BUSINESS DAY DIALOGUE

“Current affairs and the New Development Pan”

23 NOVEMBER 2011

typed by Daphne Schwab

compiled by Des Latham

edited by Michael Ettershank

FIRST HOUR

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PETER BRUCE: This is the final Business Day Dialogue of 2011. I thought it would be a good idea to use the National Development Plan from the National Planning Commission – not to limit us to any particular subjects – but that would be a

nice framework within which to talk about whatever we want to talk about. Today we have with us Mike Schussler, head of www.economists.co.za and a very well-known economist in South Africa; Jennifer Molwantwa, who is a commissioner on the National Planning Commission in the Presidency; Anthony Butler teaches public policy at Wits University and is a Business Day columnist; Miriam Altman is a commissioner on the National Planning Commission in the Presidency; Godwin Khosa, chief executive of JET Education Services; Adam Habib, deputy vice chancellor, research innovation and advancement, at the University of Johannesburg; and Fredell Jacobs chief executive of the South African Startup Index that helps small businesses. Miriam, if you don’t mind me picking on you first a general comment about the National Development Plan – we have a lot of plans in South Africa starting with the Reconstruction and Development Programme (RDP), we had Growth, Employment and Redistribution (Gear), we’ve got Accelerated and Shared Growth Initiative for South Africa (AsgiSA), we’ve got the Industrial Policy Action Plan, we’ve had the New Growth Path and now we have the National Development Plan – they’re all incredibly complicated and they require very long horizons. Some have worked but some spectacularly haven’t – isn’t it a bit too much? Isn’t adding the National Development Plan simply adding to the complexity?

MIRIAM ALTMAN: We did a lot of thinking about that – my colleague Jennifer can probably comment on that as well – so that we weren’t just adding more plans as you were saying to a very complex planning environment. The purpose of the Planning Commission was to help government pull out of its silos and bring together longer-range thinking about how we effect structural change going forward, and try to mitigate risk. When we were first briefed by President Zuma he specifically raised a concern around the electricity crisis and how we avoid those crises happening again through better coordinated planning. Also, the original thinking was that in government currently quite a lot of the decisions about how different policy areas come together happens around the Budget – it happens around a three-year cycle in the budget office – and the sense was that firstly there needs to be a place in government where longer-range thinking happens, longer-range coordinated thinking happens, and not only around the budget process, that it happens in the Presidency. That was the idea. In terms of the National Development Plan the work of government is complicated – if we had only focused on one area or the other area, it would seem simplistic – but having said that I would alert Business Day readers and the panel that amongst the most important things that are in this development plan are comments about the administration, and how to think about strengthening the institution of government and the inclusion of civil society in delivery. While we comment on a whole range

of policy areas among the most important is how delivery happens.

PETER BRUCE: Fredell Jacobs, you’re running a business in this economy – do you pay attention to any of these plans? Are they important to you, do you take an interest in them? What does it mean to you to have a National Development Plan out there – have you read any part of it? Does it bring anything to the way you think about your business?

FREDELL JACOBS: In terms of what we do, I was very encouraged. We are very excited to see some comments about entrepreneurship and innovation in the plan. To quote they talk about “writing a new story” and “our nation’s energies” with a focus on both attacking poverty and expanding a “robust, entrepreneurial and innovative economy.” Based on what we do – trying to develop start-up companies, taking them to market and helping them take their products and services into a global economy – it’s very encouraging when you hear these types of comments. I was very encouraged by what Miriam said now in terms of alignment and taking government out of the silos – because at the end of the day it’s about delivering. What we found with the entrepreneurs we work with – they really just want the environment to work. Entrepreneurship will flourish if there is no bureaucracy – if they don’t need to deal with red tape, if they can go about their business without interference. [1.2] If the National Development Plan (NDP) can achieve that then we are certainly happy…

PETER BRUCE: The word or notion of enterprise doesn’t play a really big role in the NDP from what I’ve read of it…

FREDELL JACOBS: Certainly not – I think entrepreneurship in the 422 pages is probably mentioned five times or so – but they certainly mention it in terms of the way policy is formulated and the way they’re thinking. The fact that they are aligning that to economic growth and innovation I think already tells you a story that there is long-term thinking about it – and then the fact they’re linking and aligning it to the green economy and infrastructure development. That infrastructure development is not just roads and electricity – it’s IT infrastructure, ICT infrastructure and the infrastructure of government delivery – so that is very encouraging.

PETER BRUCE: Mike Schussler, do you think it’s too much – do you think it’s another overly complex, overly ambitious plan?

MIKE SCHUSSLER: Probably it’s a bit overly complex, perhaps, because it’s going to be very difficult to put a lot of these things into practice. I think, however, if I can take a step back to the diagnostics report – and I think if we start there and we say to ourselves “we had a look at this economy and we are starting to look at the truths of this economy” – I think that is a positive step. I think addressing that is probably a positive step in the NDP but I still think there are things that are missing – I want to go where Fredell Jacobs is on the entrepreneurial side of things, for example we haven’t looked at what makes business function and we haven’t been harsh enough on what is making business not function. We’ve always got plans and visions – I’ve seen some for 2055 when apparently we will all be retired – but what about the immediate? Why have I just gone through five robots that don’t work? Why did I not have a Telkom internet connection for 12 days? You have to phone right to the top to get it fixed. For a small business that is important. Why do I not have electricity? I’ve had to spend R25000 in my business to put equipment in place that we have electricity – and many businesses have done that – so we’ve made business more expensive. On top of that for certain parts of the population if you are a successful business – and these are the things we don’t want to talk about – we have BEE commitments so you have to bring in somebody else who is not necessarily a business partner, but you have to make that person a business partner. Not to talk about that is also missing the point. The other thing is I really think we have a bloated civil service – 21% of our formal non-agricultural workers according to Statistics SA’s Quarterly Employment Survey work for the state. That is one of the highest ratios anywhere in the world and that’s why we pay so much – we now spend according to Pravin Gordhan about 41% of our expenditure on civil servants. Those civil servants are making rules but they are not helping business – they’re not saying “how can I get more business for South African businesses?” Those civil servants are not going out there and saying “how can I fix the robots or the streets, or make sure that electricity runs every day?” They’re all thinking of big plans – they’re all thinking for us – and that’s where I have a problem. But I think this is certainly a very good step in the right direction – we are starting to look at things that we should be looking at – but this is just the first step if we want to be a successful country.

PETER BRUCE: Jennifer Molwantwa, everybody is being really nice about the New Development Plan – nobody is being horrible – just to come back to the point about enterprise and Miriam no doubt will have something to say – it really seems to concentrate on big things rather than little things, and it doesn’t really focus that much on developing enterprise and entrepreneurs. Why is that? If you disagree with me tell me why you think it does…

JENNIFER MOLWANTWA: I think that we have actually had a lot of discussion – in the economic group the issue of enterprise development was one of the issues – it’s just a pity that it’s mentioned probably about five times in the document. I’m sure that needs to be corrected. What I know is that we have identified the development of new businesses, particularly small business, is where the jobs are going to come from in this economy. There needs to be implementation of how that is going to happen. We have been appointed for five years – the initial step is we do the diagnostics, then we’ve come to say “this is the plan.” Basically these are the targets that we are setting for 2030. The work that continues from here is to say “how do we actually do that step-by-step implementation?” That is where we bring in a lot of people like Fredell Jacobs who actually do that type of work with start-ups. We’ve also emphasised the need for teaching entrepreneurship in schools so the curricula can be responsive to South Africa’s economic needs.

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MIRIAM ALTMAN: Enterprise development is a hugely important area – over the next six months I hope we do get feedback to strengthen what we’ve said. We recognise that 90% of any new jobs will probably come from new and expanding firms. If we can just get away from the SME jargon we are looking for expanding firms – generally speaking those are going to be small ones that are growing. If we cross referenced everything in the NDP we would have a 1000 pages but if I can just give you some pointers there are specific statements about SMEs, about new firms and growing firms – all the proposals around infrastructure, urban development, the pace at which new properties are approved, the recommendations around the governance of energy, municipal maintenance, energy systems and water systems – all of those kinds of proposals are geared towards making municipal areas and particularly urban areas work better. That’s actually where most small firms are going to be finding their opportunities – so although it may be unstated that is what the idea is there. When you want to fix something like electricity some of the key recommendations that come up – they’re not new, but we are pushing them harder – is for example to have independent procurement so that we have a renewables industry and an independent power producing industry that really can emerge, start supplying energy and move ahead. When we make that sort of recommendation that then filters down to whether property development can be approved, whether firms can get access to power.

PETER BRUCE: Godwin Khosa, you’ve had something to say in writing about the education part of the NDP – I just wanted to pick up on a phrase that Jennifer mentioned just now about teaching entrepreneurship – can you teach entrepreneurship?

