Tagged: Economics

Reforms for South Africa’s future

RECENTLY the Wall Street Journal ran a series of articles, celebrating the country’s 250th birthday and dedicated to shaping the future . What would the America of 2026 be and how would the nation arrive there? Suggestions ranged from infrastructure investment, gender equality, taking charge of climate change, respect for nature, the rise of the millennials, rekindling the revolutionary spirit of 1776, deregulating the Internet, breaking government gridlock, and more competition.

We think South Africa could do a lot better than simply following America’s example. As our country reaches the 20th anniversary of the signing into law of our Bill of Rights in December by founder, Nelson Mandela, we invite readers to submit their proposals for a better future to Medialternatives. What will the next 20 years be like, what will it take to get there?

Below are a few suggestions with regard to reform.

Justice Reform

Providing greater access to justice for ordinary citizens by capping legal expenses. Creating a more inclusive justice system by placing the Constitution as well as citizens interests as paramount — extending the role and practice of lay assessors –providing the option of a jury in capital crimes and defamation cases. Greater accommodation of the public interest through broader media access and reporting. Greater independence by ending the abuse by law firms of proxy judges i.e the acting judgeship system, and giving greater independence to civil institutions such as the public protector.

Economic Reform

Putting a stop once and for all to the legacy of apartheid economics, monopolies and spatial development. This would entail chopping SOE behemoths into smaller, manageable units able to compete with each other. Creating an energy commons that allows for independent energy producers as well as smart grids. Ending Telkom’s home cable monopoly –allowing landline operators to compete, especially in the broadband sector. Allowing innovative commuter services and competition in rail transport. Selling ailing SAA and ending the annual bail-outs of the apartheid era airline.

Political Reform

Correcting the mistakes introduced by our proportional representation system, by making MPS more accountable to their constituency. This may entail a combined ward and roll system whereby MPs without sufficient local ballots are prevented from succeeding purely by the roll system. Tightening the rules around campaign funding, making MPs more accountable when it comes to disclosure of assets and implementing rules on state capture. It should be impossible for large corporates to exercise undue influence over the nation’s political representatives.

Education Reform

A nation which focuses on improving itself through free education, lifelong learning, youth empowerment, access to learning materials, language labs, computers and other tools, correspondence courses, video materials and study aids — all  forming part of guaranteed access to education . Broadening education to include life skills, home economics and equivalent assistance for all households and citizens. Introducing civics classes to provide a sense of national belonging for all citizens, whilst promoting understanding, continuity and access to civil structures and institutions.

Social Reform

Placing distributionism at the centre of our social welfare system. The country should be run like a benevolent corporation responsible to its shareholders. The president is merely the chairman or cheerleader. Profits should be disbursed to all citizens on an annual or biannual basis. This could form part of an unconditional basic income (UBI) paid to each and every adult irrespective of race, class, colour or creed.  Supported by a market economy that coexists alongside social welfare.

Health Reform

Improving public health provision. Raising the number of doctors per person to first-world levels. Providing benefits or incentives for citizens to access private healthcare, in a duel system. Taking a preventative and complementary medicine approach to solving some of South Africa’s health problems. Promoting sports, nutrition and access to recreational  facilities. Providing open air gyms, holistic care that includes therapy such as yoga, martial arts and art.

Environmental Reform

Retrieving our earth rights, those groundbreaking environmental rights guaranteed in our constitution but diminished under successive ANC administrations. Returning the values of NEMA and other environmental legislation.Treating nature as infrastructure for future generations. Creating green urban zones, parks, nature facilities.  Placing ecology at the heart of ecological sustainable development. Lowering climate footprint. Reduce, reuse, repurpose, recycle, repair.  Providing bicycle share schemes, boosting EVs and lowering impact of industry on nature.

 

 

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Patrick Bond responds

David, thanks for the time and trouble you went to in offering detailed rebuttals to the critiques of the dozen deals I felt Mandela should not have authorised during the 1990s. Here are my responses (in bold and with PB: to avoid confusion).

Cheers,

Patrick

[Ed note: The initial critique by Bond is in italic, followed by DRL rebuttal in type. Read the first piece: The Devil in Patrick Bond’s policy time machine]

1. “The repayment of the US$25 billion apartheid-era foreign debt. This denied Mandela money to pay for basic needs of apartheid’s victims.” If you were one of the supporters of the Jubilee campaign against apartheid debt, campaigning alongside the late Dennis Brutus for the annulment of the apartheid regime’s accounts, like me, you would have been very disappointed. Mandela’s hands unfortunately were tied by international bankers, since a pre-requisite for accessing capital markets and finance, like any business, was repaying the loans taken out by the previous owner or regime. South Africa was not granted any leeway here, so strike one on a simple point of fact.

