Institutions, market constellations and growth: The case of South Africa

Post-apartheid South Africa is facing three major economic problems: (1) slack economic growth, (2) high and growing unemployment and (3) among the world¡¯s highest income inequality and poverty indices. South Africa is currently caught in a macro-economic straight-jacket of tight monetary, restrictive fiscal and a wage policy stance that raises NAIRU. The persistence of a sub-optimal ¡®market constellation¡¯ is created by an institutional setting of a non-accommodative Reserve Bank, a sectoral-regional and company level noncoordinated collective bargaining system, an austere ¡®sound finance regime¡¯ of public budgeting and the lack of any institution to co-ordinate macro-economic policy. To tailor a better fitting constellation, a social contract involving major reforms in macro-economic governance in South Africa is proposed.