South Africa, along with many other countries, is struggling to renew hope in the wake of a difficult downward spiral. This struggle  is the focus of our new, co-authored  paper, to be launched on April 7^th at a virtual event featuring Trudi Makhaya (economic adviser to President Ramaphosa) and Harvard’s Dani Rodrik. (Here’s a link to the event.)  

South Africa’s recent experience illustrates powerfully the fragility of hope. In the 1990s, the country was an iconic case of democratization. The subsequent collision between strong institutions and massive inequality makes its experience potentially of relevance not only for other middle-income countries, but also for many higher-income countries wrestling with a combination of a declining tolerance for high or rising inequality and institutions that seemed strong in the past but find their legitimacy increasingly being questioned.  

In a benign scenario, ideas, institutions, and growth all reinforce a hopeful, virtuous spiral. Ideas offer hope, encouraging cooperation, the pursuit of opportunities for win-win gains.  Institutions provide credibility that the bargains underpinning cooperation will be monitored and enforced. Together, ideas and institutions provide credible commitment, fueling economic growth. However, the benign scenario does not reckon with the ways in which persistent high inequality, accompanied by unresolved tensions between the distribution of economic and political power can both put pressure on institutions and catalyze a lurch from hope to anger. The consequence can be a cascading set of pressures, and an accelerating downward spiral. Turnaround calls for going beyond ‘with the grain’ approaches, and embracing a far-reaching vision and strategy of renewal.

The new paper, “South Africa: When Strong Institutions and Massive Inequalities Collide”,  co-authored with Alan Hirsch, Vinothan Naidoo and Musa Nxele has been published by the Carnegie Endowment for International Peace, in collaboration with the University of Cape Town’s Nelson Mandela School of Public Governance. It will be launched on April 7^th at 10am (US East Coast time), at an open virtual event to be co-hosted by the CEIP’s Tom Carothers and Zainab Usman, and Faizel Ismail of the Mandela School, with Trudi Makhaya and Dani Rodrik as discussants.  A  modified version of the paper’s executive summary follows below

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For South Africa’s first fifteen years of democracy, the combination of a shared willingness among stakeholders to believe in the power of cooperation and effective institutions that helped make promises of co-operation seem credible enabled the country to move beyond counterproductive conflict and pursue win-win outcomes. Growth began to accelerate, providing the fiscal means for addressing absolute poverty (as per Table 1), and offering some new opportunities for expanding the middle class. There were, however, some stark limitations in what was achieved. The poorest four deciles remain largely unemployed or underemployed, and mostly live in rural areas (designated during the apartheid era as “reserves” or “homelands”) and informal settlements around towns or cities.

Table 1. Some gains in reducing poverty, 1996-2011

	1996	2011
Absolute poverty, with daily hunger	28%	11%
Access to:  – electricity	58%	85%
– piped water	56%	91%
Immunization coverage	68%	98%
Secondary school enrollment	50%	75%
Access to social grants (old age, child support, disability)	2.4 million	15 million

South Africa’s political settlement was built around four distinct sub-bargains:

• A deal between the established (overwhelmingly white) economic elite and the country’s new political leadership. This included commitments to sustain the rule of law (including protection of private property), and to gradual ongoing economic transformation (including an elaborate program to support black economic empowerment, BEE).
• A deal among the new political elites within the majority political party, the African National Congress (ANC).  The ANC is a broad tent encompassing many ideological proclivities; degrees of public-spiritedness; and regional, ethnic, and economic interests. Its implicit promise was that its formal structures, plus the structures of government, would channel this diversity toward a shared national purpose.
• A promise of upward mobility. One aspect was a commitment to protect the interests of new (predominantly black) middle class insiders. Another aspect was a promise that a combination of education, job creation, and an end to racial discrimination would open up readily accessible opportunities for those on the cusp of middle-class status.  
• A promise to reduce extreme poverty. A post-minority-rule redirection of public resources and services would benefit the whole population.

All of these sub-bargains except for the last one, which was pursued at least into the 2010s, were built on shaky foundations. Many BEE transactions straddled the boundary between rules-based and more personalized deal-making; who should participate in BEE initiatives became part of the ANC’s inter-elite conflict. Adapting to a transformed political order created new pressures for the public sector. Had South Africa been able to enjoy a combination of visionary leadership and East Asian rates of rapid economic growth for a sustained period, the expansion of opportunity throughout society might have trumped the limitations of the aspirational commitments. In reality, the country only briefly reached an annual rate of 5 percent from 2005 to 2008.

In 2009 Jacob Zuma became president, having won a bitterly contested struggle for ANC leadership. He inherited an economy that, though buffeted by the 2007/2008 financial crisis, seemingly was fundamentally sound. Indeed, in the initial years of Zuma’s presidency—which included the wildly successful, celebratory atmosphere of South Africa’s June 2010 hosting of the soccer World Cup—it seemed likely that the country would continue its positive trajectory and might even begin a new phase of renewal. 

However, a hopeful scenario was overtaken by a combination of events, deep-seated ongoing challenges caused by South Africa’s continuing extreme inequality, and Jacob Zuma’s approach to leadership.  The events comprised a change in presidential leadership and South Africa’s undisciplined and uncoordinated response to the global financial crisis, which short-circuited a virtuous circle of an economy and society on the mend. Subsequent to the global crisis, South Africa  failed to build momentum and (contrary to other MICs) stagnated, signaling that the global shock is not sufficient to account for the subsequent reversal.

