Before we get to the detail of definitions, many of you may be aware that Government has recently adopted the notion of Shared Growth in its new economic growth and development strategy. Known as the Accelerated Shared Growth Initiative for South Africa (ASGI-SA), under the leadership of Deputy President Phumzile Mlambo-Ngcuka, the framework aims to accelerate our economic growth to between 6 and 8 per cent by 2014.
Why do we need higher levels of growth? All indicators are pointing to a robust and bubbling economy. In fact, it is well known that over the past ten years, South Africa has achieved considerable success in macroeconomic stabilisation, laying a solid foundation for sustainable development into the future.
Well for many, these gains are surreal. For many people, each day brings significant challenges to basic survival.
Stubbornly high levels of unemployment and poverty persist, stretching the development gap and reducing the dream of a better life for all of our citizens. Recent social protests against inadequate municipal service delivery are a stark reminder of such realities to us all.
So - driven by these harsh realities, Government's new accelerated shared growth strategy drives a tough, relentless development agenda. It focuses attention, resources and capacity on key areas such as infrastructure development, sector investment strategies and small business expansion, aiming to unblock structural barriers that inhibit rapid economic growth, job creation and shared development in South Africa.
And what is 'new' about the Shared Growth approach that differentiates it from other development strategies? Said simply, Shared Growth is a development strategy that views poverty reduction and economic growth as being inter-dependent goals over the medium to long term. That is, that the fates of poor and the wealthy are intertwined; that the only option is to find strength and unity in our diversity, and work together towards a shared future.
We know that higher levels of economic growth are critical to reducing unemployment and poverty over the medium- to long term. It is only at higher levels of growth (the 6 to 8 per cent band) that South Africa's economy will be able to generate sufficient investment, particularly in economic infrastructure, and stimulate the levels of economic activity that are conducive to the level of job creation that we need.
So growth is not the ultimate aim. It is the means to the end - a better life for all.
Moreover, it is generally accepted that on its own growth will not bring benefits to the wider community. The wealthy are able to capture economic benefits, while poorer communities tend to have few resources or capabilities to respond to social and economic changes. Growth for its own sake most always results in higher levels of inequity and tends to exacerbate income distribution trends.
Yet economic growth also has the ability to make a significant contribution to reducing poverty and improving people's livelihoods and future opportunities.
Shared growth recognizes that growth alone is a necessary but not sufficient condition. That is, more than just high levels of growth are needed to reduce poverty. That equity matters in the growth and development game.
High levels of equity enhance the impact of accelerated growth on poverty reduction. In turn, boosting the long-term growth potential of an economy depends on a more equitable distribution of income, capabilities and geographic location of communities and economic activity that enable the benefits of growth to be 'shared'.
This 'sharing' of economic yields enhances social and economic participation, which in turn feeds back to reinforce the economy's long-term growth potential, generating a virtuous cycle of growth and human development. This means that a shared growth strategy must be simultaneously pro-growth and pro-poor.
Pro-growth strategies were epitomized in the 1980s by structural adjustment lending that emphasized economic reforms in developing countries that were aimed at enhancing growth first and foremost. Higher growth was meant to impact on poverty and inequality through a 'trickle-down' effect on the economy.
However, pro-growth strategies were over-optimistic in their assumption that economic benefits gained by the wealthy in inequitable societies would feed through to the poor.
They did not acknowledge the development needs and challenges of poor people, and therefore created a development gap, contributing to a long-term slide in development opportunities for the poor and wealthy alike. This led to a focus on pro-poor growth in the 1990s. Pro-poor growth is growth that is good for the poor.
Under the relative definition, growth is pro-poor if the incomes of poorer people grow faster than those of the population as a whole, leading to lower levels of income inequality.
Under the absolute definition, growth is considered pro-poor if, and only if, poor people benefit in absolute terms, according to a pre-defined measure of poverty, usually an income poverty line.
Pro-poor growth strategies have contributed to national (and sub-national) public expenditure strategies that emphasise poverty reduction and social expenditures in a sharpened focus on poverty and human development. The latter is best defined in the Millennium Development Goals (MDGs), which provides an international benchmark for comparing development performance.
It is interesting that not one of the MDGs mentions economic growth as an objective or target. Yet we know that economic growth is a key ingredient of any poverty reduction strategy.
Empirically, we have seen that, on average and over time, growth does result in the reduction of poverty. However, it is the quality of growth that matters for the extent of impact on poverty.
