What is democracy good for? The South African case

After four decades of racial segregation, South Africa transitioned to a nonracial democracy in 1994 when the first universal elections took place. And although South Africa did not present some of the macroeconomic maladies that other young democracies did shortly after their own democratic transitions, say, high government debt and hyperinflation, inevitably for a country that presented segregationist labour market policies for so long, South Africa also presents high income inequality. This background, that is to say, racial segregation, transition to democracy and high inequality, allows one to borrow from rich economic literatures in order to achieve a better understanding of South Africa so that better policies can be designed. 

First, some will argue that governments in young democracies tend to present higher debt ratios to GDP at the initial stages of their democratic transitions. This increase in debt is because the new political coalitions coming into power face many challenges: crumbling public infrastructure, skewed provision of public goods, low or skewed wages of civil servants, or even the need to renew the entire civil service. Needless to say, given the nature of the apartheid regime, the new political coalition coming into power in 1994 was faced with a considerable backlog in terms of public infrastructure.

Second, others will argue that young democracies, such as the thirty-one years old South African democracy, mature over time, that is, with time, the electorate learn the nuts and bolts of the democratic game and force (by vote) governments to behave more responsibly to minimise overspending and political cycles before elections.

Third, increases in government debt in young democracies might be due to the relatively high income inequality and the need for redistribution to the median voter. Complementary to that, it can be that democracy when in its infancy faces ideological opposition and therefore the new regime tries to buy out the electorate by providing public goods, such as education and health, so that democracy becomes ideologically acceptable and ‘the only game in town'.

All the same, democratic transitions are costly by nature, which would justify higher government debt in an unequal young democracy such as South Africa.

So, what has happened?

Well, government debt in South Africa has indeed increased during the democratic period. Generally speaking, the high levels of inequality, and the corresponding demand for redistribution are obviously playing a role on government debt.

What about democratic maturity? Is debt coming down over time with a more mature and less myopic electorate? Not yet. In this case some will argue that the South African democracy, barely thirty one years old, is still young at heart or without much democratic capital. More concretely, the persistent high levels of income inequality and the corresponding demand for redistribution to the median voter are playing a role in keeping debt at a particular level. In addition, at the point of universal democratisation in 1994, South Africa had to start investing in  public infrastructure (education and health) quickly in order to avoid a reversal. The backlog was gigantic.

From a policy making perspective, the real good news is that the coalition in power since 1994 has been somehow responsive to inequality and to the needs of the median voter, and is engaging in redistribution. For instance, public expenditure on education and health has been up. Specifically, government spending on education over GDP increased from 4.4% in 2003 to 6.5% in 2021. And on health from 2.3% in 2002 to 4.3% in 2020. Encouragingly, that sort of public expenditure suggests that the coalition is creating debt in order to invest in human capital formation, which is an important determinant of economic growth and prosperity.

Although the democratic coalition in power since 1994 has been responsive to income inequality and also to the needs of the median voter in a technologically driven society, one cannot emphasize enough the need for constant improvement in public governance and quality of productive public spending/investment. The words 'corruption' and 'wastefulness' have been in the media too often in the last fifteen years or so. South Africa certainly needs to keep investing in its people, education and health, but it also needs to start investing in state capacity so that service delivery is maximized and everything that comes with corruption is minimized.

So, democracy is good for a number of reasons. It is an incentive compatible political regime which implies change if the coalition in power is not responsive to the needs of the median voter. It is a political regime that is good at providing public goods such as education and health, and a more educated and healthy population are drivers of economic growth and prosperity. And economic growth reduces the debt ratio. More importantly, economic growth reduces income inequality as well. But recall, state capacity is still not there. A professional civil service is very much in need so that the South African democracy starts breeding its own success with an educated, healthy and prosperous population. 

----------------------------------------------------------------------------------------------------------------

Author's bio

Manoel Bittencourt is an Extraordinary Professor of Economics at the University of Pretoria in South Africa. Bittencourt has studied many aspects of macroeconomics and political economy and has been a visiting scholar at Goettingen, IZA, Stellenbosch, Heidelberg, Oxford and Minnesota. He has been awarded numerous research and teaching awards from various organizations. A native of Porto Alegre, Brazil, he studied economics at PUC, Warwick and Bristol and has served on the faculties of the universities of Cape Town, Pretoria and the Witwatersrand.