DA's Plan for Growth and Jobs - Democratic Alliance

Inefficient resource allocation: Resources cannot be allocated to maximiseproductivity and output when incentives favour political preferencesReduced innovation: Innovation requires the freedom to experiment, which is rarein large bureaucratic state-run companiesReduced competition: SOEs typically dominate their respective sectors, whichundermines competition and increases prices for consumersPoor corporate governance: Introducing political considerations into how firms arerun undermines oversight by boardsHeightened corruption: Their proximity to the state means state entities can easilybecome sources of patronage and corruptionThe most significant weakness of the state capitalist model, however, is that it fundamentallyundermines liberty. By turning companies into organs of government, the modelsimultaneously concentrates power and corrupts it. Whereas in a liberal economy, privatelyownedentities act as a check on the power of the state, state capitalism instead channels allpower to the centre. This removes an essential layer of accountability.A pragmatic viewA preferable approach – the one promoted by the DA – views the state as having animportant role to play in the economy by providing an environment conducive to growth,including the provision of critical infrastructure; enabling economic participation for thosefrom disadvantaged backgrounds through education; ensuring transparency andenforcement of ownership rights; creating a stable and predictable regulatory environment;correcting market failures; reducing the transaction costs of participating in the economy;and promoting South African firms and entrepreneurs on the global stage.This approach sees one of the primary causes of South Africa’s economic failure over thepast 18 years not in the overall approach, but much rather in poor governance and failure ofdelivery.Our approach has many similarities with the pragmatic and successful policies pursued bycountries with open, market-oriented economies such as Brazil and Mauritius, rather thanthe solidly statist policies of Russia and China (though the latter is, in fact, liberalising to agreater extent than its fans, including those in the ANC, typically acknowledge). Ourapproach understands that there are certain activities and functions that the state mustnecessarily perform, but that in many areas these functions can be enhanced via injectionsof private sector funds and expertise.Two examples illustrate this particularly well. First, Brazil has pioneered, with great success,the model of ‘the state as minority shareholder’ which essentially replaces direct governmentownership with indirect government ownership and swaps majority for minority holdings byacquiring shares in a broad spectrum of different companies. This approach brings with it anumber of benefits, including:Limiting potential abuse of power by the government of the day. Privateshareholders have enough say in the running of the erstwhile SOEs to prevent theseentities from becoming vehicles for rent-seeking or patronage politicsProviding access to capital through the state that companies may not otherwise beable to command in the market. This allows them to invest more in productivityboostingcapital equipment, and ultimately increase returns on their assets.Bringing private sector management expertise into the running of former SOEsaddresses their lack of competitiveness, poor corporate governance and inefficientresource allocation29 | P a g e