GODWIN KHOSA: I think you can – you can create spaces within the education system to get young people to appreciate entrepreneurship, and ultimately provide spaces for those who are interested in branching off from academics to follow the

entrepreneurship stream. I think there is a place for that – but we are struggling with the basics – so I would be very sceptical of a plan to try and bring in entrepreneurship before we fix the basics. Our kids can’t read and write – they can’t do basic numeracy – so why try and do everything?

PETER BRUCE: Does the NDP help fix that?

GODWIN KHOSA: I think it attempts to fix that. I appreciate the fact that it sets the scene for discussion, for dialogue – for the nation as a whole to start talking about where we are taking education – but I’m afraid I think the essentials are lacking. I did point out in my written comment some of the essentials that are lacking. I think for instance we want to put in ad hoc measures to solve a very big problem in the country that will take many years – we want to bring in 5,000 to 6,000 mentors and trainers, instead of for instance fixing the districts and making sure that there are qualified, capable district officials who will be there on an ongoing basis to support and monitor the schools – so I just think that we are cutting corners.

PETER BRUCE: We are trying to do too much. Anthony Butler, there is a lot in the plan about public administration – cleaning it up, making it more professional, making it less political – is there anything that you’ve read in there that gets your blood going, that gets you excited, that actually looks as if it even may be remotely possible in the time frame allowed?

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ANTHONY BUTLER: A general point to start with – I think you are being a little bit unfair on the commissioners, in that as we know the first conception of the Planning Commission or its self-conception appeared to be some kind of executive body. Now we can see that was never going to be politically acceptable – so there is clearly a very fine line to walk between offering broad guidelines about the future development of the country, and intruding on what is seen as the territory of Cabinet ministers and other coordinating institutions like clusters that already exist. It’s unsurprising that in some places, as in education and public administration, there are more concrete proposals – perhaps surprisingly many proposals – and it may well be that there is more political buy-in in those areas for a need for change. On the other hand you’ve talked about the NDP as being perhaps too much – so it’s too little in one sense, in that it doesn’t offer many concrete steps. I think it has to be very ambitious in scope because otherwise it wouldn’t be worth doing. I think that if there is buy-in to the longer-term vision of South Africa that the plan offers then there is 20 years of argument and contestation between the actually existing executive agencies in the state and all of us in the outside society about the detail, and how to get these things to work. I think the document is almost as good as it could be in many respects – with a few significant quibbles, including the almost entire absence of attention to gender equality, which I would have thought should be an essential part of a plan of this kind. On public administration I think there is a wide acceptance of the crisis in the state, and the degree to which the ambitions of the NDP and government more generally rest upon having a capable public service. What we seem to have instead is a public service that is, as Mike Schussler said,

growing in size and decreasing in capacity so there are fundamental issues to address there. I think an expanded role for the existing oversight bodies is a very sensible idea. In many countries they place this function of managing the public administration of the state in the presidency. I really think that there are problems with the governance cluster and with the Department of Public Service and Administration and trying to place an ordinary government department in charge of the administration of the state.

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PETER BRUCE: In many ways – and I mean this as a compliment – what the NDP states is the obvious things that we have to fix – if you were to pick one to fix first, what would it be?

ADAM HABIB: I want to come back to your original question – because I do think it’s worth bearing in mind that there have been plans and there have been plans, real plans and rhetorical plans - the RDP was a rhetorical plan, it wasn’t a real plan. Gear was a serious plan – it actually did involve defining the broad parameters of the Mandela and then Mbeki administrations over 10, 11 or 12 years. It conditioned the kinds of choices that we made, the kinds of decisions that we made. Polokwane, it seems to me, challenged that agenda in some significant ways. I love the idea – I think the NDP is absolutely crucial because it opens up the conversation again, and it defines a set of new parameters that says “this is the game plan for the next 10 and maybe 20 years if this leadership is consistent” and I think that is absolutely crucial. I also think there is a big difference between 1996 and 2010. Significant things have happened in the world so a plan needs to re-think that. I’m particularly attracted to the idea that there is a plan. I also think one has to be careful that the NDP doesn’t get into the micro details – because it’s not an implementation document. It is a plan that is meant to guide the broad parameters of choices that are to be made. I think in that sense the NDP does do that. I think it sends out signals that say “we are looking at certain issues.” There are two that I want to put onto the table – the first is that we need a professional public service. Despite seeming a reasonable thing for any sane human being to want the fact that there is recognition of that is important – because 15 years ago the big debate was “we are going to change the colour of the public service.” That was the overriding concern. The overriding concern was implicitly “we want to deploy cadres into the public service so they advance the political agenda.” That was the implicit assumption. Now what this Planning Commission document says is “a professional public service is crucial to inclusive development.” That is a fundamental statement to make. What it also says is that some hard choices are going to have to be made – and “we need to start thinking about the nature of how we implement affirmative action.” That’s not about affirmative action is necessary – but how it’s implemented, how it gets constructed. I think that’s an important question. We need to debate those kinds of issues. There are some hard choices in the NDP. The second thing I think is crucial to the study – it also draws an interesting correlation to the link to the New Growth Path, where it says that it sees itself as feeding off that which for me is absolutely crucial – it puts onto the agenda two issues, the first is unemployment. It says “if we don’t get employment sorted out in this country the place is going to burn.” It also puts inclusive development and in my view inequality onto the agenda of the state saying “for the next 15 to 20 years this is our game plan.” A professional civil service, and inequality and unemployment are the

two big issues. We can debate how we do that but it puts those two issues on the agenda – I think that that is the fundamental issue. For me at least we’ve got the parameters right – the planning document is meant to do that – now let’s debate how the implementation happens. I’m happy to engage on those kinds of issues. I think the ANC is going to have to engage and the state is going to have to engage. I think this document is important.

PETER BRUCE: How do you get the engagement going? Yesterday I was in Parliament for the inevitable passage of the Secrecy Bill – one of the ANC MPs most vehement in his calls across the floor, and the speed with which he stabbed his “yes” button was Trevor Manuel. I wondered how he would square wanting the civil service that he talks about and also voting for a Bill that will punish civil servants for exposing wrongdoing within their departments?

ADAM HABIB: On that issue I think the Bill is very interesting – I had a debate on the Bill this morning – I’m not so sure the Bill does that. I’m not sure it prevents corruption. In fact there is a very explicit clause that allows you – that if you were to declare something as classified on the basis of corruption, or ineptitude, you can be charged for up to five years...

PETER BRUCE: But it’s up to the whistle blower to defend himself first...

ADAM HABIB: I am opposed to the Bill because it does a couple of things which are dangerous – firstly there’s a dilemma between state security on the one hand, and the free flow of information. Free flow of information is absolutely crucial not only for a democracy, but for increasing development. If you look at the tone of this Bill it bends the stick too much in favour of the state security angle. What I would like to ask is to actually take somebody like Trevor Manuel and say “you’ve made a series of important statements about what you think we require – what does this mean now in actual implementation around your choices around the Bill you signed? What does it mean around affirmative action and how we deploy that? What does it mean around cadre deployment, and how we look at cadre deployment in this context? What does it mean around BEE?” I’m for empowerment as the New Growth Path says, I’m for directing it at small business development – but what does it mean when BEE for the last 10 years was largely about enrichment rather than empowerment? Those are the things – but at least I can now talk because we agree on the parameters. Now let’s talk about the implementation – we agree on the parameters – let’s talk about how we do it, and are you prepared to live the talk? That’s where I think the real challenge is. This document says let’s stop debating parameters – let’s now talk implementation, and are we prepared to live the talk of the NDP?

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PETER BRUCE: Let’s get onto the two parameters that you spoke about. I’ve got an “Idiots’ Guide to the National Development Plan” in front of me – which is probably my level – where they talk about increasing the capacity of the public

enterprises to add to the economy and create jobs. Miriam, how does that begin to work? We’ve moved from 2007 when there was a crisis of capitalism to a crisis now where states are beginning to really battle with the debts that they’ve incurred – in the paper this morning the Minister of Public Enterprises was calling for the possible re-creation of a state-owned steel industry because steel is too expensive. How would that possibly work? What he envisages is a steel industry that produces cheap steel to help with development. How do you begin to have the discussion about reducing all those unemployed numbers?

MIRIAM ALTMAN: It won’t come through the creation of a state-owned steel company. The reality is that globally in every country most jobs come from pretty low level services – mostly domestically orientated, retail, hospitality, hairdressers, office cleaning, domestic workers. Unfortunately that is what most people do globally. Then a whole group of people work around other kinds of services – like in finance, some people run their own business, or work in IT services. Very few people these days especially in a middle-income country like South Africa are employed in manufacturing sectors – or any kind of goods producing. We would like to see more people in those kinds of areas because our sectors have not been growing in the way they needed too – and they’ve certainly shrunk over the downturn – but if we are creating millions of jobs they won’t be in those sectors. They will mostly be in the service sectors. Like I say that is true without exception in every middle-income country, high-income country – and that includes countries like China, India and so forth – therefore what we have to think about and that’s very much embedded in the NDP is what will be the drivers of growth, what will be the drivers of job creation, and how do we get those lined up as much as possible?

