What Harvard recommends

And why it doesn't really matter

Let’s go back to 2008.

The world is in the midst of a global financial crisis. Stock markets are plummeting, including the Johannesburg Stock Exchange. Although South Africa’s banks are somewhat shielded from the global collapse, a consequence of the stringent banking regulation following our small bank crisis a few years earlier, our exporters struggle to find international markets. Trade stalls. By the end of the year, because we are a small open economy, a recession looms for the first time in seventeen years.

Local social and political instability is also a concern. In May, xenophobic riots spreads across South Africa. In September, Thabo Mbeki resigns as president at the request of his party. The future is increasingly uncertain.

It is this climate of uncertainty that Ricardo Hausmann, a Harvard economist, publishes a report on the South African economy. Hausmann, a former chair of the IMF-World Bank Development Committee, chaired the international panel on the Accelerated and Shared Growth Initiative (ASGISA) that advised the South African government between 2004 and 2008. The group was made up of 29 academics, primarily economists.

Under Hausmann’s leadership, the ‘Harvard panel’ spent two years analysing the South African economy and its growth prospects and composed 20 research papers spanning all aspects of economic policy. In their final report, they came up with 21 concrete recommendations, things like remove capital outflow restrictions (recommendation 3), or encourage high-skilled immigration via a fast-track visa system (recommendation 11), and avoid using beneficiation as a basis for selective industrial intervention (recommendation 16).

The plan was to accelerate South Africa’s economy, creating jobs and eliminating poverty.

But let’s pause here for a moment, and revisit those years, from 1999 to 2006, the eight years before they started their work. The best way to revisit those years is to do so visually: the graph below shows the annual growth of GDP per capita.

This is the remarkable economic story of the 2000s that most South Africans easily forget. Yes, by the end of the 2000s, South Africa continued to deal with several unresolved economic challenges: high unemployment, poor education, HIV/Aids. But we should also not forget that the Harvard report – and its 21 recommendations for improvement – was produced after an era of impressive economic performance: almost 3% annually for the eight previous years. Note: this was pro-poor growth. A research paper by leading UCT economists at the time showed that a multidimensional index of poverty fell from 37% to 8% between 1993 and 2010, indeed the type of improvement that might even be called an economic miracle.

But many economists at the time, including me, felt that things could be even better. That was the reason for the 21 recommendations by Hausmann and his team: to identify those binding constraints that inhibit faster economic growth and limit the opportunities for greater social mobility. ASGISA had promised 6% growth, and we were not yet there.

Fast-forward fifteen years, to 2023. Ricardo Hausmann, now director of the Growth Lab at Harvard, has written a new report on the South African economy. Again, he and his (new) team spent two years, investigating the causes of South Africa’s economic malaise. But this time, the country they are studying is a vastly different one.

The above graph shows the context in which the latest report was prepared: eight years with, on average, negative GDP per capita growth. It is a dismal story of lost opportunity.

Much has, of course, been written about the reasons for this dire situation, but one statistic helps to put it in perspective. The 2008 Harvard report made 21 recommendations. I asked several South African academic economists to estimate how many of those recommendations were implemented. Their answers average 4 out of 21, less than one in five recommendations. Our poor performance in the 2010s is squarely due to a government that failed to implement the policies that would have taken us from good to great.

Hausman’s 2023 report makes 24 recommendations at a time when we can ill-afford more policy missteps. Understandably, there is little overlap between the two sets of policies; I could only identify three that seem similar to the earlier list of recommendations. Firstly, both the 2008 and 2023 reports suggest expanding the relaxation of preferential procurement requirements. The 2008 reports mention this for State-Owned Enterprises (SOEs), while the second set applies it more broadly across all SOEs and public entities. Secondly, both reports emphasise the importance of regional economic integration. The first report focuses on South Africa leading African economic integration, while the second set suggests moving from a laggard to a leader in the African Continental Free Trade Area. Finally, both reports propose encouraging high-skilled immigration to address skill shortages and stimulate job creation, although the contexts differ slightly (general high-skilled immigration in the first set and global talent specifically related to business in the second set).

Instead of building on the successes of the previous report, much of the second report tries to undo the harm done in the intervening fifteen years. For example, recommendation 10 asks the government to implement civil service reform to replace cadre deployment with a system of nationally recruited, regionally deployed civil servants. Recommendation 18 asks the government to prioritise passenger rail revival by devolving key routes to capable metros. Energy, understandably, receives a lot of attention.

But as sensible as many of these recommendations might be, the key question is this: will we, fifteen years from now, also only give the government a less-than-20% recommendation score? Is this expert advice, based on the latest economic theory by some of the smartest people on the planet, going to be effectively integrated into policy, or will it be overlooked in favour of short-term political agendas, leading to a repeat of the past decades’ missed opportunities and unfulfilled potential?

Next year’s election results may be the deciding factor. It would have been helpful had Hausmann and his team made recommendations about how to convince South Africans to vote wisely.

An edited version of this article was first published on News24. Image created with Midjourney v5.2.