Johan Fourie's blog

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Spending priorities

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SKAIt is difficult to find fault with the 2013 National Budget Speech of yesterday. Min Pravin Gordhan delivered what is certainly a sound and realistic attempt at what he calls “ensuring value for money”. There was tough talk on corruption (“Let me be frank. This is a difficult task with too many points of resistance! … There are too many people who have a stake in keeping the system the way it is. Our solutions, hitherto, have not matched the size and complexity of the challenge. As much as I want, I cannot simply wave a magic wand to make these problems disappear.”) and a new Chief Procurement Office has been set up to reduce these inefficiencies. There is an attempt to reduce the budget deficit to keep government debt below or on the 40% debt to GDP ratio. And there was renewed emphasis on achieving the long-run goals of the excellent National Development Plan.

But there is also much to learn from what is not said. For the first time in five years, there was not a single mention of land reform or redistribution. Min Gordhan does well to acknowledge that growth opportunities are in cities and that spending should be targeted to improve urban areas, although his spending projections does not reflect these sentiments: The Department of Rural Development and Land Reform (R8.9 billion) still receives a greater share of the pie than the Department of Tourism (R1.3 billion), which is responsible for a growing industry and contributes more to GDP than agriculture, the Department of Energy (R6.7 billion), the Department of Public Works (R7.7 billion) and the Department of Science and Technology (R5 billion). This allocation is in addition to the R5.7 billion for the Department of Agriculture, Forestry and Fisheries, even though, as the Department for Rural Development acknowledges, “agriculture is the primary economic activity in rural areas” (page 787). It is clear that rural areas still receive proportionately more than they contribute to GDP or are likely to contribute in future.

Instead, if Min Gordhan is serious about improving competitiveness and productivity, there are more obvious spending priorities. While enough has been written about education, another source of competitiveness that receives scant attention in the Speech – actually, only one reference – is spending on Science and Technology. As history shows us (read Joel Mokyr’s The Gifts of Athena, for example), it’s through scientific innovations that improve both labour productivity and total factor productivity, in other words, that allows us to produce more things with fewer inputs. Adaptation is especially important: Japan and South Korea’s success was first due to successful adaptation of American technology. This allowed them to move to the technology frontier and only then would they begin to innovate and expand the frontier. This process is however not decoupled from education: as James Bessen shows in a recent paper in the  Journal of Economic History, the massive productivity gains in the late nineteenth century weaving industry in England was not only due to more machines, or better machines, but also because workers became more adept at using the new technologies. High-tech tractors on large, commercial farms don’t require the traditional skills of tractor drivers anymore, but rather the skills of someone that can read GPS coordinates and monitor computer screens. Such technological shifts necessitates investment in scientific infrastructure that can help with broad based technical education, and not just pockets of excellence. If South African labour is to be more competitive, we must learn to adapt these new technologies.

Unfortunately, Science and Technology is at the back of the spending queue. A commendable R1.9 billion has been allocated to the Square Kilometre Array Project, a flagship project showcasing South Africa’s astronomy and engineering skills that has been lauded by the South African media. But this leaves little room for any other investment in science infrastructure. In fact, “over the medium term, R279.5 million has been allocated for infrastructure required to provide the scientific community with research and development facilities that are state of the art to ensure the country’s global competitiveness in research, development and innovation” (page 811 of the ENE). To put that into perspective, that is marginally more than the state spent on the president’s retirement home in Nkandla.

A competitive economy requires large-scale investments in science and technology infrastructure that will allow South Africans to adopt and adapt new technologies. The Budget of 2013 does not reflect this reality.

Written by Johan Fourie

February 28, 2013 at 14:48

One Response

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  1. Johan now you are writing with the timidity of the employed. Read my review of the budget called – Plummeting over the Fiscal Cliff.

    Philip Copeman

    March 8, 2013 at 17:44

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