PETER BRUCE: There has to be presumably some kind of agreement on that before you can start – because as I remember the New Growth Path doesn’t necessarily agree with you that lots of jobs can be created in manufacturing and agricultural processing – so that agreement has to be reached first. Mike, how many jobs are we talking about – 11-million? That’s an awful lot of people…

MIRIAM ALTMAN: Over 20 years...

PETER BRUCE: That’s 7-million in the last 10 years if I’m not mistaken if you assume that we are going to make the first 5-million by 2020.

MIRIAM ALTMAN: My sense in this economy is that have brakes - so what we’ve built into the NDP is that idea of looking at binding constraints. That’s an idea that comes from Dani Rodrik (Harvard). Binding constraints are things that are in the environment that we impose that stop business in its tracks. Most people can work around a lot of difficulties – but there are some things that just hold you in place and make it impossible to act – so much of the economy section in the NDP says there are many things that need to be done, but if there were five things that you could do focus on those. So, for example, if there isn’t any energy available then you can’t supply industry – so industry is “off”. It’s on or it’s off – if there is no electricity it’s off. You can’t work around that. If the municipal electricity distribution systems are degraded and municipalities don’t approve property developments – and that affects services as well to property developments – that is

happening now then it’s off. Then you don’t get the multipliers in urban areas. Similarly, if you don’t have water it’s the same story. So there are many things in the environment that are under our control – we can’t blame the global environment – and if we can take them one by one and really focus our minds on getting those fixed I believe we will have a spurt . Every time we’ve effected those kinds of improvements we’ve seen that spurt coming forward. I think we’ve got a lot of latent capability in this country – it just has to get enabled a little bit more.

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PETER BRUCE: Let’s assume the binding constraints aren’t there – there are no environmental binding constraints, but we are what we are a mining economy with a terrible history – but we’ve got energy, water. Fredell, without any binding constraints, can we create 11million jobs in the next 20 years?

FREDELL JACOBS: It depends. That number is about 500,000 a year. One thing we need to remember no entrepreneur wakes up in the morning and says “I want to start a small business.” You’ve got big dreams so you want to start a business. For us to think that small business is going to create all of those jobs is also a bit far-fetched. The manufacturing capability that Miriam is referring to – and not so long ago the Business Day ran an editorial article about the mining sector and how we need to deepen that…

PETER BRUCE: I thought it was rather good...

FREDELL JACOBS: A great article, I must agree. If you look at what they were saying there – and if you look at our global competitive scores – the impeding factor here for us is the labour environment. A lot of people point to that. What we’ve found if you talk to entrepreneurs they say “it’s cheaper for me to import the stuff and sell it on at a margin than putting up a manufacturing plant where I have to deal with labour issues.” Coming out of what happened in Newcastle is a very good case – where textile workers were paid based on productivity, but under the minimum wage. They could earn more. The unions went in and said “you must pay minimum wage” and they said “then we have to close because we can’t afford that.” They quickly re-negotiated that. So it’s certainly about looking at that. This is why we were very excited about entrepreneurship and innovation – because it’s taking research and development to market. We’ve got a lot of R&D sitting in universities and research institutions – if we can take that to market in South Africa and then the rest of the world that is job creation. If you look at 18 years ago in the case of Discovery there was no Discovery here – there was an entrepreneurial plan, they employed 3,000 to 4,000 people. There were no cell phone companies – all of a sudden we’ve got three of four. That is job creation, that is entrepreneurship. Now we are talking about making a dent in unemployment and absorbing those unemployed graduates and doing something with that skill that is there already – and then looking at how we engage the youth around entrepreneurship? It’s so sad - just yesterday I learnt last week was Global Entrepreneurship Week. There was very little coverage in our media locally – a South African student won in New York. He went all the way to New York and presented his business plan there and

he won – out of everyone in the world he won that competition. None of the media houses here reported that. That’s the mindset change we have to have. Also, giving young people the sense that if they have those ideas we will take it to market providing the environment, giving them access to finance capital and of course entrepreneurial skills.

PETER BRUCE: Mike Schussler, 500000 jobs a year?

MIKE SCHUSSLER: That’s a huge amount. It’s unlikely we are going to do that. If I can just point out just a few facts – four out of every 10 adults roughly speaking in South Africa work. That’s what this report says. In the emerging markets, roughly seven out of every 10 adults work. That says that there are three out of every10 are missing in South Africa. Why are they missing? If you look at the International Labour Organisation they say that around about 84.5% of South Africans work for somebody else for a salary and a wage. There is a 0.5% discrepancy but 15% either have their own business, or employ someone else. In emerging market countries it’s generally speaking about 40% of people – four out of 10 workers – work for somebody else, and six out of every 10 and so on. That says something about either we don’t have the right attitude towards entrepreneurship – maybe we already have too many rules that people are saying “it’s not worth my while being an entrepreneur” because we have anything from minimum salaries to business licences that municipal governments want to stop businesses in Milner Road in Johannesburg or whatever the case may be – so it’s from the macro to the micro type of set up that we’ve got to look at here. I think quite frankly in the NDP what it really had to do is speak to that. I think we missed an opportunity on the entrepreneurship side. But be that as it may, I think looking forward what we need to do now is to be a lot more honest with ourselves and say things like “we need more people to start with low-paying entrepreneurship jobs” and “you’re going to have to look after yourself.” We are going to have to say to people we cannot afford the welfare system that we have in South Africa – we have 15-million people that are on welfare and only 13-million people working. There is no country in the world where it’s that big. In that process when we increased the welfare payments we were very kind to people – but in fact we were cruel because we lost a million entrepreneurs in that same time period. That says something to South Africans – that we have to be very clear to people that it’s not going to be a smooth and easy road. All these plans are very nice but in general countries similar to us – we can get to manufacturing and services later – a lot more people take care of themselves than here. That doesn’t come through in the public debate either. I agree with Fredell that there are many things entrepreneurs are doing that are not covered – we find that there are smaller business magazines that are aimed at the entrepreneur and give people ideas, but generally speaking they are franchise type ideas which I’m not too sure if poorer people can buy into. While you cannot teach entrepreneurship you can create the environment where entrepreneurs create, the attitude towards entrepreneurs you can create. You can create if you wish a stream of ideas – because what you also don’t want is 15 people selling oranges in the same street, or 15 people cutting hair. You want a bit more value added. Every other idea – and we do have some ideas about a nice railway line going up to the Waterberg, and that railway line creates 1000 jobs and the coal mines might create 10000 jobs – but that’s nowhere near the 500000 jobs a year that you need. The majority of those jobs are going to have to come from people working for themselves and employing others eventually – hopefully some of them are successful enough to do that. While every entrepreneur’s dreams may be big they

normally generally start small – they start from their garages or their houses. Those are the types of things we should also have an open discussion about. It might be a bit boring – but those are the types of things we really need to address.

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ADAM HABIB: Mike Schussler gives an important reality check and that’s important – I want to talk about how we create entrepreneurship – but let me give a political reality check. When you make a comparison between India and China, India began its transition in 1948 and for 40 years it had an interventionist state in one form or the other. That period was one of trying to create and expand and redistribute wealth – it didn’t do a very good job of it, it had high levels of inequality – but it had that. China did the same – a large amount under Mao, there were all kinds of problems – but there was a massive interventionist state in that regard. When you start looking at the more market-oriented strategy beginning in the early 1980s and 1990s it operates on a historical project. Now when you take South Africa we have to recognise that large amounts of people are employed – there are three to four million people who are not in jobs, and who are not in higher education. They are young and very, very angry. Frankly, if we don’t start creating hope amongst them we are going to lose the entire thing – we can have the best policies in the world – the place will burn. In Polokwane we got lucky because we had an institutional revolution. The next time around we might not be that lucky and we will have a societal revolution – and then whatever our background we will all be running for the ship because we are going to be so scared about what is going to happen. That’s the other reality.

MIKE SCHUSSLER: How are you going to create jobs in an environment where that is a threat?