This means that the way in which wealth is created (the quality of growth) is just as important as the level of growth, hence the move towards Shared Growth and Development. Shared Growth and Development therefore talks to pro-poor and pro-growth as interdependent goals; we need a growing economy that grows in a pro-poor way.
That is, distributional facets are taken into account in the growth story. We must therefore balance social and economic concerns in the Shared Growth agenda.
In more detail, we know that higher levels of economic growth have a larger impact on poverty in countries where there is a more equal asset and wealth distribution.
Conversely, widening inequality not only diminishes the impact that higher levels of growth have on reducing poverty; it also slows down the pace of economic growth, conflating the trend.
Said simply, higher levels of growth have a greater impact on reducing poverty when the poor are themselves empowered to participate in economic activity, acting as agents of growth through their own activities. When poor people have access to tangible assets, such as land, housing, water, energy, sanitation, transport, credit, or intangible assets, such as education and health, they hold the means to participate in economic activity themselves and therefore are better placed to benefit from economic growth.
In economists' language, most developing economies have market failures or missing markets. As a result, resources may not flow where returns are the highest. For instance, given public subsidies, highly capable poor children may complete secondary school, but be unable to gain access to tertiary education due to credit rationing (access to finance).
Therefore, economists refer to market failure or missing markets that lead to misallocation of investment opportunities. That is, those that hold greater wealth and power are able to attract or 'crowd' in investment, while those that hold limited sway are bypassed.
In turn, misallocation of investment in turn constrains economic growth, as resources are not being invested in areas that offer the best rates of return. In these instances, asset (tangible and intangible) or wealth (said broadly) redistribution has the potential to enhance economic efficiency, raising investment and improving economic growth potential.
Remember, that we are talking about tangible and intangible assets - so redistribution does not always have to be a fraught process, caught in a zero-sum game, as in many tangible asset redistributions, such as that of land. For example redistribution of education and health services may have equal or even more important benefits than land redistribution for enhancing long-term economic growth potential
Moreover, the frank economist rationale that I have presented above does not even touch on the social and moral benefits that asset or wealth redistribution may bring to communities and society at large, particularly in a society such as South Africa, given our legacy of political, social and economic disenfranchisement.
The key policy lessons to be learnt here are firstly, that economic growth that is accompanied by improved asset distribution will have a greater impact on reducing poverty than growth that leaves distribution unchanged. Secondly, worsening asset distribution (increased inequality) can offset the benefits of growth to the poor, reducing the poverty impact of future growth.
It is precisely these conclusions that have shifted the debate towards Shared Growth and Development. That is, understanding that the key to enhancing sustainable human development is found in the interaction between asset and wealth distributions and growth, and how these impact on poverty over time.
Now we know what Shared Growth and Development is, the question is 'how' do we go about achieving it, given the challenge over the next 10 years to accelerate economic growth, enhance employment creation, and broaden economic participation to the levels that are conducive to reducing poverty and achieving shared gains.
Recent comparative international shared growth experiences show that the rate and quality of growth is determined by a country's ability to integrate into the global economy, its capacity to maintain sustainable government finances and sound money, and its ability to put into place an institutional environment in which contracts can be enforced and property rights established.
The key message here is that the quality of government institutional capacity matters for accelerated shared growth and development. In most developing countries, financial, human and administrative government institutional capacity is a limited, scarce resource.
As such, it needs to be prioritised, focused on removing those economic distortions that are binding obstacles or constraints on growth; that will have the biggest direct impact if removed. Considerable work is being done at the national level by the AGSI-SA technical task team to identify the key binding obstacles constraints and therefore attendant policy interventions to accelerating and broad-basing economic growth and job creation at the national level.
The changing intergovernmental landscape tests Provinces to do the same. Proactive shaping of the regional economic development agenda demands that Provinces identify key binding obstacles or constraints to shared growth within an intergovernmental context; that is, understanding what the binding constraints and attendant policy interventions are, and matching such to national, Provincial and local policy levers.
Where policy levers are within the Provincial domain, they will be subject to Provincial political and resource prioritisation; whereas national and local policy levers demand a different approach, testing intergovernmental coordination, coherence and integration to the full.
Ultimately, accelerating shared growth within the dynamics of intergovernmental interaction presents a challenge to all in the system, and will require coordinated action from all spheres of government. Delivery depends on the whole rather than the sum of the parts. The challenge has been made clear. Stakes are high and our choices stark. Realism informs our options. Vision and passion guide our future.