PB: The entire point of writing about Mandela’s ‘deals’ is that they did not have to be done. Most simply, to insist that “Mandela’s hands unfortunately were tied by international bankers” would mean that there is no way to question Odious Debt. That puts you to the right of the International Monetary Fund: http://www.imf.org/external/pubs/ft/fandd/2002/06/kremer.htm In actual fact, plenty of countries have repudiated such debts, and in Mandela’s case it would have been relatively easy to gather hundreds of thousands of followers at Wall Street and the City of London in mid-1994 to force this issue, politically, had the neoliberals not persuaded him otherwise. Dennis Brutus, who worked at my centre in Durban the last five years of his life, always felt this deal – with the creditors – was the most revealing: http://ccs.ukzn.ac.za/default.asp?4,79

2. “Giving the South African Reserve Bank formal independence. This resulted in the insulation of the central bank’s officials from democratic accountability. It led to high interest rates and the deregulation of exchange controls.” Bit of a red-herring if you ask me (excuse the pun), there are really three parts to this assertion. Firstly independence does not mean absence of state control, rather, it stems from the idea of a separation of powers, in this case independence from interference by the executive. Do we really want an executive with keys to the treasury printing money whenever it feels so inclined? The latest debacle surrounding the appointment of the finance minister by the president provides a good case as to why the Reserve Bank and Treasury should not be beholden to any particular branch of the state, not least the party. Second, high interest rates are a factor of the currency, not simply policy, as we see today. We currently have the same repo rate as Papua New Guinea. All nations with higher interest rates such as Brazil and Russia are performing badly. Should our interest rates come down, Investec’s Brian Kantor certainly thinks so. Thirdly deregulation of exchange controls was an absolute necessity in order for finance to flow back into the country, luckily it did, and we experienced the longest post-war boom period in South African history, which came to an abrupt end in 2009. Was Mandela involved in any of these policy decisions? More likely it was Thabo Mbeki.

PB: If you read my point, you see that it refers not to “an executive with keys to the treasury printing money whenever it feels so inclined,” but to democratic accountability. The extremely high interest rates prevailing in South Africa are indeed a matter of SARB policy, and need to be challenged by democratic forces (the African National Congress does get votes but on economic policy it is easy to show how undemocratic its choices have been – far more influenced by Moody’s and other credit ratings agencies and financial institutions, than by the national mood).

PB: As for the argument that “deregulation of exchange controls was an absolute necessity in order for finance to flow back into the country,” this is factually wrong, because there were no exchange controls on inward financial flows in 1994. The relaxation of controls – especially the Finrand’s abolition in 1995 and the subsequent permission granted to the largest firms to delist their primary stock market residence in Johannesburg – did not affect incoming inflows. There are still very substantial exchange controls in place – on 75% of SA institutional investor (pension and insurance) funds, and that has no bearing on the choice of international investors to park hot money or long term investment in South Africa.

3. Borrowing $850 million from the International Monetary Fund in December 1993, with tough conditions persisting for years. These included rapid scrapping of import surcharges that had protected local industries, state spending cuts, lower public sector salaries and a decrease in wages across the board. So far as the IMF loan is concerned, I couldn’t agree more, but then where else would the country have borrowed the money? South Africa’s finances were in a precarious state in 1993, the IMF loan is arguably a factor of the interim administration under FW de Klerk. So far as the big bang opening up of our economy to international competition is concerned, nobody expected the sanctions-era to last forever, and not all surcharges were scrapped, we have only begun eliminating them, as the Agoa trade war confirms. Did the state cut spending? This allegation isn’t backed up with empirical data, on the contrary it would appear spending was ramped up, South Africa under Zuma currently spends 40% of its budget on salaries, so no Mr Bond, you’re demonstrably wrong. Decrease in wages? This one is debatable with the rand depreciation, wage value also decreases.