ADAM HABIB: It seems to me that there are two parts to this problem – part one is if you look at the nature of the evolution of our economy it’s been towards the service sectors of the economy. One of the big dilemmas we have is that a large number of people who are unemployed don’t have skill sets – they are unskilled, or semi-skilled. You can have the best IT industry in the world but you are never going to be able to employ them – because the dilemma is that they are never going to have the skill set for that. The big question we have to ask is how do we at the same time get growth going – but simultaneously create a set of industries that can absorb large amounts of skilled and unskilled labour. That’s what there is to talk about. Agriculture is important, tourism is important – because it’s not so much that it’s going to get growth going – it might in some cases – but what it does is it absorbs large amounts of skills and begins to create hope. That is part one to the equation. Part two that’s absolutely important is that you need to get investment in this economy – we know that, we all accept that – but one of the big dilemmas of investment is that we are spending large amounts of money on wages, short-term wages and consumption possibilities – rather than creating the public resources that are required for massive investment in the kinds of energy and other things that we need to do. To get what we need is to convince the workers, the unions, that they need to be circumspect in their wage demands. But to do that requires being able to moderate expectation – and to moderate expectation means you have to do some other political act. You have to ask the rich to say “we are prepared to make

sacrifices as well.” It’s symbolic if Mr Maree gives 10% of his salary – but with due respect if you are earning R25-million that’s not hard to do. The question, however, is by doing that you send a message to the system that says the elite are prepared to make sacrifices as well. Then you can ask the workers. It’s a bit rich for a chief executive who earns R600-million to walk into the unions and say “we had a rough year – can you take less than 5%?” That is the danger. Symbolically that is important. One final thing is the unions – the debate in South Africa is polarised by both sides. The unions say “no” to the Labour Relations Act and business says “the Labour Relations Act is the worst thing possible – our entire lives are destroyed because of it.” We need a more nuanced conversation. A nuanced conversation is this – walk into Zwelinzima Vavi’s office and say “you know we understand your concerns because actually we come from a very unequal environment – but to get agriculture going we’re going to need to talk about it. How can we do something in agriculture and circumscribe this so it doesn’t play out into the full labour market?” I tell you, you will get a deal. The example of the textile industry – that was an example where the unions were prepared to deal. But they are not prepared to say “let’s go back to pre-1994…” What they are saying is “let’s talk and see how we can get rid of some of the brakes in our economy” but simultaneously be willing to make concessions. The problem is we’ve got too many polarised conversations by the economists who don’t understand politics and by the political activists who don’t understand business...

1.9

PETER BRUCE: What keeps that polarisation going? Jennifer, is it simply because there are a handful of rich businessmen – I’m sure we all wish we had their money – and this vast array of people in unions and an even bigger array of people with no jobs? Why is it so hard in this country? Bear in mind the plan that you were part of – why is it so hard even to begin to have some ideas about creating a national consensus without somebody standing up and saying “you’re white” or “you’re rich” or “you are x or y”? Why can’t we talk to each other civilly?

JENNIFER MOLWANTWA: I think it’s important to note that one of the things we have spoken about in the NDP is that we need to have a paradigm shift making sure that people get capabilities that will enable them to access opportunities. While we are saying that what has been said here around the table about the unemployed, unskilled – one of the implicit recommendations is that we need to improve the functioning of the labour market to make it easier for young work seekers to get jobs. Here we are talking about exactly what has been said about what happened in the textile industry – these people are unskilled, but business can not easily take them on because of the risk that they run in South Africa to employ somebody that is unskilled to get rid of them. While that may be the case – we are also saying concurrently with that we need to improve education, we need to enable them that we can have people who are skilled that will be able to respond. I think the polarisation that we are talking about comes from the lack of social cohesion – we don’t agree on issues – and everything is so politicised that even in the plan we do say that issues of leadership is not about the President it’s leadership across all sectors of society. People must take responsibility – young people must have leaders to look up to because those people are leaders. We want social cohesion as an input – basically we must all agree on certain of these issues, for example getting all those unskilled, unemployed into some form of employment, and getting

our education standards high. That therefore is also going to be an output that social cohesion, because then we will get spin-offs of more inclusivity, people getting into jobs and all of that. So I think in terms of how do you get rid of polarisation people fend for themselves...

PETER BRUCE: Self interest. We had a dialogue at the Business Day not so long ago – I was talking about an “economic codesa” and the head of the Cosatu was over there, a senior business leader over there - they didn’t want to sit down and try and create consensus. Where does this agreement happen?

JENNIFER MOLWANTWA: Even with the diagnostics – and now the NDP is open for dialogue, and we are engaging with all stakeholders – if you sit across a table you will find that everybody wants the best for the country. Nobody just wants “my way because that’s the way I feel…” I think we are just not getting that common ground because people don’t sit and try and reach a compromise. It’s imposing on people – everybody imposes their side.

PETER BRUCE: The moment you shift your position even slightly you’re on shaky ground. I wanted to hear what Anthony had to say – how does one create consensus even theoretically?

1.10

ANTHONY BUTLER: I think it’s very hard in a society like South Africa. It’s not just the history of political division – it’s also the institutions. It’s very difficult to get business to work together because different businesses have quite different policy preferences, and it’s very hard to get trade unions to work together because of the way in which they are organised. In a society like South Africa we wouldn’t expect it to be easy to get a social consensus through labour and business organisations. That doesn’t mean it’s impossible – it means it’s very difficult to do so. It requires very persuasive political leadership to get people to buy into a longer term plan of the kind the Planning Commission is offering. I think that it’s more likely that the situation will be a negative one in many respects. I’m not really persuaded about the social revolution around the corner that Moeletsi Mbeki and Adam Habib are warning us about – but I think the losers are likely to be the already marginalised youth. What the New Development Plan is telling us is a few things about the quality of the decisions made within government and the quality of public expenditure – it is telling us that we need to consume less and invest more. Consuming less and investing more means quite a lot of suffering to be allocated in society over the period ahead, and that suffering will be allocated to the already marginalised. That is one reason I am concerned about the absence of gender analysis in the NDP. I think the youth are in fact politically powerless in this society and will probably continue to be so…

PETER BRUCE: Who are they angry with, are they angry with business?

ANTHONY BUTLER: I don’t think they really understand the causation of their suffering – they don’t know what’s bringing it about. One thing we know about the history of many of the very successful state-led developmental states is that they were authoritarian. It’s partly because of those obstacles that the business side present of our trade unions. Suppression of trade unions is very tempting in these circumstances, equally internal democracy in parties like the ANC cannot continue in the way it is now when you have a very young population that is not going to benefit in the foreseeable future from any of the remedies that the Planning Commission offers – so there is very likely to be a very torrid political time ahead. Not one that involves revolutions which are I think very unlikely in South African circumstances.

ADAM HABIB: There are two parts to that question. The first is about the youth themselves – you are right, revolutions happen when two things occur one is that you have a large number of people who are marginalised and who feel relatively deprived, the second is you need an organisational vehicle to manage them into a revolution. The second doesn’t exist in the South African context. A politically un-lead marginalised young group of people has a dramatic impact on the nature of the society – the ability to bring crime levels down, particularly violent crime down is very minimal. You will always be vulnerable to the potential of “ethnic entrepreneurs” or “religious entrepreneurs” of one type or another manipulating it. It is in those social conditions that societies fracture – and when societies fracture the economy fractures and we all loose out. That is the great challenge. The question that you asked is how do you create consensus? There is a fair degree of research on this. It seems to me that consensus is denied with two sets of variables. The first is structural. One is consensus doesn’t just emerge magically – it emerges when there is a sense of crisis in a society. Often when that society and the political needs are confronted by crisis they go for a consensus – and Polokwane brought part of that. The second time consensus emerges is when you have even stakeholders – where stakeholders like business and labour are of even power. If the one is stronger than the other then there isn’t the desire. That’s the first variable. The second variable is leadership. Leadership is about containing expectations because you can’t develop consensus unless you contain – if somebody says “I am prepared to trade this off because in the long term I’m going to gain…” That requires leadership from both the public sector and the private sector. I think the structural variables were created by the emergency in 2008/2009. But we missed an opportunity – the opportunity was missed by both the public sector and the private sector. The public sector was saying “symbolically we think it’s important that we need to contain our demands for a long term vision.” To do that every Cabinet minister is going to sacrifice by not renewing their cars for the next five years – it’s a small cost to the fiscus – but symbolically it sends a powerful message to the system to say “I am prepared to talk.” See – the elites are prepared to wait... A second thing is if Maria Ramos and Mr Maree and the guy in Sasol and a couple of others say “we are prepared to take below inflationary increases…” Frankly, it makes no difference to their lifestyles – but the symbolic effect of that means that you can go engage the unions and say “we are making sacrifices, can you be circumspect?” I had an engagement with the Cosatu leadership and their argument is very simple “you talk about workers getting 7% increases but last year the executives got 21% increases – what are you complaining about? Let them make some sacrifices before we talk.” It’s a fair point. Symbolism is important because symbolism speaks to leadership. Finally, you are never going to get that in a “codesa” or Nedlac. Look at our history – everybody said we would never figure out a political solution. What happened in 2003 when Hani died Mandela had a

private conversation with De Klerk and says “we either let this place burn or we move” and they collectively came together. It happens always behind closed doors. They will sign in Nedlac and at Codesa – but the real decision gets made by the principals – and that’s where we need to start showing some leadership in consensus manner.

