Tagged: Economy

The devil in Patrick Bond’s policy time machine

SHOULD South Africa “undo Mandela’s economic deals”? Is Mandela’s economic miracle a chimera? Political economist Patrick Bond certainly thinks so, unfortunately alongside other critics of the Mandela era, he also appears unable to explain exactly what those compromises were and how Mandela himself was involved. There is no evidence that Mandela personally benefited from any alleged “deals with the devil” financial or otherwise, instead Bond provides a policy grab-bag, which he disingenuously calls the “dozen devils”.

His piece could more appropriately be titled, “if I could build a time-machine, this is how I would have run the country”. At the outset, one should state that Mandela was not an economist but rather an attorney by profession.

As a politician and founder of modern South Africa, he was responsible for ushering in an era of democracy and also signing off on the Bill of Rights, no mean feat considering the terrible period which had come before.

His administration and the subsequent Mbeki administration, presided over the longest post-war boom in South African history. A period which came to an end in 2009.

Bond lists the following “dozen biggest devils” that he claims, hobbled Mandela’s economic legacy, to which I attach my own [comments], please feel free to draw your own conclusions.

  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.
  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.
  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.
  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.
  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?
  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.
  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’.
  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.
  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.
  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?
  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.
  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?

UPDATE: Patrick Bond, interviewed on Radio 702 

Fix the economy stupid and provide free education (part 3)

EXACTLY how is the country to going pay for free education? This is the question foremost on people’s minds, as the country sobers up to the events of the past weeks, which saw the unprecedented storming of parliament and storming of the Union Buildings.

Surprisingly, South Africa, ( as previously alluded to in part 2), already has a ‘sovereign wealth fund’ with a massive R1.5 trillion rand invested, and certainly the youth need to be tackling finance minister Nhlanhla Nene and education minister, Blade Nzimande on why they are suffering in the face of so much wealth.

Instead of a Public Investment Corporation (PIC), benefiting one privileged generation who just happened to be in power during the 90s, let’s make the public investment more inclusive of all citizens, and all generations, and let’s call the PIC what it deserves, by the term Publica, since the ruling party appears to have lost the distinction between what is public and what is private —  funding Nkandla, and government pensions for party insiders. Publica should rather be redirected to funding a social wage for all citizens, one which includes education, health insurance and childcare grants. Instead of a party wage, we could have a social wage reducing the worst affects of poverty and mitigating the coercion inherent to the job market, even one that is Internet-enabled, while providing free education.

Publica, unfortunately, like so many self-aggrandising programmes run by the ANC, appears to have evolved and deformed into a strange facet resembling one of the pillars of the previous regime, the apartheid equivalent of cadre deployment.

The Independent Development Corporation (IDC), cooked up by apartheid cronies Anton Rupert, Chris Stals, Nico Diederichs and Owen Horward, was really nothing more than an efficient scheme to create bantustans. Escaping international sanctions by moving state capital into Swiss offshore bank accounts for the exclusive benefit of the politically-connected. In reality, a state-within-a-state, a fund that was part-and-parcel of the covert government which created apartheid and the oligarchs, technocrats and apparatchiks, that existed, hand-in-glove with the state’s volkscapitalisme.

The missing apartheid millions are all documented by news journalist Sylvia Vollenhoven, but her documentary ‘The Spear’ was banned by the SABC, as no doubt any similar investigation of the fiscus under Zuma would also be.

An investigation of the corporation we may now call Publica, i.e the massive state corporation created out of public funds drawn from the public purse over the past two decades, would undoubtedly uncover a lot more than the Nkandla millions. These funds need to be returned to the people.

The youth of today, deserve free education, and they deserve connectivity, to be online. But in saying this, we want a youth who are able to grasp the many opportunities that exist, at the same time as they are cushioned from the worst forms of economic exploitation, inequality and poverty. This can only come about through a social wage that includes free education.

Part Four examines what South Africa would look like with a social wage

Fix the economy stupid and provide free education (part 2)

SOUTH AFRICA’S YOUTH are experiencing an economic disconnect. A generation faced with a world without jobs,  a massive debt burden, and an economy that has failed miserably to gear itself up for the third wave technologies that Asia and the West have embraced decades previously.

While you were out striking, marching or simply shopping, the world evolved, from a bipolar economy, dependent upon China and the USA, to a multipolar universe —  an economy without a centre.  The rise of the Information Economy — based as it is on information freedom, has been coupled with successive innovations. The Third Industrial Revolution has produced a ‘post-scarcity economy’, where having a ‘China on ones Desktop’, a 3D printer capable of printing anything, is considered de rigeur.

Successive waves of innovation have seen — the virtualisation of the economy, the dematerialisation of assets and the Internet’s proverbial death-of-distance. Pop-up factories, makerspaces, friction-free digital copies and the Internet of Things are all buzzwords and terms which the youth are invariably going to meet on their journey. In the future, your neighbour will hand you a copy of an open source motorcycle, just so the two of you can go for drive. When you return, you will recycle the vehicle into any number of other open source devices.