PB: The 1993 IMF loan was not necessary in any financial sense (as a fig leaf, it was termed a ‘drought relief’ balance-of-payments support loan but the drought was long finished) and besides, the premises behind this question – “where else would the country have borrowed the money?” – need to be examined. The IMF loan was granted not because SA was running out of $ reserves or gold at the time, but for psychological reasons, to give Mandela’s South Africa the appearance of playing by international rules for future borrowing purposes. But had he not repaid the $25 billion apartheid debt in subsequent years, that would not have been necessary. The vast inflows of hot-money (‘portfolio capital’) that you celebrate actually do much more harm than good, it is widely recognised (this is why the IMF supports capital controls now). In February 1996 when there was a rumour Mandela was ill, the rush to the door caused the currency crash that in turn brought on Gear. The 1994-98 period was one of worsening austerity and when the crash of 1998 hit, the fiscal shock was devastating, and led to cutbacks on basic water projects in rural South Africa to the great regret of the water minister (Kader Asmal) for whom I was then a budget advisor.

4. “Reappointing apartheid’s finance minister Derek Keys and Reserve Bank governor Chris Stals, who retained neoliberal policies.” Bond may have a point here but these appointments were really short-lived, since the ancien regime was quickly followed by Trevor Manual and Tito Mboweni, two home-grown black politicians. The main allegation could be better stated — Why did Mandela with very little political room, fail to make a clean break from the ancien regime, instead choosing a slow segue into the new era? This undoubtedly was a tough compromise which came out of CODESA. Did all this translate into retaining neoliberal policies? Not if one looks at the dirigiste economy, the many failed command-style, statist policies kept on by the ANC to the country’s detriment, one has only to look at the fate of SAA, Telkom, Eskom and other state (public-private partnership) monopolies, arguably worsened by listing on the market.

PB: For Keys and Stals, it is not correct to blame “a tough compromise which came out of CODESA.” In fact, it was at a meeting in early 1994 between Mandela (with his leading economic advisors) and IMF Managing Director Michel Camdessus where the latter told Mandela that he would have to reappoint Keys and Stals, because Mandela’s ANC was still not trusted. This was covered byBusiness Day’s fine journalist Greta Steyn at the time.

5. “Joining the World Trade Organisation on adverse terms, as a “transitional”, not developing economy. This led to the destruction of many clothing, textiles, appliances and other labour-intensive firms. ” I can’t argue here, how were the terms adverse and what does Bond mean, would appear to be nothing more than a semantic quibble attached to the same gripe under point 3, since we still get preferential treatment in terms of tariffs and trade via Agoa, as a developing nation. How is Mandela responsible for the World Trade Organisation?

PB: The adverse terms meant a much more rapid retraction of tariffs and quotas on imports (as ‘transitional’) than would have been required were SA ‘developing’. US Secretary of Commerce Ron Brown led the charge to get SA downgraded in November 1993 and by appealing to the US public over Bill Clinton’s and Brown’s head, Mandela could have fought that. (Agoa was only introduced in 2000 and if you get sick from diseased US chickens this year, you know where to look for blame.) As for this question, “How is Mandela responsible for the World Trade Organisation?,” it is a non sequitur.

6. “Lowering primary corporate taxes from 48% to 29% and maintaining countless white people’s and corporate privileges.” This one is a real chestnut, should the ANC have maintained high corporate taxes which would have further exacerbated capital flight? Lower rates resulted in an influx of corporate business, what would a better rate be, 35%? That the ANC protected the interests of various white persons and their corporate interests is one of life’s minor tragedies, I have only to point to the ongoing problem with Naspers. So plus 1 for Bond.

PB: Yes, the rate of taxation on corporate profit should have been kept high; lowering it so much did not result in Foreign Direct Investment and new fixed capital. The main flow of capital into South Africa was short-term hot money, with only a few mergers&acquisitions representing ‘FDI’, but these did no good (e.g. Telkom investors, Barclays Bank buying ABSA, etc). By 2013, the IMF noted that South Africa had one of the world’s highest corporate profit rates: https://www.imf.org/external/pubs/cat/longres.aspx?sk=40971.0 Yet still, Global Financial Integrity last month accused SA corporates of Illicit Financial Flows averaging $21 billion/year during 2004-13: http://www.gfintegrity.org/report/illicit-financial-flows-from-developing-icountries-2004-2013/ So yes, higher taxation is vital, especially given that the money SA corporates have kept within South Africa is not being invested in productive investment, but instead represents a R700 billion cash fund sitting idly in speculative outlets: http://mg.co.za/article/2015-09-17-cash-flush-companies-negative-over-future-growth

7. “Privatising parts of the state, such as Telkom, the state-owned telecommunications company.” Privatisation without elimination of the underlying monopoly is the real sin. The State via the PIC maintains a major shareholding in these entities, thus the correct phrase would be ‘partial privatisation’. Yes, the sorry tale of Telkom and SBC Malaysia is really an example of what can go horribly wrong when you have ‘too many chiefs and not enough Indians’.