SECOND HOUR

2.1

PETER BRUCE: Fredell, you were interrupted...

FREDELL JACOBS: I wanted to respond to the union issue. I recently had a conversation with one of the Intel directors looking after Africa – he was saying “I’m talking to your government and we are not getting any joy. We were really very keen on bringing a plant to South Africa, but this is a 20 to 30 year investment for chip-making and we need some concessions. Between yourselves and Chile we are thinking rather Chile because the government there is meeting us half way, look at some of the concessions…” Of course the investment required is huge – but so are the spin-offs out of having an Intel plant in a country. The second issue is around the way unions negotiate and are set up in South Africa. The stakeholder model needs to be expanded – to become shareholders in these businesses where their workers are employed, so they can sit in these boardrooms and they can have a say in chief executive pay saying “we don’t think it’s fair – we want a higher dividend” or whatever the case is. The value that is created by these companies then also flows to the unions like the model in Germany. That’s probably one of the issues that might bring consensus.

PETER BRUCE: A sort of stakeholder capitalism in other words…

FREDELL JACOBS: To a certain extent, yes, they need to be shareholders in businesses. If you are a shareholder in the place where you are working at you are not just working – you are contributing to your own wealth creation as well.

PETER BRUCE: It’s interesting the debate of high executive pay – that it’s often the government or ministers who bring it up, and yet the government sits on many of the boards of these companies as a shareholder representative because of the PIC - surely they can put their hands up and say we are not going to agree to that income for X or Y? Why aren’t people sitting outside the Treasury or the Government Employee Pension Fund or the PIC which is the investing end of it and complain there?

MIKE SCHUSSLER: One of the first things I’d like to say is I agree that there are some executives that get paid quite a lot. That seems to be an international issue – yesterday there was a broadcast about that problem in the UK – but in the South African context our public servants get a rather high salary already. The University of Cape Town found that they get paid 44% more than in the private sector for similar jobs on average. Just a

simple average they get paid 28% more if you use the Quarterly Employment Survey data. Another thing is the state owned enterprises where Eskom on average gets the same salary as a professor in Germany. I’m saying to you state owned enterprises overpay…

PETER BRUCE: Who in Eskom gets the same salary?

MIKE SCHUSSLER: The average in Eskom is near R500000 and in Transnet it’s near R500000 and at the SABC it’s near R500000. These are the salaries that professors in Germany get broadly speaking to put that into perspective. Then we end up with administrative prices running at over 13% if you take out Telkom – because they’re a negative influence at the moment with a decrease – so you’re actually getting closer to 15% which is twice the rate of inflation that’s just come out. When we look at 600 or 1000 business leaders we forget that there are 45000 people at Eskom, there’s 3000 at the SABC, and 80000 people in Transnet group including SAA. When we talk about inequality as well if four people work out of every ten the other half that don’t have a job are poor – so the solution is creating jobs, not telling them that they are poor the whole time. The time has come to say to people “this is as good as the state is going to get.” There is no doubt I think any more about that. Another thing on inequality – before I get to certainty which is something else I want to say – South Africans are asset rich and income poor. A little known fact about South Africa is that our home ownership is one of the highest in the world – we have about 70% home ownership in South Africa unlike Europe. People buy pension funds and retirement annuities here – so we have about 8-million people who have pension funds. The fact that business didn’t see this as a great ally in the nationalisation debate doesn’t make sense whatsoever – because if you tell the average worker out there that he’s going to get a 30% or 40% shave on his pension fund if you nationalise without compensation – you would have had a very big outcry and a hiding to the people who said that a long time ago. South Africa doesn’t create income – but we have assets. We have a major amount of assets which is unbelievable in terms of a developing country – in fact South African home ownership rates are higher than most of Europe with probably only Spain, and that’s going to change with their crisis competing with us. We are higher than the United States or the United Kingdom. Yes, it is sometimes a little bit of a flimsy shack, but 70% of our houses according to the general household survey, are formal. We must take that into consideration. Another thing just getting back to certainty – I like that word certainty that Adam brought out – but we must say that this is one place where the NDP came short because if the plan was going to create business and jobs it would say we need to give certainty to the agricultural area and we need to get this land situation sorted out. I was with a New Zealander the other day – the Maoris had 20 years to sort that out, they could only claim state land end of story. The farming community went on and they created jobs. That’s what we need to do as well. You also had to then as such there was a tax on trees and certain other things to create the money to pay for this – but we need certainty in that area. We need certainty in mining. We are country where it is a well known fact with two big commodities booms – the two biggest probably in our working lifetimes – we didn’t create mining jobs. That’s because the word nationalisation came up recently – but before then the mineral rights situation wasn’t sorted and there are many other things. If I was to look at this and say if you wanted to be radical and wanted to change South Africa you would have come up on the side of certainty and you would have said “the state as well is going to invest in infrastructure – these are the roads they are going to build, these are the types of things that it is going to do. Electricity uncertainty could be added to that. One last thing – I agree with Jennifer and I like the fact that they add the word responsibility, and a Bill of Responsibility to it – because nobody has rights if nobody has responsibility. In South Africa the pendulum has swung too far everybody saying “you’ve got a right for this and

that” but nobody takes responsibility. To put it in very simple terms if you give a little bit of a hiding to a naughty child they know that they have learnt something at that moment in time – maybe you put him in the corner of a room – but if you don’t do anything that child doesn’t realise it has done something wrong and carries on doing something wrong. You are actually not being kind you are being extremely cruel. The fact that we’ve come up with a word like responsibility – we probably have to be much more specific about that – is in my terms very good.

2.2

MIRIAM ALTMAN: I wanted to clarify something about an earlier point – I was talking about jobs mostly coming from services, but as Mike Schussler has just pointed out the success of manufacturing, mining and agriculture are going to be absolutely essential to spinning off many of those opportunities. I think that within our power the issue raised earlier was “what if we didn’t have binding constraints?” If we could come to that road and we were in a situation where our logistics platform was working well, energy wasn’t a constraint, municipal systems were working well, we had great bandwidth, we didn’t have a skills supply constraint – if we still had such high unemployment then we would really be in a mess. I suspect if we started dealing with some of those things we would have much bigger goods producing industries. Mike was also raising the point about land – the easiest way to promote growth and job creation is to use the resources that you have at hand. That we aren’t releasing more land into productive activity is really a travesty. There I don’t just speak about former white formal commercial areas, I speak about the homelands, I speak about state land – all of that land needs to be put under production. Agriculture is one of the only goods producing sectors now that has high direct job creation and high multipliers. That’s the first point. The second point is entrepreneurship – one of the constraints to entrepreneurship in a place like South Africa is that we have very concentrated markets. When you talk about other examples of developing countries you would have a less centralised retail sector for example – a lot of people would be in retail just as an example. The rules of procurement become incredibly important in an economy like this. With big business and a big state that is where a lot of opportunities will arise. There is a discussion now about a local procurement accord – there is legislation coming out now, there’s all sorts of agreements about the state paying within 30 days, corporations should be buying into the same thing – they would have to be transforming their procurement systems to do this and engaging in mass supplier development programmes to effectively do this. Right now it is treated as a corporate social responsibility function. That should be very central to our effort to promote small business and its expansion. Finally, this point about agreements and about the role of labour and young people – one of the key messages in the plan is about the “probability set” facing the population at large, which is very poor. We had that cartoon Thandi which is our archetypal woman with the very poor life chances that she would face – that is true for many people in this country. When we say people earn a lot of money in agriculture the median wage as you might know is maybe R1000 which means 50% are below and 50% are above. If you looked at an African worker in this country the median wage is R2100 and I think the average is R3000 or something like that which is just the middle wage – we are not talking about people who are wealthy, we are talking about people who are desperately poor by and large. Most of these people support maybe four to eight people on that – these are not people who are getting traction, in other words they are not getting a hold into society and their children are not getting access to quality education which is going to be the next theme I understand that would enable movement and class mobility so that they can have some expectation of movement forward. Until we start

getting a sense for the broader population that there is some sense of traction these kinds of agreements are very far fetched.

PETER BRUCE: The point about poverty is well taken. Obviously the way out of poverty Godwin Khosa is education – there is nothing else that anybody can do for somebody other than educate them. You’ve been quite critical about the NDP but it looks like on the “idiot’s guide” that I’ve got very sensible – we are going to increase teacher training, we are going to get rid of union and political interference in appointments, we’ve got a nutrition programme, we are going to change the process of appointment principles – what is the essence of your criticism as an educationalist about this plan?