South Africa’s youth can work and play, just about anywhere there is an Internet connection or icafe, but getting connected to the Net is not sufficient to enable jobs and education. There are other necessities, common to first world economies which we lack as a nation, and without them, being merely connected, is simply not good enough. In fact, a job, as an end in itself, may not necessarily be all that desirable, the same way that owning anything in an economy based upon abundance, is not the alpha and omega.

How did we get here? Let’s take another look at our economy and the problem of state expenditure already covered in part 1.

Instead of taking heed of the lessons learnt via the unbundling of state enterprises, during the very first decade of democracy, the ruling party, hamstrung by labour and its SACP partners, took an anti-liberalisation view of government, and its role in the economy. Preserving the ‘dirigiste economy’ at all costs and accumulating wealth for the state, come what may. Could the money gained from taxation and investment by the Public Investment Corporation (PIC) have been better spent on education, health, and social welfare?

The terrible twins of big government and rampant state expenditure (on dubious projects) has all contributed to the nation-wide malaise,  a combination of student protest and declining fortunes.

Increasingly the grand state under Jacob Zuma, brokered in response to anti-market opposition groups such as the Economic Freedom Front*  has loomed large on the agenda. Big government has in turn placed a massive weight on the public purse.  The slow-motion train crash, in which an increasingly belligerent left, places the brakes on growth, calling for an end to Neoliberalism (and even the marketplace), in order to accommodate a National Development Plan (NDP), better suited to a nineteenth-century economy — one based upon resource exploitation — has meant that there are very few options open to the central bank and Minister of Finance.

Like oil-rich nations such as the United Arab Emirates (UAE), South Africa’s mineral wealth was not going to last forever. Strikes in the platinum sector have proven, that even a reduction in output is not enough to push up prices. Instead of squandering the nation’s wealth, it would have been better invested in a sovereign wealth fund. Like Zambia which suddenly woke up to an end in the commodity boom, and without any cash left in the bank — do we really need to diversify into religion, in order to pray for a time machine to take our economy back to the days when there was a boom? Luckily South Africa has a few other options up its sleeve.

These are explored in part three

  • * Let’s call the EFF what they are, a front for their ultra-left ideological partner, North Korean president Kim Jong-un whose policies are remarkably similar to those advocated by Julius Malema.

Fix the economy stupid and provide free education (part 1)

IN 1994, the ruling party charted an economic course born out of the Interim Constitution and the Codesa negotiation process. Essentially, it involved embracing a ‘mixed economy’ approach, in which a market economy would exist side-by-side with a “dirigiste” economy, that had, as its antecedent, the ‘volkscapitalisme’ of the former National Party.

Thus the country’s industrial base was given new life, with local conglomerates such as South African Breweries emerging into global entities. The once fiercely nationalistic beer cartel, is now a thriving international business called SAB-Miller, which, as it turns out, is in the process of merging with another beer giant, AB inBev. A testimony to South African can-do attitude and the country’s ability to embrace internationalism.*

State industries such as SASOL and ISCOR were privatised, while others like Telkom, Eskom, and Transnet remained in government hands.

SASOL went on to repeat the success of SAB, while ISCOR under Mittel, faired a lot differently.

The ruling party thus presided over a long boom, which lasted approximately 15 years, coming to an abrupt end in 2009. The economy has been running in fits and starts ever since, and it is not simply because the global party of low-interest rates and easy finance has come to an end.

Arguably, more South Africans were pulled out of poverty under the administrations of Mandela and Mbeki, than under several decades of National Party rule, but under Jacob Zuma, the economy has been on the skids.

Now with talk about another credit ratings downgrade, jitters over the Rand, and looming threat of junk status for the nation’s debt, the question needs to be asked: What exactly went wrong?

For starters, the “dirigiste” economy took on a tragic life of its own.

Not only did we witness a massive expansion in state enterprises, but with the exception of Transnet, state enterprises today, operate under the illusion that annual bail-outs from central government are sustainable, that a de facto command economy, is the norm.

The effect on the nation’s fiscus has been dramatic. The public service wage bill under Zuma, (R61Bn and counting), has swelled by 80% and shows no signs of abating.  Coupled with a massive bureaucracy that has produced the largest cabinet and government ministry in the world (64 ministers and 64 deputy ministers), the country has began looking a lot like its former self, under the National Party.

As the slowing down of GDP and growth to 1.4% (2015)**, has shown, growth in the private sector is not enough to accommodate a bulging public sector. Areas of the economy which could have provided benefits, face massive obstacles from central government.