PB: True, partial privatisation, but no, the sorry tale of Telkom is one in which private profiteering – an excessively influential motive for the Texans and Malaysians, with only a 30% stake, in part because the minister at the time (Jay Naidoo, 1996-99) was very weak – destroyed the company’s mandate to roll out fixed-line infrastructure to millions of poor households (the privatisers disconnected nearly all these because they set tariffs too high for affordability) and in the process devalued Telkon by $5 billion. Details are here: http://corpwatch.org/article.php?id=11500

8. “Relaxing exchange controls. This led to sustained outflows to rich people’s overseas accounts and a persistent current account deficit even during periods of trade surplus, and raising interest rates to unprecedented levels” South Africa now has more assets abroad in terms of value than inside the country, a result of relaxing exchange controls, the results can be seen in positive dividend inflows from abroad which fund business and contribute to the country, despite the economic climate. As for the deficit, running a deficit has been a policy of the ruling party for over two decades.

PB: Sorry, but the net outflow of dividends from South Africa far exceeds the inflow from SA firms and individuals abroad, by more than double. The SA Reserve Bank’s Quarterly Bulletin (second quarter 2015) listing of dividend outflows over inflows put the latter at just 45% of inflows. The balance of payments deficit that results from profits, dividends and interest flooding out is the main reason that we have such a huge current account deficit (even though the last couple of months have shown a moderate trade surplus). Yes, the ruling party’s policy has been to let this happen – but that policy is terribly destructive, as even the ruling party General Secretary admitted last year, in the case of Old Mutual: http://www.iol.co.za/the-star/rising-inequality-may-destroy-us-1.1897110

9. “Adopting the neoliberal macroeconomic policy Gear. This policy not only failed on its own terms, it also caused developmental austerity.” If providing citizens with RDP homes in terms of Gear is a “neoliberal policy” then I am all in favour of neoliberalism, Bond once again demonstrating that he can’t see the wood for the trees. Is Gear responsible for “developmental austerity”? Would appreciate if Bond could expurgate on this point, since it appears to be a contradiction in terms.

PB: The Gear policy made it much harder to redistribute income. The RDP called for 5% of the SA budget to be spent on housing, but with Gear, any momentum that Joe Slovo tried to start before he died in 1995 was reversed, and housing did not get more than 1.5% of the budget during the Gear era. There are plenty of critiques of Gear available – e.g. mine here or the National Institute for Economic Policy’s here or some SACP dissidents’ here – but there is no doubt that the adoption of the Washington Consensus in mid-1996 led to declining per capita growth over the subsequent five years, to a massive increase in unemployment, and to redistribution from poor to rich. This was a policy of Decline, Unemployment and Polarisation Economics, not Gear but ‘Dupe.’

10. “Giving property rights dominance in the constitution, thereby limiting its usefulness for redress.” If Bond could supply us with a working alternative then by all means, but how does one create a legal system without property law and without removing the necessary distinction in law between those with title deeds and those without, and what about the pickle of stolen goods? There is nobody who seriously thinks the way forward is outright theft, though many would want to see greater redistribution of wealth. How to achieve this, if not via a social wage, rent stabilisation, income equalisation and a generous housing allowance?

PB: Yes, we agree that we need a genuine social wage – not the tiny tokenistic grants (children get US$0.67/day now, two thirds lower than even the World Bank’s notion of a universal poverty rate), or the housing subsidy that has generated huts further away from jobs than even during apartheid, often has as large as a 40 square meter ‘matchbox’ – and upward (not downward) wealth redistribution, but the overarching power of property rights does indeed empower the wealthy and corporations, as does granting ‘juristic personhood’ to the latter within the Bill of Rights. Leaving those clauses out of the Constitution is the ‘working alternative’ that would improve South Africa. Just one trivial example is the experience I had, suffering arrest on the Durban beachfront so that Sepp Blatter could exercise his property rights over that (once-public) space ahead of my rights to hand out anti-xenophobia leaflets: http://www.counterpunch.org/2010/07/09/fifa-forbids-free-speech-at-world-cup-fan-fest/

11. “Approving the “demutualisation” of the two mega-insurers Old Mutual and Sanlam. It was the privatisation of historic mutual wealth for current share owners.” Bond merely demonstrates he doesn’t understand insurance, a mutual fund is for the mutual benefit of its members, when a fund demutualises, members receive a lump sum payout, usually with an option to invest the proceeds in another scheme, this has nothing to do with public money, Bond is thus wrong once again.