2.3

GODWIN KHOSA: Business Day readers must get me right – there are some positive things in the report – but it was more important to point at the gaps. There are gaps. Firstly, the report provides some macro level planning suggestions – at some point it goes down to micro level in the planning, where they suggest very detailed plans – which unfortunately I think aren’t based on realities out there. That’s my first criticism. I will show you why – one of the key things that the report suggests is testing teachers for certification. That’s all fine – I understand the reason behind testing teachers for certification, you want to make sure that the teachers who get into the system are good quality – but that raises questions. We are dealing here with 360000 teachers. So let’s go out and test the teachers and come out with a figure that 80% of our teachers not meeting the bill – what are we going to do? Are we going to chuck them out? I don’t agree with that. My suggestion is don’t demonise testing – we haven’t done testing in this country. Instead of talking about testing for certification start with testing for development saying “we are going to test teachers in order to identify the gaps” and we will fit that into the development so that our training programmes are more responsive to the needs we have. The second criticism I have for testing if you say you are going to test your teachers who come into the system – teachers coming into the teaching system should have been tested by higher education institutions. Are you saying that higher education institutions are releasing teachers that are not well prepared? If that is the case then strengthen the testing from the higher education institutions. These are the kind of gaps that I am pointing out. Secondly, I think generally there is inadequate focus on the vehicle that is supposed to deliver the vision. I think central to that vehicle is the district and the provisional system. I’ll give you an example – there is quite a bit of school improvement work happening in the provinces, in the main in two provinces. I can talk more confidently with regard to Gauteng that’s putting R500million into literacy and numeracy development over the coming four years. You don’t see the same developments in Limpopo. We know why - because Gauteng spends 72% of its budget on personnel. The opposite is true with the struggling provinces. There are problems at the provincial level and the district level – which I think the commission is not paying attention to. That’s a very good indicator. If I was a commissioner I would have looked at that and suggested how we help the provinces that are still spending their 80% on personnel to come and empower the provinces that need to be doing something about improvement.

PETER BRUCE: Would it be of any assistance for those provinces that are battling, to surrender their education competency to central government and be run from there?

GODWIN KHOSA: I would have been happier if the commissioners had tested that. Central to this is the constitutional provisions with respect to inter-governmental relations. In a given year in 2009/2010 the provinces spent about R110billion of the R150billion that was allocated to education – the bulk of the budget gets spent at provincial level. The face of is the levers of change are at provincial level so I would have expected therefore that the NPC would look at the key levers for change. That didn’t come through. I think the national minister to a large extent is hamstrung – you can’t do much if the bulk of the budget is being spent at provincial level. Talking about the districts the Western Cape is designing its own district model, Gauteng province is designing a district model – most of the provinces aren’t doing anything about it…

PETER BRUCE: Why are districts so important to you?

GODWIN KHOSA: We must understand scale in this regard. Education is the largest point of contact between government and the communities – we are talking about 26000 schools – so in order to bring about change in the 26000 schools you can’t run to those 26000 schools. I don’t believe that you can bring about change by running to 26000 sites. What’s sensible to me is to go to 81 districts that are responsible for the 26000 schools. That is the importance of the districts. We know that the responsibility of the districts is to support and monitor what happens in the school – they are central to delivering the vision that the NPC has with respect to schooling. You can’t achieve it if you have these sorts of vacancies – if you have districts that have one maths advisor for 300 schools that just doesn’t cut it.

2.4

ADAM HABIB: You are right – if we don’t get education right we are in serious trouble. That applies even at the more senior levels because if we don’t get education right in the long term with secondary education you won’t get the universities right.

PETER BRUCE: In a way education is an entire 20 year national development plan all of its own…

ADAM HABIB: That’s right. I think that there are two different pots in the public schooling system – one is the “no fees” schools a large amount of schools particularly in the townships that confront a particular challenge. The challenge is threefold – the challenge is in my view is infrastructure that’s terrible, second is the teacher capabilities and capacities. I agree with the question on testing – what are you going to do? It’s a problem when a large percentage of your maths and science teachers on grade 3 when they are given a test probably 40% can’t pass the test they are giving to the students. A serious dilemma. The third is teacher attendance. One of the things we know is that a large percentage of the teachers attending township schools don’t attend – they don’t spend as much time in the classroom as those in the urban suburbs. The reason is very simple – it’s about management and how schools are managed. We need to go after all those three things. Let me give you a single example – whether we test them or not if we found a significant amount of our teachers do not have the capacity to do science and

maths – let’s not say that – we would have to figure out what we can do about that. It’s no use just wishing the problem away. We can train and give them a certificate course for three months – or six or twelve months – that’s not going to fundamentally change the game plan. The question is how do we create a process for their development? In the meantime what do we do? Do we import teachers and zap them into the system? We’ve got a large amount of Zimbabwean teachers who have been very good in maths and science – why aren’t we using them? Let’s get pragmatic about this. The second part is a different dialogue and that’s the model C schools. I’ll give you the dilemma of a middle class hopefully progressive guy who wanted his children to go to a public school wanting to ensure they come across a class structure – a diversity of students – I send my child to a model C school which works on the assumption they get some small amount from the state, a larger amount from fees. In this case the fee I would pay would be something in the region of R28000 for a public school. That’s important for me – so we do that – the problem is the school has a major financial crisis. We ask why? Partly because a large percentage of the people who are meant to pay fees, middle class parents, refuse to pay fees because “education is a constitutional right…” The only leverage the school governing body has is to either say to the person we are going to terminate the education of the student or name and shame – but that is not allowed – so suddenly the governing board has a serious problem because they have no leverage so the model C school starts going into the decline. That’s one place where we have an infrastructure that slightly works – we have created a set of rules that undermine the whole process. We’ve got two principle dilemmas – how do you firstly do the balance between infrastructure development in schools that don’t have infrastructure, investing in schools that have infrastructure so that at least you maintain the level of quality there. Otherwise you are back in trouble in 10 or 15 years in those schools. The second is becoming pragmatic about the real problems. We have 23 universities – mobilize them and say “your job is to train these teachers over the next two or three years” and in the meantime import maths and science teachers, flood the schools with them. Put them on rotation so they don’t get appointed to a school. Why not appoint maths and science teachers for a whole series of schools – and you go from school to school teaching maths and science. It’s a fundamental rethink – but we need to become pragmatic about these kinds of things.

PETER BRUCE: There is a model being created to do just that in Fikile Mbalula’s plan to get sports going – those schools could receive not only sports education, but science and maths. It seems incredibly difficult in this country to change anything about education. I just wonder if it’s not because it’s too fragmented and happening at these local levels? I wonder if we don’t miss sometimes the heavy hand of Pretoria to make things work…

ADAM HABIB: I would answer that bluntly and say between you and me if the Eastern Cape’s school system is not working take it over. If some people get their noses out of joint that’s their problem…

PETER BRUCE: I agree, why not Godwin?

2.5

GODWIN KHOSA: I agree with him. All I want to point out in that attempt to enact Section 100 in the Eastern Cape Department of Education – we read about the Minister

going down and taking over the province, but it actually did not happen. There is a serious constitutional problem. I think we are pussyfooting around the problem. If they are unable to deliver education we must take the responsibility away from the province. Even us who work in education there is polarisation in the discussions that we have about education – there is a big group of us who talk about school improvement – school improvement is around how you manage a school, how you teach better and so on. There is a very small group that talks about how does the system actually maintain functional school? We are lacking in that and I think that’s what is lacking in the NPC report. We should talk about how much money we should be spending on teachers, how much money should go into the schools and so on. I agree with a lot of the suggestions made by Adam. The poor capacity of teachers – what we have today is an indication of the problem that we’ve been sitting with for many years. Can we train all the teachers and tomorrow we have qualified maths teachers? It’s not going to happen. We’ve been involved in teacher training programmes in dosages and so on – all that we’ve seen in terms of outputs at the learner level is about two or three percentage points increases. We’ve got to be real about this – the nation mustn’t talk about taking teachers for a three day workshop. Coming up with a plan that says that we are going to get 5000 math teachers from outside this country – and we will release the teachers who are underqualified in these schools, and put them in a lecture room for two years – because that’s how much it takes to bring a teacher to an acceptable level in terms of competency. These are the hard decisions that we need to be taking.

PETER BRUCE: Could we not simply privatise education? If all these districts could be allocated to companies – if they get the required matric pass rate at the end of the year they get some money back and if they don’t, they don’t?

GODWIN KHOSA: That remains a possibility…

PETER BRUCE: Incentivise the teachers – if you get the results and we will put more money in your pockets.

