic cycle. The student unrest at the end of last year against the proposed sharp increase in tuition fees, as well as the outcry of both the market as well as public opinion against the firing of Minister of Finance Nhlanhla Nene by President Jacob Zuma, are examples that sprung to mind.
The Gupta and Nkandla sagas, as well as the Constitutional Court ruling against Zuma, currently underline the outcry and pressure of public opinion against matters of the ruling ANC. The breaking of ties with the Gupta–owned business Oakbay Investments by ABSA, KPMG and First National Bank over the last few weeks, illustrates the power and effect of public opinion that turned against the Gupta family’s friendship with Zuma.
In all three the cases it seems these institutions feel the association risk is too great for them to continue their ties with the Gupta’s family business, despite the sound compliance and financial affairs of Oakbay Investments. Once again public opinion governs the outcome of affairs.
The latest outcry against Zuma by civil organisations underlines the powerful potential effect of public opinion against the current political economic system in the country. Public interest groups like Section 27 Corruption Watch and various religious groups, as well as former political leaders and members of the judiciary are gathering to launch a movement and a plan for the removal of Zuma.
From the market economy side, the warning by Standard and Poor’s that the current constitutional crisis in South Africa could pose a serious threat on the current credit rating of the country, also caused a public outcry.
Public opinion currently feels that political parties in Parliament and, therefore, the government, have failed and they have called on ordinary citizens to effect change.
The reaction of public opinion in the South African political economic system is well and alive and demonstrates the true meaning of democracy.
Public opinion may just be the element that affects the necessary change in South Africa so that the other two elements not only adhere to South Africa’s constitution but also start to act towards implementing the National Development Plan so that a better life for all can be enhanced.
* Dr Chris Harmse is the chief economist at Rebalance Fund Managers.
