A new appreciation of the role of the state

Vusi Mavimbela says the government has a crucial role to play in calculating, regulating and mitigating the 'madness of people'

Isaac Newton, who lived from 1642 to 1727, is arguably the world's greatest mathematician and physicist. He invested his money in the South Sea Company and by the time he sold his shares in the company in April 1720 he had doubled his money.

He decided to reinvest this fortune in the same company but in the space of a few months the share price had crashed and Newton lost his investment. Dejected and angry he declared: "I can calculate the motion of heavenly bodies, but not the madness of people."


The great mathematician had miscalculated. Newton might have used the term "madness" in extreme anger and despondency, but in the context of human endeavour it has come to signify the perceptions and decisions, positive or negative, which drive market economies based on individual or group interests.

Between that event in the 18th century and the 2008 meltdown in the world markets, there have been many frenzied ups and catastrophic downs in the capitalist world economy. Yet these swings are integral to the system. Indeed, they are necessary for growth and innovation of capitalism itself. The question is what needs to be done to ensure that the swings are less detrimental to humanity.

One of the most important positive developments in the wake of the credit crunch is that there is now a greater appreciation of the role of the state in regulating the markets. There is a better recognition of the efficacy of monetary and fiscal policies in managing economic demand and reprioritising economic incentives for the greater good. This is the recognition that, unlike the market left to its own devices, a responsible government has an important role in calculating, regulating and mitigating the "madness of people".

It is generally accepted that the National Credit Act, which came into effect on June 1 2007, was an important tool in helping to cushion the SA consumer and the financial institutions from the worst vagaries of the meltdown of the following year. In effect, the government was able to estimate the extent of the madness of borrowers and lenders that was likely to arise from an extended season of low interest rates and a bullish market.

For a democratic developmental state, however, that responsibility is not confined to politicians and economists. It also extends to civil society, especially the trade union movement, and the private sector.

It is interventionist and redistributive. A central element is the need to form alliances with key social groups and to bring people together across political, racial and class lines.

We are living in a time characterised by high wage and salary demands, some more than twice the prevailing interest rate. Moreover, some of the highest wage settlements have been used as a benchmark and, thanks to "World Cup blackmail", the government now sits with an inflated bill. The latest strikes have been violent and destructive - and even deadly to the young and infirm.

The economic meltdown has seriously depressed the job market, increased the rate of unemployment, reduced the value earnings and driven many to homelessness and poverty.

What is also true is that the wage and salary structure in SA, especially in the public sector, is not sustainable in the long run and needs serious re-engineering over time. The government agrees something is amiss when a doctor in a public hospital earns the same as an electrical technician from a technological college employed in a state-owned enterprise.

Left to its own devices, the market will not close the wage gap or correct distorted income distribution.

Given the challenges facing our developmental state, we need to join up to calculate and regulate the madness of individual and group interests. A broad alliance of stakeholders is indispensable to the successful operation of the developmental state.

It is about making political and economic compromises where necessary and thus creating the bridgehead to the next level of development. It means tightening belts across the board and deliberately channelling all the resources available towards the collective goal.

This frontier of collective engagement has to be led by the dominant political force in our society, for there can be no national social contract without an organised and dominant political will at its core. The ANC-led tripartite alliance constitutes that dominant political force.

But while the alliance has the strongest credentials for leading the process of fashioning a national social contract for the developmental state, it also has a special historical responsibility because a national social contract is only the means of co-ordinating the effort in pursuit of a national vision.

But to succeed in this historical responsibility it must respect the economic and political contribution that can be made by all stakeholders. It must also demonstrate a coherence of vision, practice and articulation.

We recognise that our world and our society will always be politically and economically dynamic. In that context the debates and the application of ideological prescriptions to our dynamic world must be done in measured doses, and with an open and flexible mind, because the history of the human race - and our nation specifically - is fraught with examples of how ideology, government and markets are capable of disastrous miscalculations.

To hasten the achievement of a functioning developmental state we would do well to draw wisdom from Albert Einstein's "The Three Rules of Work: 1. Out of clutter, find simplicity. 2. From discord, find harmony. 3. In the middle of difficulty, lies opportunity.

Mavimbela works in the Presidency. He writes in his personal capacity

Source: Sunday Times