GODWIN KHOSA: It remains a possibility. I know of a case in the UK where the prime minister actually said these failing districts are going to be privatized – I haven’t seen any evidence of significant change. The problem with that is a whole lot of politics around the running of the district and the staffing of the district so on. I don’t think that is an immediate solution. I think we just need to agree on what shape a district should take, staff it, and give them the responsibility. The kind of accountability that we want to enforce at the teacher and principal level must be enforced at a district level and then provincial level. Why talk about enforcing more discipline and accountability among the 360000 teachers and not talk about the nine provinces. It doesn’t make sense...

PETER BRUCE: Anthony Butler, to what extent are many of South Africa’s problems caused – education being one, health probably another – by the fact that all provinces have exactly the same powers? Spain which has as many languages as we have and as many provinces – they had 40 years of repressive rule under Franco – their solution was you had to pass a means test where if you want to run an education department you have to demonstrate that you can. If you are in Catalonia and you want to raise your own taxes – you can if you want to demonstrate that you can do it – so you have some provinces like Catalonia that are extremely autonomous and others like Extremadura who are

extremely dependent – would such a thing help us a little bit in South Africa? If Gauteng is able to run good hospitals and good schools well then let it, or the Western Cape. Clearly the Eastern Cape can’t do either and shouldn’t be allowed to...

ANTHONY BUTLER: Probably no. Just to make a general point I think we tend to get a little idealistic about school reform – because we see it as one of the few windows of opportunity to make a difference to lives of people who are young, not yet formed – and should have equal opportunities and rights. In reality the school system is part of society, and school systems everywhere largely reproduce patterns of inequality. Class patterns. The children of the poor are turned into poor citizens and subjects by the school system in part – so the opportunities for change are much more limited than we tend to recognize. Our focus on high level administrative systems isn’t likely to make an enormous difference to the way in which schools function I don’t believe. I think it’s one of those areas where the state employees on the ground – the teachers – they do in schools what was done to them. Their teachers didn’t come to school, their teachers were badly behaved. They reproduce those patterns of behaviour – and the communities are not able to enforce the rights that they have to get a decent quality education for their children. I’m not saying that the administrative and governance issues are not important – I’m just saying we tend to overestimate what can be done. I think there have been really serious problems at provincial level – so I think it’s in the provinces we are seeing increases in unproductive employment more than anywhere else. Whether there is the will or the political capacity to bring about a change in the provincial system now I very much doubt. The provincial system is very well entrenched politically. We know provinces don’t communicate with each other – on the boundaries between provinces there is no cooperation. The provinces are tied into the political system and into the functioning of the ANC and of course now the DA. I think summoning up the energy to make major reforms will be very difficult at this stage.

2.6

PETER BRUCE: Jennifer, I wanted to come to water – one of the points made by the National Development Plan on water is you were going to set up an investment programme for water resource development, bulk water supply and waste water management this year – you’ve got a month left...

JENNIFER MOLWANTWA: That’s 2012...

PETER BRUCE: With reviews every five years. Water is one of these stories that can be used to scare societies into behaving in a certain way – we are being told the next world war will be fought about water – have we got enough water in this country to grow and build a prosperous society, and do we manage it properly?

JENNIFER MOLWANTWA: Just on education – I’ll be very brief on that and then come back to water – all the points that have been made on education are all very relevant, but I think we need to also highlight what we’ve said in the plan. The issue we spoke about initially was the issue of professionalising the civil service – teaching is part of that. I think that is a fundamental issue. we also talk about the enablers – letting people use those capabilities that we spoke about to access opportunities, and for that we’ve

spoken about leadership, active citizenry and effective governance. Active citizenry I would like to talk about – because education is not just about the teachers, it’s also about the teachers, the children and the communities in which they operate. When we have that contact between the stakeholders that are involved that will also ensure that our system works better, and making sure the education system is managed properly through the districts and through the provinces. That is a very important issue. Also, in the NDP there is a chapter that talks about governance and institutions – that has also highlighted the nature of the three spheres of government and are they relevant? In terms of example of looking at health and at education is it the same as when you talk about water? We’ve raised some of those concerns and we’ve made recommendations on that. I think accountability is what’s important – if a group of teachers are at a court hearing instead of being in school what happens about that? With that we also talk about managing the school – we talk about a principal being able to be decisive and to take actions, the districts supporting the principal in leading and managing the schools – so it’s a whole integrated process that needs to all happen in an integrated way to be able to work…

GODWIN KHOSA: I agree about education being a societal issue – I fully agree about that – your typical kids who go to a model C school because their parents can afford that do a lot of learning after school with their parents. That doesn’t happen in the rural schools. I think there are things that will bring about quick results – we know about those – one of which is about improving the quality of the teachers. Second is that we ensure we increase the interface between the teacher and the learner – that can be done by the district enforcing attendance by the teacher and making sure that indeed teachers are in front of the kids teaching. Research has shown that brings quick wins – why not focus on that and bring about tangible changes? The other in principle – it’s more difficult and will take time – is to bring parent participation to the level that we aspire. I think there are clear things that we need to do – improve the quality of the teachers, and make sure that the resources that are paid for month in and month out are properly used in the classroom – the district can do that.

JENNIFER MOLWANTWA: Obviously the capacity of the children to be able to learn is also very important.

GODWIN KHOSA: I would agree – we are doing better now feeding about 7-million kids. That contributes to the ability of the kids to learn. It’s not that there have not been any successes – there has been a lot of input and some successes – but increase the quality of the teachers and make sure that the teachers are empowered…

2.7

PETER BRUCE: Do you visit a lot of rural schools?

GODWIN KHOSA: I work with a lot of rural schools...

PETER BRUCE: I’ve travelled down to the Transkei once or twice a year – the schools that I go past never improve certainly in their physical state, there are always more broken windows, more doors hanging off the walls – nothing ever seems to happen to

them. Talking about water for a second have we got enough and do we manage it properly?

JENNIFER MOLWANTWA: We do have enough water. Do we manage it properly is a question that is most important…

PETER BRUCE: This would be one of the binding constraints that Miriam was talking about...

JENNIFER MOLWANTWA: The management of water is not as it should be - for example we speak about a lot of water allocation locked in agriculture. This is because of the historic way that agriculture uses water. Moving forward from now on – which is what is said in the NDP is that we need to be able to release that water that is locked into agriculture. But how do we do that? We need to be able to bring in new irrigation technology that enables that you don’t use unnecessarily large quantities of water. That will release some of the water for development and for other uses. We talk about new water - how we manage new water? There we talk about desalination and acid mine drainage. Sewerage is a big volume of water that needs to be managed properly – most of our infrastructure for waste water treatment is not effective in treating the sewerage to the levels needed. That is water that needs to be recycled...

PETER BRUCE: In many municipalities infrastructure has been destroyed or stolen...

JENNIFER MOLWANTWA: That says something about management and how the communities operate. Acid mine drainage is very well understood – there are technologies to treat acid mine drainage – what I’d like to highlight is there are South African technologies that are owned by other countries or other companies outside South Africa. There is a lot of research that’s been done through the universities on that – this is the time to actually lock into that potential and demonstrate at full scale technologies to treat and reuse. The volumes in sewerage is where some of the water is locked in.

PETER BRUCE: The complaint is always about how much water we waste on golf courses while people are water starved in various parts of the country – it seems to me that’s a slightly spurious argument if the water that we already have in urban areas isn’t being properly managed.

JENNIFER MOLWANTWA: Yes, we need proper water management. Irrigating at 12 midday on a golf course doesn’t do much for a golf course does it? The third point I wanted to make is about the storage of water as part of management – we’re talking about climate change impact, we’re talking about increasing temperature. We need to start re-thinking the type of storage systems we envisage for the future. If you are going to have these shallow large surface area dams we are facing issues of evaporation and we are losing. Looking at a 20-year horizon and beyond we need to start re-looking at that as part of management.

PETER BRUCE: Can acid mine water be treated in the mines? Can it be cleaned while it’s in the mine and reused there?

JENNIFER MOLWANTWA: The acid mine drainage underground is not as bad as once it discharges. We all know that water will travel to its lowest point and that’s where it will discharge – so it’s not going to come up over Joburg in one night. The studies have been done say you need to tap into that and apply the technology and treat the water when it’s underground. The question that arises is whose responsibility is it? Who is going to fund that. Is it the state? We are talking mainly about gold mines that are no longer working. What about the coal mines?

PETER BRUCE: Privatising it gives a whole new meaning to the word “mineral water…”

JENNIFER MOLWANTWA: Protection for the poor still needs to be in there – but we need to manage our water properly.