PB: A mutual fund is the aggregate (total) sum of all historical funds that have been collected. What the 1998-99 decision to demutualise the two main ones did was privately appropriate the historic investment commons that, according to the RDP mandate in 1994, should instead have been reinvested in socially-useful projects. Old Mutual took the funds abroad with its new London listing, a disaster: http://www.financialmail.co.za/coverstory/2015/04/23/old-mutual-primary-listing-time-for-a-rethink

12. “Permitting most of South Africa’s ten biggest companies to move their headquarters and primary listings abroad in the late 1990s. The results are permanent balance of payments deficits and corporate disloyalty to the society.” Comes down to a question of loyalty, should corporates be allowed to move their headquarters? Does it matter if a stock is primarily listed in rands or in a foreign currency? Stock in foreign currency strangely acts to help our balance of payments, the more so when our currency is devalued because of bad leadership and policy issues. None of the businesses one would assume Bond refers to have actually left the country. Building a Berlin wall isn’t conducive to business, if we can’t keep corporate headquarters here, we need to ask ourselves why, instead of bemoaning the fact that like many East Germans, corporates find life in the West preferable to living under a Marxist dictatorship. Again, all surely a question of corporate governance, and nothing to do with Mandela’s legacy?

PB: To this question – “should corporates be allowed to move their headquarters?” – the fact that the capital was largely accumulated during apartheid and that the corporations have permanently removed those funds, is an ethical and economic travesty. To this question – “Does it matter if a stock is primarily listed in rands or in a foreign currency?” – yes, as explained above, when SA private firms – especially Anglo, De Beers, Old Mutual, SAB, Investec, Didata, Gencor, Mondi, Sasol, Liberty, Richemont and others – move their financial headquarters abroad, the impact on the local economy is devastating. And to this point – “if we can’t keep corporate headquarters here, we need to ask ourselves why” – do you think the answer might include race, patriotism in terms of democracy (most relistings occurred after Mandela was released from jail), and a level of inequality that has become, for capital, potentially self-destructive?

Fix the economy stupid and provide free education (part 4)

SOUTH AFRICA is an astonishing country. Not only are we home to more millionaires than any other African country, (40% of all African millionaires live in South Africa) but this wealth coincides with extremes of poverty and unemployment. Some 25.5 percent of the population is unemployed and this figure is worse when the youth and first-time job-seekers are concerned, rising to 63%.

The reason why this picture is so, is not all that difficult to understand.

Let’s talk about the welfare disconnect. Although the country is one of the few nations on the continent to have implemented a social security programme, this programme is geared towards the elderly, disabled and child care grants. Thus the youth of today, are born into social security — their parents are recipients of state welfare not because they are citizens, but because they have children.

Once a child is over the age of 18, this grant falls away. The double-whammy of unemployment and poverty kicks in.

Today’s student unrest is a direct result of the situation where a pupil, having generated income for his or her family, simply by being a child, turns into a liability on becoming a young adult and tertiary student. In most cases, such a person is forced to fend for him or herself.

This is an enormous shock to both the youth and the family.

So far as social security in South Africa is concerned, we are a nation which has the cart before the horse.

The Focus on Labour at the expense of the Market

Command economies have failed wherever they have been attempted. Creating industries, whatever the cost, in order to create jobs, instead of producing efficiency, achieves the exact opposite. Labour for the sake of labour, is tremendously wasteful. Wherever it has been a state policy, communism has resulted in economic distortions and failure to deliver goods. Shifting the goal of humankind towards labour is therefore an exercise in futility.

Instead of paying families to have children, we should be paying people to stop working.

A social wage, comprising an unconditional basic income grant, health care and free education, would be the means by which the worst ravages of poverty and last vestiges of coercive labour was removed from our society.

The coervice labour market is a legacy of the apartheid system, which was dependent upon a labour pool, where workers were treated as nothing more than a resource to exploit. This situation has not improved under the ruling party, in fact it has gotten far, far worse. BRICS under Gwede Mantashe, has birthed South African sweatshops producing goods for Russia, low-wages and a shrinking Rand have become a factor of life.

