Voices

Why do nations fail? And is SA in danger of failing?

2019-09-19 00:25

We must go beyond institutions and interrogate the role of human beings within them

On a recent business trip, as is often the norm, I packed as part of my reading material a few books which I felt were necessary not only to juxtapose the current world situation in terms of economic growth (or lack thereof), rising unemployment and trade wars, but also to gather from other minds insights as to why some things, particularly in the modern international political economy, seemingly unfold in the manner in which they do.

But further, to understand from the viewpoint of other nations’ perspectives what constitutes ongoing exponential growth of other countries, while some seem stuck in regression.

Coincidentally, one of the books I packed was one I had read a few years back, by Daron Acemoglu and James A Robinson, titled Why Nations Fail.

In this book, the two argue that the most common reason for nations’ failures today is that they have extractive institutions.

They contend that nations fail because their extractive economic institutions do not create the incentives needed for people to save, invest and innovate.

Extractive political institutions support these economic institutions by cementing the power of those who benefit from the extraction.

They argue that extractive economic and political institutions, though their details vary under different circumstances, are always at the root of this failure.

In many cases the failure takes the form of a lack of sufficient economic activity, because politicians are only too happy to extract resources or quash any type of independent economic activity that threatens themselves and the economic elites.

And I was going through this literature for the second time, only this time around I was reading it against the backdrop of the recent release of the National Treasury’s economic strategy discussion document.

I found myself breathing a sigh of relief at the realisation that, despite our own misgivings and growing pains, we stand in direct contrast to why nations fail, if Acemoglu and Robinson’s contentions are anything to go by.

Despite our own misgivings and growing pains, we stand in direct contrast to why nations fail.

For instance, the discussion paper proposes modernising network industries to promote competitiveness and inclusive growth; lowering barriers to entry and addressing distorted patterns of ownership through increased competition and small business growth; and prioritising labour-intensive growth in agriculture and services, as well as implementing focused and flexible industrial and trade policy to promote competitiveness and facilitate long-term growth.

At the core of these proposals is the need to transform the economy, and promote inclusive growth and competitiveness.

These are exactly the issues that would be discouraged under a system of extractive institutions.

It is therefore commendable that South Africa continues to promote a system of inclusive institutions that encourage the involvement of citizens in a discourse about their lives and futures.

Government has set up economic institutions enforcing property rights, ensuring macroeconomic stability and encouraging the development of an inclusive market economy.

It cannot be correct that, after 25 years of democracy, we still lag behind in most areas of development, despite all the instruments at our disposal.

Despite all these measures, our country continues to experience the lowest levels of economic growth, higher levels of unemployment, and extreme levels of poverty and inequality, amid a small thriving elite.

Which begs the question: Is it enough to have an inclusive economic and political system if it does not translate into growth and the improvement of the lives of the majority of the population?

Clearly, it is not and, if we are not careful, our nation could fail, even with inclusive economic and political institutions.

We must therefore go beyond institutions and interrogate the role of human beings within them.

It cannot be correct that, after 25 years of democracy, we still lag behind in most areas of development, despite all the instruments at our disposal.

Be it economic transformation, employment equity, ownership of land or the general control in strategic economic sectors.

Where are the bottlenecks? I can think of a few areas of concern that result in these blockages.

Being fit for purpose

Firstly, it is the question of being fit for purpose. Are we entrusting the correct kinds of people with the critical areas of responsibility?

To answer this question, we need not look further than the results of the Auditor-General’s 2017/18 municipal audit.

Announcing the results, he indicated that they show an overall decline; a demonstration that various local government role players have been slow in implementation and, in many instances, even disregarded the audit office’s recommendations.

Residents of Senwabarwana village in Bochum, Limpopo, fill buckets with water from a communal tap. Access to water has been an issue for the villagers who are forced to walk for a kilometre to fetch it. Picture: Leon Sadiki/City Press

“We have consistently cautioned those charged with oversight and governance about administrative lapses that could cripple local government and its ability to deliver services to the citizenry,” he stated at the time.

The Auditor-General also raised major concerns about having vacancies and instabilities in key positions and that the leaders of municipalities were unable to instil discipline and implement corrective action against officials flouting processes.

Consequence management

Secondly, consequence management.

The National Development Plan (NDP) 2030 states that, in order to achieve its development goals, South Africa must develop a society with zero tolerance for corruption, in which citizens are able to hold their leaders to account; in which leaders in government, business and civil society conduct themselves with integrity and are held to high ethical standards; and in which sanctions must be applied impartially to those who betray public trust or break the law.

Accountability

Third is the issue of accountability.

The same NDP states that public officials and elected representatives are responsible for administering public resources on behalf of the society.

It is in the best interest of civil society that these resources are managed in an efficient, transparent and accountable fashion.

It proposes that corrupt individuals should be made individually liable for losses. We have seen how individuals have with impunity helped themselves to resources not meant for them but for delivery of public services.

We have seen how municipalities have collapsed and compromised the delivery of services due to individual and collective actions.

We have seen how poor communities continue to be poor, not because their conditions can’t improve, but because those entrusted with the responsibility to allocate resources for such development are often found wanting.

Without simplifying the persistence of our growing pains, we can draw a simple conclusion that, contrary to what Acemoglu and Robinson are arguing, you can have the right kind of inclusive institutions but, without the right kind of individuals within them, a nation can still fail!

  • Ntsaluba is founding member and chair of NMT Capital, co-founder of auditing firm SizweNtsalubaGobodo and co-founder of venture capital firm WZCapital


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October 13 2019