Red-tape and statute inflation (too many laws) has dramatically affected tourism, impacting small-and-medium businesses. The recent opening of the economy to Independent Power Producers, and likewise, the entry of wireless companies into the home fibre and cable market, has come a decade too late, for meaningful economic growth to benefit the class of 2015.

see part two

  • * The SAB part of the equation however, is ironically on the decline, a result of the much diminished Rand.
  • ** With a bit of luck could increase to 2.4% in 2016,  projected by Deloitte.

Homegrown global economic players keeping SA afloat

TWENTY years ago, South Africa had finally stepped out of economic and political isolation. The elections had been won by a democratically-elected government, and parliament was busy drafting a document which would become the nation’s constitution and Bill of Rights. Then, with the exception of a few multinational resource companies such as Anglo American, very few listed companies on the Johannesburg Stock Exchange were global.

One of the crowning achievements of the Mbeki administration perhaps, was to create the conditions necessary for local South African companies to diversify and expand overseas, resulting in a dividend windfall for investors and creating international giants of which we can certainly be proud.

Here are few of the public companies:

SASOL

SAB Miller

Woolworths Holdings LTD

Pick ‘n Pay

MTN

Mediclinic

Aspen

Standard Bank

Investec

These are just some of the listed companies repatriating profits back to South Africa. They help to stabilise an otherwise underperforming market. At the current exchange rate, the net asset value of these shares rises whenever the currency devalues, representing a windfall for those invested in the stock in Rands. After pronouncements about the economy by Minister Nene, will the inward-looking Zuma administration take time out to congratulate South Africa’s global players in what would otherwise be an isolated economic system, economically dependent upon the sub-region for trade.

READ: DA’s finance spokesperson Ashor Sarupen asks: Is Neoliberalism a Straw Horse?

READ: Americans taste South African snacks

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NUCLEAR POWER: Erwin’s Folley is Manuel’s Madness

FIRST, our own finance minister, gets his facts all wrong by spending R500 000 000 on radioactive toasters and nuclear kettles –the so-called Mini-Koeberg “Pebble-beds”. Then Erwin, contradicts his own finance minister and announces a further R500 000 000 or so to be spent on a “second” Koeberg, that’s right, lets push South Africa to the brink of nuclear empowered disaster.

Where do our politicians get the time to push dirty Nuclear Energy that is not only expensive, but a major source of pollution and background radiation to boot. Don’t we know that radiation from the nuclear chain is bad for us, and the Uranium Mining industry is worse than the Asbestos Industry? Remember Asbestos “perfectly safe for you and that’s a guaranteed promise with no money back
from Alec Erwin, Trevor Manual and the South African government.”

Why not simple spend the money on world trip to push nuclear powered outboard motors for the next big spend grand prix?

The anti-nuclear lobbey is one of the longest running environmental campaigns in South Africa. In fact, alongside Nan Rice’s Dolphin Action Group, Mike Kantey’s Koeberg Alert, it predates the formation of Earthlife Africa

Despite the Koeberg Alert’s concerns about the so-called “peaceful use of nuclear energy”, and the fact that South Africa’s own nuclear bomb industry was finally exposed to be a giant fraud. (De Klerk and his National Party only came clean after 1994). South Africa and our own Erwin & Manual, continues to espouse the doctrine of nuclear power for peaceful ends. An oxymoron of a ministry if ever there was one.

Unfortunately, the debate around Koeberg has swung from mass rallies against nuclear energy, to self-satisfied and smug debates of the bourgoisie vs labour;the pros and cons of nuclear safety and of course, the energy issue. The public is confused, politicians are hamstrung, tongue-tied, and bound up by Patricia De Lille and Helen Zille and just nobody knows what to think as the 25 year old debate about renewable resources vs peaceful nuclear energy which continues to give partriarchy a hard-on, and male cabinent members a re-usable condom.

Enough is enough. Let’s top debating the issue. Lets stop haggling over renewable minutia and strategic advances on the quantum-micro-macro economic level. Let’s stop buying into the lies about Koeberg and Koeberg 2 and focus our efforts instead on demonstrating that the nuclear industry is exactly what it says it is, “As safe as the Asbestos Industry”.

Getting rid of dirty Asbestos-siding is one of the green movement’s few success stories — local industrialists once claimed “asbestos was good for everything,” just like nuclear energy. And of course, “blacks asbestos miners don’t need environmental awareness or green leftists to save them from cancer”.

Asbestos the Uranium of the Sixties was forced to close down and pay reperations for health loss and damage to lungs to countless workers, by the actions of Koeberg Altert, ELA, EJF and the Cape Town Ecology Group

And with nothing to gain, except notoriety for effecting change in society, change that lead to transformation and sustainable development.

Get the message straight;keep it simple: We don’t want safe nukes, or peaceful nukes, what we demand is no nukes whatsoever.

Close down Koeberg, Stop the Refueling Shipments, and Forward to a Nuclear-Free, Non-Racist, Non-Sexist African Continent.