Instead of forcing people into employment (or joblessness as the case may be). A social wage would redistribute income to each and every citizen, not by virtue of being a child, but by virtue of ones ability to vote.

Leisure should be our goal, not labour.

Labour should only be a means of achieving other goals.

Making goods should go hand in hand with Buying Goods. While Henry Ford may have had his faults, he produced cars for the workers who worked in his factories, not for the wealthy elite.

Citizens should thus be more than simply workers, they should be treated as adults and consumers.

While labour has certainly contributed to better work conditions — the invention of the long weekend, and other public holidays — it would be even better if labour were to permanently depose itself, by creating a 360-day-Vacation. Allowing robots to self-assemble and produce the goods, which we buy with our wages, which are in turn given to us, via a more efficient means of production and redistribution of wealth, This is an alluring proposition. Holland for instance had moved to end labour in mining. Machines are replacing humans wherever they are found, and the full automation of society is only a matter of time.

See Part 5

South Africa’s welfare debate

SOUTH AFRICA is faced with tough economic choices in an election year as the country languishes with low growth, high unemployment and increasing radicalism. Can the country afford to pay for welfare while bailing out an ailing parastatal sector that presents an ever-increasing drain on the fiscus? Have we finally reached the point where we have to make a choice between a “dirigiste” economy and market capitalism?

Bloomberg the global financial news website criticised South Africa’s “welfare addiction” this week. In an article published Tuesday which, according to T.O. Molefe invoked shades of Ronald Reagan’s “welfare queen” stereotype to argue that South Africa has a welfare addiction, Bloomberg disingenuously pointed out that the number of welfare recipients in the country currently outnumber the number of employed — “Some 16.5 million people receive government benefits, compared with 15.2 million working as of the fourth quarter of 2013 and those on assistance make up 30 percent of the total population.”

Bloomberg managed this slight of hand by conveniently avoiding the demographic reality of South Africa’s welfare system — currently only the youth, the old aged and disabled receive welfare — ignoring the problem of the 24% unemployed who do not receive any form of social security while big businesses remain on the receiving end of state welfare.

South Africa’s massive parastatal sector is a case in point. It lost in the region of R25bn last year and the figure is climbing. A report tabled in parliament shows that SAA has a R1.2bn operating loss bringing its losses to a total of R16bn since 1994. The problem of a welfare state supported by welfare businesses caught in a welfare spiral as the country shifts towards the left is deeply troubling. The solution appears to be dumping elements of the state-guided dirigiste economy while maintaining welfare and social security support for the least privileged.

This would mean letting go of unprofitable state enterprises such as SAA, Telkom, Post Office and Eskom and retaining only those enterprises which are capable of generating a profit. Currently Transnet is the only major state enterprise to show a profit, increasing revenue by 14.3% in the six months to September 2013 to R28.5bn. In effect the profit from Transnet is cancelled out by the losses in other state enterprises, creating the awkward situation where social welfare is entirely supported by tax revenue which is likely to diminish if plans unveiled by radical opposition parties for nationalisation of banks and other businesses proceed.

South Africa could quickly find itself in a double-bind in which all social services such as health, education and welfare payments are solely supported by loss-making state enterprises that have absolutely no hope of ever making a profit. The state would in effect be bankrupted by too much welfare and be forced to either borrow money or increase the circulation of money, in other words inflating the money supply, the banknotes which are created by the printing of money by the central bank. A proposal by the radical EFF to nationalise banks would in effect create one central bank with 220 branches as in North Korea.

Despite these concerns, welfare payments are set to increase as demands for welfare including medialternatives’ own demand for an unconditional basic income grant for each and every citizen, show no sign of abating. The country is in a unique situation. Duma Gqubule an expert for the South African Civil Society Information Service believes the value of untapped mineral resources in South Africa’s is in the region of US$4.7 trillion. “Put differently, the value of these mineral resources is worth one million Rand per South African citizen.” All good and fine, but the question of beneficiation and which economic system is more productive and efficient in terms of adding value and increasing tax revenue is not furthered by arguments which neutralise revenue from the market economy while creating yet another rung of welfare recipients in the process of nationalisation.

The state should not be bailing out businesses and banks which are to use a hackneyed term, “too big to fail’, rather the state should be redistributing the proceeds from productive capital to all citizens who are treated as if they were shareholders.

