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No new deal: The failure of Zumanomics

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

In his statement on the conclusion of the Social Dialogue Meeting on the State of the Economy, President Zuma repeated a laundry list of long-standing policies and rhetoric. Maybe the hope is that the intentions will come true if they’re stated often enough.

At least the mining companies are honest. They’re at a loss about how to deal with the dangerous spate of unprotected and violent strikes that has struck their sector.

As Cynthia Carroll, the embattled CEO of Anglo American, told Business Day: “I don’t know. I don’t think anybody really knows. This is a very unusual set of illegal strikes that are happening. There’s got to be some element of politics at play.”

Unfortunately, the country’s political and business leadership is only reinforcing the fallacies that justify the anger and violence. Carroll’s reference to “illegal” strikes suggests that she hasn’t really thought the matter through. Under the South African constitution, all strikes, with the exception of some affecting essential services, are legal, and they ought to be. The issue is whether they are (or ought to be) “protected”, which gives workers additional rights such as that employers are not permitted to respond with dismissal if a settlement cannot be reached. Carroll should have referred to “unprotected” strikes.

Jacob Zuma, in his media statement last week after the Social Dialogue Meeting on the State of the Economy, tried to put a brave face on the crisis and talked as if the assembled worthies have more of a clue than Carroll. Sadly, the content of Zuma’s speech suggests they don’t.

He listed some of the claimed grievances of the striking workers, saying: “These include addressing the housing needs of mining communities; the pressures on wages caused by high levels of personal debt; and the challenge of high income and wage disparities that create resentment and limit our social cohesion as South Africans.”

Let’s take each of these in turn.

Housing needs? They’re hardly new, and perfectly comprehensible given that the state, at national or municipal level, still refuses to confer full free-hold title deeds upon those who live on its land. Dead capital, as Peruvian economist Hernando de Soto famously called it, is one of the key factors I mentioned when trying to identify the reasons for South Africa’s structural unemployment, welfare dependency and poverty.

On the other hand, one has to question what workers do with the almost R2,000 they reportedly receive as a housing allowance. Outside major cities this is enough for a modest flat or small house, and yet Daily Maverick’s reporters found workers living in shantytown squalor.

Personal debt? Again, this is hardly a new problem, and it is another that Daily Maverick duly reported upon.

For Zuma to say that among the measures decided at their meeting was to address the growth of reckless lending is rather amusing. Isn’t that what the government has been doing these last few years? Isn’t that what the National Credit Act was for?

Essentially, then, Zuma is admitting that none of this regulatory over-reach achieved its desired ends, even as the unintended side effects hurt thousands. Who hasn’t heard of small-time developers who used to earn a living buying, renovating and selling properties and now no longer qualify for mortgage debt? Or of responsible borrowers on low incomes who painstakingly built up a credit record, only to be told they’re now too irresponsible to be permitted consumer credit. Or of small businesses told that under the new rules they no longer qualify for working capital finance?

If all this effort to regulate consumer credit failed, what is the plan now? Are the rules going to become ever more strict, protecting reckless debtors from themselves while responsible borrowers are forced out of the legal credit market? Is there any reason to believe that this will not depress the formal economy even more, while pushing ruthless loan sharks ever further into the informal sector’s shadows? And why is reckless personal financial planning a reason to pacify violent strikers with concessions?

Income inequality? That’s the most bogus argument of the lot. Ginidiocy, as I like to call it, might be trotted out by sloganeering union rhetoricians, but why would it matter whether a CEO gets R50-million a year or R5-million a year? It might matter greatly to the company involved if they are not able to retain executives that are capable of managing a large industrial enterprise and are prepared to put up with wildcat strikes and violent disputes between unions. But when you’re in the bottom tax bracket what difference does it make how many millions, exactly, senior executives earn? (And make no mistake, the “pittance” that workers reportedly earn with very few exceptions exceeds the R63,556 limit above which the taxman starts expropriating your wealth.)

Some of these supposedly exploited workers are demanding pay packets that, if everyone earned them, would put South Africa up there with Poland and Portugal in the top 50 richest countries in the world. You can’t magic your way to prosperity just by increasing wages.

So, none of these grievances are really all that valid, as a question of government policy.

Of course, I’m not supposed to write about all this. As Zuma told Business Day, “We have to create the right environment for economic growth. During this period of a global economic downturn, we urge those who have access to the media from all sectors, including opposition politicians, to stop talking our country and economy down.”

No, you see, magic doesn’t work when it is critically interrogated by the media.