The deep-seated ongoing challenge was the country’s persistent inequality. As Table 2 details, as of the mid-2010s less than a quarter of the total population, including essentially all white South Africans, enjoyed a standard of living that was middle class or better. More than all other middle-income countries, South Africans are either affluent or poor, with limited opportunities to move up the economic ladder.  There was ample reason for the majority of South Africans to feel that, notwithstanding the promises of mutual benefit, the deck remained stacked against them. This increased the vulnerability of South Africa’s political settlement.

Table 2. South Africa’s 2014 Population Distribution, by Ethnicity and Class

	Total	African	Other black	White
Chronic poor	49.5%	46.9%	2.5%	0%
Transient poor	12	10	2	0.1
Vulnerable	15	13	2	0
Middle class	20	9.5	4	6.5
Elite	3.5	0.6	0.5	2.4
% population	100%	80%	11%	9%

Over the course of his nine years in office, Jacob Zuma governed in an increasingly personalized way, with increasing recourse to polarizing rhetoric. When Zuma took office, many who backed him hoped that he would bring an inclusive, coalition-building, popular touch to leadership—a contrast to Mbeki’s remote, technocratic, and somewhat imperious style. In the event, Zuma proved to be a cunning, ruthless, and charismatic tactician.

The paper describes in detail three successive turns that set in motion what looked to be  an accelerating downward spiral of decline:

• Rising pressure on institutions, sparked by the continuing ambiguities and unresolved tensions in the bargains between economic and political elites, and among the various influential sub-groups within the ANC itself.
• A rising tide of disillusion when per capita income growth entered and remained in negative territory. Zero-sum contestation over public positions and resources at the national, provincial and local levels became acute.  Those on the cusp of the formal economy found themselves unable to consolidate middle-class status;  unemployment steadily increased.
• An ideational turn toward anger, catalyzed by both genuine grievance and political opportunism. In the face of thwarted opportunity, an increasing number of South Africa’s population came to see the privilege enjoyed by the mostly white economic elite—and the tide of apparent corruption that seemed to be the only way that new elites could share in that privilege—as a provocation. In turn, opportunistic ethno-populist political entrepreneurs sought to use the disillusion to strengthen their position within inter-elite political struggles.

All the elements seemed to be in place for a fourth turn – a  rapidly accelerating cumulative slide, with weakened economic performance, institutional decay, anger and ethno-populism feeding on one another. The December 2017 election of Cyril Ramaphosa as leader of the ANC and his subsequent accession to the country’s presidency signaled a pause to this slide. However, three years later, President Ramaphosa has not been able to move decisively beyond a promise to “stop the rot” and offer a renewed positive vision. Hard hit also by the Covid-19 pandemic, the country is not out of the woods.

What has been missing so far has been a vision capable of renewing hope across South African society. The path of least resistance for established elites would be to return to “the basics,” reembracing the trajectory of the Mandela and Mbeki presidencies. However, for reasons detailed in the paper, such a muddling-through scenario is unlikely to have the broad-based political support needed for it to be sustainable over the medium term.

The paper suggests  a credible promise of upward mobility for a wide spectrum of society as the centerpiece of a next-generation inclusive development strategy for South Africa.  In the first fifteen or so years of democracy, the elimination of racial barriers and the country’s accelerating growth were sufficient to usher in a season of hope. However, once the low-hanging fruit of the opportunity opened up by the end of apartheid’s racial privileges was gone, the limited economic prospects of those outside the elite became evident. A credible promise of upward mobility would offer a vision of hope and possibility for better lives across society as a whole, renewing perceptions as to the legitimacy of the social and economic order. (The paper details some aspects of a strategy along these lines.)

South Africa’s experience suggests four potentially useful propositions for the many countries struggling to maintain a positive social, political, and economic trajectory in the face of a declining tolerance for high or rising inequality.

1. The trajectory of change is a knife-edge. There is the potential to set in motion virtuous circles of positive interactions among ideas, institutions, and economic growth. At the same time, there is a substantial risk that unaddressed distributional imbalances can set in motion a cumulative downward spiral of decline.

• Ideas matter—a hopeful vision of change, when combined with a “good enough” responsiveness to distributional concerns, can be sufficient to launch a positive trajectory.

• Both ideas and institutions can be shields against adversity—but only up to a point. Hopeful ideas can evoke positive agency and help mobilize for collective action. Institutions can function as shock absorbers. However, both need reinforcement, including ongoing attention to festering imbalances.

• Initiating a new cycle of renewal requires a set of ideas and actions which address in a “good enough” way the imbalances which had resulted in derailment.

Leadership needs to risk of mobilizing new coalitions capable of overcoming the vested interests that stymie inclusive change. Can South Africa’s leadership—and can leadership in other countries, where a similar sense of disillusion has taken hold—summon the necessary boldness to rise to this challenge?

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For the authors’ presentation, and Trudi Makhaya and Dani Rodrik’s perspectives on the paper, join the co-sponsored Carnegie and Mandela School event, on April 7th or view the session (via this link) at some later time