A state which distributes revenue in the form of an unconditional basic income grant, on a monthly or biannual basis would do a lot more to alleviate problems with poverty and inequality than a state which was tasked with performing a business and venture capital role instead of being an equity partner. Our poor performing parastatals have provided ample reasons why state enterprises are simply massive, under-achieving bureaucracies that do nothing in terms of providing value to citizens as well as consumers. South Africa must find a way to save social welfare while growing its economy. Dumping failing state enterprises and increasing the productive economy is the only solution that stands a chance of succeeding and winning votes.

Interview with Tim Jenkins of CES

If you are interested in alternative economic systems i.e “New Economics” then this podcast about a local trading system called the Talent Exchange is a must

http://ia600200.us.archive.org/18/items/Secrets_of_Money-A_New_Economic_View/Secrets_of_Money-A_New_Economic_View.mp3

NET 2.0: Post-Scarcity Economics and the problem with Google

THE Information Age was founded upon what one might call a fundamental error – the exchange of terms in an economic model that would lead us to a post-scarcity economy in which the traditional laws of economics no longer applied. It is the kind of error that a postal clerk might conjour up, and yet the people who keep mouthing: “The cheque is in the mail” are no less information scientists and cyberneticists of the caliber of Norbert Wiener, whose 1951 classic The Human Use of Human Beings introduced the Information Age.

So how does this new model work? Suppose one replaces the concept time with information. All our mathematical equations start to resemble flights of fancy that have very little to do with the real world. For example, remove gravity from E=MC2 and what one has, is a frictionless world in which inertia, the kind of thing that stops us from flying off into space, no longer exists. Since electronics can reproduce such errors, the world was quick to embrace digital, as an alternative to the real world.

The virtual world of the Internet enabled us to arguably, engage in the same error that cleaved Eve from Adam’s rib. What was once considered the fixed limitations of the real world, time and space, were now stripped of their meaning. Business would never be the same in the gravity-less Information Age .

The dawn of the post-scarcity economy was thus upon us. Henceforth, bits and bytes determined value. The move from the restrictions and limitations placed upon the ordinary provision of services, in terms of billable seconds, minutes and hours, to an infinite and unquantifiable supply of information, that could be sold bit by bit, was considered a fantastic and revolutionary new way of cybernetic thinking. 

The terrible result of this new electronic logic, is that everything in the information economy would come to resemble data. It is a fundamental error that cannot be solved without destroying the entire system, or reconceptualising the framework upon which information is based. Since on the Internet, no distinction is made between one bit and the next, economic theory, as it has traditionally been applied —  in which value is determined by supply and demand –, no longer holds. A book worth only 1.8 Mb, for example, ends up costing less than the commercial advertising the book or an audio version of the book (whose data might amount to a staggering 50mb) and yet arguably there is more information in a book.  

[NOTE: Observe the neat conjouring trick in which Rands have been converted into Bandwidth.] 

Seen through the prism of information engineering the new paradigm was sold as a frictionless economy in which the service providers would invariably prevail. The value chain of the external economy would eventually implode in cyberspace, but not before a virtual utopia, blind to such distinctions was created. 

You see, producers of information were soon, after the birth of the Net 1.0 equated with consumers, as distinctions between producer and consumer disappeared altogether. A technological miracle called Internet Protocol or IP had insured that only those companies which delivered information made real money, while a new kind of corporation and corporate economy emerged. Business leaders had quickly realized in the first decade after the launch of the World Wide Web, that a new form of currency was needed in the unbelievable post-scarcity economy it created, since the cornucopia of services unleashed meant a glut of products all veying for our attention, the bizarre result was that everything except the bits, was rendered worthless. 

Since only service providers supplying the actual data were making money, there would have to be a second web-based economy whose foundation was pure information. Page views, clicks-through’s, usage-figures, statistics, the kind of information which could be sold to advertisers and marketers desiring access to the new economy that was being manufactured upon the fundamental error already outlined. 

Next to the provision of services, the aggregation of information is the second biggest business on the Internet. Corporations like Google, not only sell this data that translates into audiences, markets (readership, viewer statistics) to advertisors, but have created a symbolic economy in which the links themselves have become a form of commodity. Without IP, the maps that link each computer to each other would be meaningless. In fact the Internet is the one instance in which the map is the territory. This flat-earth logic is crucial to understanding what happens in a virtual world in which one dimension has been removed. Time, Gravity, call it what you will, but the result is the same. Any company adding value to this new geography by manipulating the IP maps, which to begin with, were simply cold digits, was bound to have an impact. 