It’s no good to note that spending trillions on make-work projects to build public infrastructure has long been part of the government’s strategy to combat poverty and unemployment, yet did nothing to prevent the violent outbreak of discontent. It wouldn’t be fair of the media to observe that there is nothing at all that is new in the “package of economic and socio-economic measures [that] is necessary to address underlying social pressures and to act as a stimulus to pressures on the local economy as a result of slowing global growth”.

It wouldn’t be right to quibble with the principle of the thing, explaining that there is no such thing as a free lunch, and that every rand government spends on public works is a rand not spent, probably more profitably, by the private sector from which it was expropriated. Or that each of these measures might have an immediately observable benefit, but comes at a concomitant cost elsewhere in the economy. Leon Louw, executive director of the Free Market Foundation, wrote a timely editorial on exactly this point.

Is it unduly negative of the media to question whether some, or all, of the R4-trillion the government has promised to lavish on make-work projects (like, say, Nkandla) might not be more productively invested by the capitalists who created that wealth in the first place, and from whom it was expropriated by force of law?

Would it be unpatriotic for the media to observe that “fiscal stimulus” of the kind Zuma proposes has a long and storied history of achieving very little to aid economic recovery and growth? This is true not only for its most famous experiment, the New Deal, as history professor Burton Folsom explained, but also for a more recent reprise of the same stimulus policies, as author and columnist Amity Shlaes argued.

Would it be “talking the country down” to observe that to make concessions to striking workers who extort gains by means of violence is dangerous because it encourages others to do the same and is unjustified because South African workers have perfectly good legal means at their disposal?

Would it undermine “the right environment for economic growth” to warn that conceding demands to violent, wildcat strikers not only might not be enough, but risks exacerbating the situation? Capitulating for lack of better ideas merely demonstrates that all you have to do in this country to extort a pay rise out of your employer, or infrastructure largesse out of the state, is trash the streets, threaten some mine managers, or murder a few innocent security guards. It will just encourage others to extort similar gains in similar fashion, while they dismiss as toothless the peaceful means of bargaining for which our law provides.

Would it be worse to note that Zuma himself makes this argument in his statement, when he says: “We call on workers who are engaged in unprotected strikes to return to work as soon as possible and for production in the mining industry to be normalised. We are of the common view that our collective bargaining system is broadly sound, that the integrity of the system must be defended.”

Zuma is right. And so is Anglo American’s Carroll, when she says: “What we are looking for right now, the starting point, and what we’ve been really reinforcing in our meetings with the government, is law and order. It starts with law and order. … We will not accept criminals in our organisation. We will not accept people intimidating or killing people, burning them alive. We had that happen last week. It’s brutal and it’s gruesome. It’s completely, completely outrageous to suggest the mining industry is doing all the wrong things. This is just not right.”

Quite so. Violence really is illegal, whether as part of a strike or not. Yet she clearly feels helpless, and in the face of massacres like Marikana and violence throughout the country, so do many other South Africans. It does not inspire confidence in the government, then, that judging by his non-proposals, President Zuma himself feels helpless too.

Since the best he can come up with is to reiterate existing policies, perhaps it is the status quo that ought to be examined. Perhaps it is a sign that the true problem lies much deeper. That this is not just a case of justly aggrieved workers, agitating for better working conditions.

Perhaps promising people that the government will provide houses and water and sanitation and healthcare and so-called decent jobs and quality education and working phones and free television and tarred roads and all those other supposed essentials of a basic life, is a recipe for discontent. When you don’t deliver, you get angry mobs, and when you do, there is always cause to claim even more. You’re entitled, after all, as the politicians with their sweet promises keep telling you.

Meanwhile, the basic work ethic of a free people – taking care of your own living conditions and those of your family – has been lost. When South Africans feel they don’t have enough, they don’t take personal responsibility, but blame the state, the rich, or both. And if those you blame don’t jump, then break things or kill them.

Frankly, Zuma’s impotent mewling justifies this. He’s telling the malcontents and violent thugs that they’re right: the government will promise to do more, and the rich must promise to earn less. Thus are revolutions born, and one Julius S Malema knows this.

These are not symptoms of a healthy, productive society in which everyone works to build a reasonable expectation of improving their prosperity over time. These are not symptoms of an economy that enjoys the right environment for economic growth, namely the productive and efficient allocation of capital.

These are symptoms of the failure of state-led cronyism, and the impotence of leaders who know little more than mouthing the familiar old socialist slogans with which they grew up and rose to power.

This country’s political economy is broken. It will take more than just another Zumanomics speech repeating all the same old platitudes to fix it. DM


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