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[OPINION] Davos – When chickens come home to roost

Jack Ma, founder and chairperson of e-commerce giant Alibaba, is from Communist China. Jack Ma is a capitalist. He is also the richest man in China. He perfectly spans the perceived divide between China and the US from a trade perspective.

At Davos 2017, Jack Ma spoke of the populist backlash that we have observed around the world in 2016. He shows how Donald Trump’s election victory, for example, was built around a strategy that tapped into the sense of loss that so many in America’s Rust Belt felt. He pointed out though that US corporate strategy, as so eloquently portrayed by Thomas Friedman in his book The World is Flat, was premised on a massive outsourcing of lower paid manufacturing jobs to the likes of China and Mexico. It was a choice they made to maximise profitability.

He questions though what happened to these massive profits that subsequently accrued to the US on the back of this strategy, for surely capitalism, as the greatest engine for prosperity, would ensure that wealth would trickle down – even to the Rust Belt. If that happened perhaps we wouldn’t have had such an angry electorate - not just in the US, but around the world? Jack Ma’s answer is simple: The profits were squandered. Too little spent on infrastructure and education. Too much on defence and fighting wars.

So the very institutions and government policies that created the space for business leaders and corporates to operate extremely profitably have not kept pace with accelerating economic and technological change and nor have they made all the necessary policy adjustments to ensure that enough people benefited from the wealth being generated within the economy. And now the price is being paid.

This strikes a chord with us here in South Africa.

As business, as well as government, we cannot celebrate that over the course of the past 20 years we have lifted millions of South Africans out of extreme poverty. As Professor Haroon Bhorat from UCT’s Development Policy Research Unit has pointed out, despite the fact that South Africa since democracy has seen a moderate reduction in poverty, we have also seen a sharp rise in income inequality, and we still remain one of the most consistently unequal countries in the world.

So we must acknowledge our post-democracy failures, and we cannot assume that lofty goals as embodied in the National Development Plan will somehow automatically solve these issues. In much the same way as countries where populism is on the rise, questions can be asked whether the allocation of scarce capital resources, whether through redistributive policies or through investment, has been anywhere close to being optimal.

Certainly it is not a challenge for government alone, and government has responded.

In Davos 2017 much has been spoken about a Universal Basic Income as a critical element of a framework to address inequality. To a large extent, South Africa is already there, thanks to a comprehensive approach to a system of a social welfare safety net espoused by the National Treasury.

What is still lacking though is a stronger commitment to better choices in infrastructure investment, education expenditure and policy reforms – to provide a stronger foundation for inclusive growth, which Finance Minister Pravin Gordhan has long been a proponent of.

But, beyond that, our private-sector executives must also respond. They too are at Davos, where the theme for 2017 is Responsive and Responsible Leadership. This requires leaders to mesh their corporate responsibilities with our challenges. We should demand sensible stewardship of corporate resources, with an awareness of the necessity of making choices not just for short term gain or profit.

In this respect, and in the context of the global debate around rising inequality next month’s Budget comes at a critical juncture for South Africa. As Thomas Piketty discusses in his book Capital in the 21st Century, all other things being equal, faster economic growth will diminish the importance of wealth in a society, whereas slower growth will increase it. Increasingly, public-private partnerships will have to become the norm for us if we want to make any headway into our greatest challenges. The Budget will be another opportunity for Minister Gordhan to create the societal framework in which we address these.

As Jack Ma points out, the collective policy choices we make in how we distribute wealth and investment will be the chickens that come home to roost. What will Jack Ma be saying in 10 years’ time about our choices? It is perhaps fitting then that 2017 is China’s Year of the Rooster.

Arno Lawrenz is head of Fixed Income Portfolio Management at Ashburton Investments.

For more news, analysis and insights on Davos 2017 go to EWN’s WEF portal in partnership with Ashburton Investments.

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