2.8

MIKE SCHUSSLER: I’ve been a member of the Johannesburg Business Forum for about 12 years – one thing that gets me is I can remember a figure of 40% that keeps coming up being the water losses of Joburg. I think that’s the water that actually disappears or doesn’t get paid for. The other problem is that on the local government level they make a lot of money out of water and electricity and their services – I know more about the electricity profits, that the gross profit margin of electricity is around 70% for local government. If you ask anybody in private enterprise that’s massive and excessive – the Competition Commission would come down on you like you won’t believe – so under those sort of circumstances we have to really look at why we are getting charged that much for water. On top of that businesses are always charged more – and often have to put in their own infrastructure – so you find that mines or industrial parks and so on have to put in their own pipes, have to put in their own pumps for the water and the electricity and so on. One of the things if we were going to manage water – we’re also going to have to learn unfortunately very much like the 81 districts in the schooling thing how to control 283 municipalities that then make better use of their water and don’t overcharge which may be the case in at least a few, and make sure they manage their losses a lot better. The other thing that comes to mind here is that the municipalities are already 6% to 7% of our GDP so if you add that to the general government at the moment then we are already at 36% to 37% state expenditure. If you add the state owned enterprises we are at over 40% state ownership of the economy. I think we must realise that we are in this sort of environment – and that the responsibility of water shouldn’t just be put on farmers or mines, and so on – but also on local government and probably in some cases provincial government. When the city tells me that they lose 40% of their water I’m frightened.

PETER BRUCE: Adam, if 40% of the economy is basically state owned and the Minister of Public Enterprises wants to get into the steelmaking business – and the atmosphere is towards more state involvement in industry – let’s come back to an earlier conversation we were having where I understand the political imperative, but where does it all end? How do you encourage investment – and it’s largely the private sector investment, as other governments aren’t going to invest in our country – where does it all

end if we don’t strike the right balance? We are clearly crowding out the private sector in South Africa…

ADAM HABIB: I think again the debate needs to have a level of nuance. There are two questions – why do people invest in a society? That’s because they can make money. That’s why they invest. The question then becomes how do you create a context for them to do so in a way that is beneficial to the society as a whole? That’s the first thing. The second thing that is interesting is that should there be institutions that will be under public control? Yes. There have been examples of institutions that are successfully under public control in other parts of the world. The question for me is firstly why do you want an institution under public control? What is the purpose, and what is it meant to do? The question is if you want Eskom under public control, why do you want it under public control? Because they can provide a particular cost of energy that would have an enabling developmental impact on this society. That must feed through the logic of that process. It means it should feed into what are the key performance indicators in the cases of the executives, it should feed into how you deploy people? It should feed to a whole range of issues. The problem with the public sector debate is on the one hand you have a range of people who say anything that is publicly controlled has to be inefficient, the others say everything that is privately controlled is the most efficient. We know neither is true in the real world. For me the big question on public sector issue is why do you want to be there? Does it make sense to be under public control? Is that the most effective way to do so? How do we make sure that the key performance indicators are structured such so that we get those developmental impacts? Let me give you two examples. One is prior to 1994 most public sector enterprises took as part of their mandate the responsibility for development and training of artisans. After 1994 we stopped that. I want to know why the public sector did that in a context where we were supposed to be contributing to development? Second, if you look at the KPIs of senior executives in places like the public sector five years ago you wouldn’t have seen much difference between them and what was existing for KPIs in the private sector. Why? Because there was a purpose to having Eskom in the public sector because its provision was to create a certain amount. Why are the KPIs not being structured to their particular mandates? It seems to me that those are the kinds of issues that we need to start thinking about.

On the steel question the question we asked is should steel be provided at a particular cost, and does it have a particular developmental impact? That’s the logic of it. In fact, the argument to privatise steel 20 years ago was that it would bring down the cost of steel and with a developmental impact. But it didn’t do that. Now there's a whole series of grumbles about it. For me let's think through the logic of it – understand what the purpose of it is – and then make a decision. We often say economic regeneration is going to require research and innovation – ask our public enterprises how much research and innovation do you have, and how much of that goes to the university system? What is the relationship between our public enterprises and our universities, and how do they feed off each other? In many other parts of the world including Western Europe the public sector, the public enterprises and even some of their private enterprises have mandated the requirements for this thing. In Britain the water regulatory bodies have to invest some of their turnover into research because that feeds back into the system. How much of that is done by us?

2.9

PETER BRUCE: Adam, you run a university – how much investment at UJ is funded publicly or by publicly owned enterprises and how much by private enterprises?

ADAM HABIB: Not much. That’s the problem. A large amount of research in any part of the world, including the United States comes from public money. Harvard has $700million per annum and about 90% of that comes from public money in one form or the other. In South Africa we have some big players – we have Sasol, we have Eskom and Transnet – but insufficient amounts of money are going from these institutions into actual research and innovation. South Africa about 25 years ago was at the cutting edge of deep level mining. Why? Because the private sector mining industry invested in the universities and created the technologies that enabled that. Post 1994 we’ve stopped doing those kinds of things. South African Breweries which is a private sector organisation has far more investments in the University of London than it does in South African institutions. We have to start asking questions about the private sector – but also the public sector – and whether we are doing these kinds of things. Recently what places like Eskom are doing is giving bursaries for engineering students and the like – and that’s where we are seeing quite a significant increase from both public and private organisations who are saying we need to invest in a new layer – and then making bursaries available.

MIKE SCHUSSLER: If I remember correctly Iscor was privatised because it was making losses – not for a lower steel price. The problem with our state-owned enterprises is perhaps just that they are costing us a lot. Although they might not always cost us say for example like SAA R16billion we put in there to cover the losses – the fact is that the administrative prices are increasing a heck of a lot. In two years if you look at SA National Treasury figures there is a 46% increase in the amount of money that local governments took – that is literally 25% a year roughly speaking and a lot more than nominal GDP growth – so municipalities are getting bigger quickly in money terms, but their services aren’t getting better. We still have electricity going out – or potholes and whatever the case may be – so the problem then goes back to that public administration part probably, but it also goes back into proper management of the economy. I think that is where we are also lacking. We are not clear enough about our objectives. Is our objective cheap electricity, or is our objective that Eskom should make a profit? If we get confused about those things then normally nobody understands...

PETER BRUCE: We’re told the objective is to make 11 million jobs or five million jobs – that is the objective – but you can’t do that with electricity prices rising. Does it ultimately come down to a question of leadership?

FREDELL JACOBS: The NDP also states that implementation of the plan is going to require leadership – they acknowledge that. Some tough choices are going to need to be made. From where we are sitting from an entrepreneurship perspective and entrepreneurship ecosystem development – wherever there are crises, and I like the point you made earlier about privatisation in education – wherever there is a crisis opportunity emerges and entrepreneurs will catch those opportunities and bring more efficiencies to the equation...

PETER BRUCE: I was just thinking about the acid mine drainage – if somehow you could commercialise that water somebody could find something useful to do with it...

ANTHONY BUTLER: I just wanted to stop you before recommend privatising anything else...

FREDELL JACOBS: A University of Cape Town student that I met Ludwick Marishane in fact saw an opportunity around water scarcity – he developed a lotion DryBath, a body wash lotion that allows you to go two or three days without having to wash – and the airlines are crazy about this because it saves water on those long haul flights. Imagine that...

ANTHONY BUTLER: In all seriousness looking at the municipalities and the problems they have a major problems they’ve had is the destruction of municipal engineering departments – that was really kick-started by the fashion of privatisation of the late 1980s. Municipal services were contracted out increasingly. What that’s led to among other things is exactly the problem of too many entrepreneurs at local level who are engaged in the business of looking for contracts at local level. What we no longer have is a core of capable municipal engineers who are able to manage the routine maintenance. This is in part at least the consequence of the privatisation initiatives. Normally I am all in favour of privatization initiatives – but not in the education system...

PETER BRUCE: But outsourcing is not the same as privatisation. Good consulting engineers were available to less good town engineers...

ADAM HABIB: What I would suggest is don’t go to a reflex action of privatising everything. We need to think this through. There are public systems that work. Look at Sars…

MIKE SCHUSSLER: But there are ones that don’t work – for example the billing of Joburg...

ADAM HABIB: Many private sector organisations don’t work well – I can give you a list of family members who operate on the margins of the private sector who do all kinds of dubious things...

MIRIAM ALTMAN: I don’t know how we got onto private versus public in this discussion – the idea that the public sector is crowding out the private sector I don’t think is the core issue here. The core issue here comes back to Adam’s point – which is in some of the key institutions we the state-owned monopolies, Eskom, Telkom and so on – poorly regulated, weak oversight. As Mike is saying it’s very unclear how pricing is supposed to be managed – should the state be incorporating the poor planning that arose over the past 20 or 30 years, or should the consumer? In the municipalities the whole division of revenues story is a problem – in other words many municipalities are cross-subsidising electricity price, and not delivering the services. There are so many governance questions here. The critical issue is not so much the crowding out – it’s improving that services are offered to crowd in – and that’s really what we’ve got to get to.

ends second hour