The development of Net 2.0 has attempted to replace this lost dimension through the creation of unique environments that allow users to view information through the added lense of particular concerns and individual needs. Whether social networks like Facebook, web aggregators like De.Li.Ci.Ous, or blog accumulators like SA-Based Amatomu, these new environments offer an intriquing alternative to the raw output of information, while traditional service providers continue to bill consumers at bits-per-rand.

 Part of the allure of Net 2.0 is the prospect of free information. Downloadable items such as songs, music videos, practically anything that can be transmitted in the form of digital packets of information, is available. Not everything is “free”, in fact there are elaborate schemes to entice consumers to part with their cash. Online casino’s that demand credit card details, subscription porn services, extra bandwidth at a fee. The price for free however, has and always will be, the initial cost of the service.

 In South Africa, bandwidth comes at a premium. In an environment in which broadband copper cable is the major source of bandwidth, the only alternative is wireless.  Fibre optic, which is faster and more efficient, is still rare and so broadband Internet is available only at a pinch. Service providers, no doubt wanting to protect the artificial economy created out of the provision of bits are doing everything they can to avoid the introduction of fibre direct to the door. Since, with a larger carrying capacity optic cable pushes everything else out of the water. Imagine a world in which only one profession were allowed to make money?

The new world created by engineers, is a wonderfully egalitarian place if one chooses to ignore the uncomfortable fact that, for the most part, we are paying for this freedom. If you are a coder, a programmer, or a net engineer, you may sell your services. If you happen to be an artist or writer, the problem becomes a lot more complex when the value of an object is dependent. not upon its use, but rather its aesthetic or moral value. RU Sirius, former editor of Mondo 2000 summed up the problem at a recent Net 2.0 conference in Amsterdam: “Get people to work for free.” That has essentially become the motto of the post-scarcity economy.

On the one hand, it is wonderfully communitarian. Marx or Lenin could not think up a better method of getting today’s  microserfs to co-operate. But in an environment in which billionaires exist alongside those living in the developing world, the dispossessed, there is something sinister about all this utopian, to coin a phrase, net-nonesense. How are we to survive as producers and creators in an age, in which value is no longer determined by scarcity, but rather the accumulation of bits and bytes, the 1s and Os that describe information?  

Here are two possibilities:

 a)    We embrace a genuine and authentic freedom in which today’s broadband services are provided for free, in which the provision of fast and reliable Iinternet is granted as a sovereign right, so that as user-consumer-producers we are not forced to pay to get online.

 b)    We figure out a system of revenue sharing, in which the exchange of information is granted value. Such systems already exist. One podcast site promises to share revenue based upon the amount of times a particular podcast is downloaded. Such schemes generate income via advertising and pass this on to the user. Instead of fleecing clients with the promise of opportunity, so-called opt-in schemes which we know are readily available elsewhere, these scheme are rather turned into revenue generating systems that reward the producers of information. 

Google, via its advertising scheme has already attempted to compensate those who provide information. But to date, I know of no-one who has personally received the mythical Google cheque in the mail. It would seem that the scheme is either a giant fraud, or a terrible failure. Perhaps we are asking a lot from information consumers  Perhaps Google’s advertising scheme hasn’t hit the mark in a revolutionary way because it doesn’t reward clicks to ones own site, bur rather clicks to the person who places the advertising? 

As the owner of a website, I do not receive any compensation for Google clicks to my site. What I receive is the “opportunity” to place free advertising sponsored by Google on my site, which may or may not end up generating revenue.  The recognition that revenue is an important factor in the datastream, in which a network of service providers collude to provide information, that has, as its origin, the information producer, is a fundemental shift from the view, which sees information as essentially free.

As long as you pay for services, information is only partially free. That some of this revenue is shared, in a system that would make us all, truly equal, is a right that should be fought for with the same vigour that encourages democracy. 

One day we will awake to find the proverbial Google cheque in the mail. It will be a dividend in which all the clicks on the internet have been divided by the total population of the world and squared with the amount of money earned by the earth’s service providers. The legend will say: You are user # 51 298 123 187 here is you ten-cents (US$) for the 8kb of data we actually siphoned off your site. We know its yours, because the IP number says it’s yours. 

The result, I predict, will be a practical and infinitely rewarding utopia  in which everybody would have a guaranteed income, courtesy of Google Corporation. This is the kind of error, which could make life worth living.