Don’t Quit Your Day-Job, Tim.

The DA has an economic plan. It is called the Growth and Jobs Plan. GAJP sounds less pronounceable than GEAR, but it does appear to fulfil the first two elements of that plan (Growth and Employment). Of course, we may recall that GEAR delivered very little growth and even less employment, so let’s hope that the DA is up for something better. Or is it? It’s an odd-looking document. It’s very long, so no normal person will read it for fun. However, it’s as glossy and facilely written as a pamphlet. Although it’s supposedly an economic analysis, it contains no real references and no reading list. It falls, thus, uncomfortably between a serious plan and a propaganda piece, with the unreadability of the former and the superficiality of the latter. The DA’s Chair Wilmot James, a disgusting individual illustrated in the document with a suitably vile photograph showing him sneering at his audience and gesturing dismissively, calls it the 8% Growth Plan. (He also thanks a raft of people who are not actually economists, including Mamphele Ramphela, who used not to be openly a DA supporter; meanwhile, the plan was actually written by a right-winger named Tim Harris.) It seems evident from his introduction that the focus of the Plan is not jobs, but growth. This is an immense problem. South Africa has, after all, attained growth over the last two decades, averaging over 3%, which is not bad, and attaining 5% in the later years of Mbeki’s governance, which is pretty good. Yet this growth has not generated jobs. On the contrary, employment has fallen, and even within those who are lucky enough to be employed, inequality has risen, so that, as compensation, the middle class has racked up an immense private debt which has the potential to cause gigantic financial problems. The problem is not the lack of growth, but the failure of growth to generate jobs or greater economic equality. It is, of course, possible that faster growth might create jobs. On the other hand, it might simply drive greater inequality. In any event, to focus on growth rather than the sources of economic inequality is a bit like focussing on your skin problems, and smearing on more makeup, when you are suffering from Karposi’s sarcoma as a product of AIDS; it is not only failing to address the real problem, but it is a foolish distraction from it. OK — before we dive into the mud, how would it be possible to develop economic growth at a rapid pace? Obviously, this means that vastly more goods and services have to be produced each year (or else the value of goods and services produced have to be increased by a vast amount each year). In order to do this, there has to be investment in productive activity. Money can be obtained for this by borrowing, but obviously banks will only loan money for investments which are more or less certain to provide large returns (and under present conditions, lending is extremely tight, because our banks are mostly owned by foreign banks that are technically insolvent, and have no desire to expose this fact through making bad loans). Meanwhile, if the company wishing to invest in production has a lot of money of its own, should it invest in production, or should it invest the money somewhere more profitable? Large numbers of companies prefer to do the latter. Already we have a problem. Another problem: supposing the investments are made and the plant constructed. (Let us pass over the problems of lack of materials and equipment for the plant, and the lack of qualified people to construct, maintain and operate it.) Goods and services are produced. Who’s going to buy them? South Africans, as already pointed out, have not very much spare cash and are heavily endebted in order to sustain their lifestyles. Pour out additional goods and services into a saturated market and you will have a crisis of demand. In other words, you need to expand the market by increasing the number of consumers, or by giving the existing consumers more money to boost demand. (The latter was done under the Social Grants system, and perhaps it is not coincidental that the introduction of this system led to a surge in economic growth. However, this did not last.) OK, let’s export. There are two problems with this. One is that there is a global economic crisis which is hampering exports. Another is that everybody else is also trying to export goods and services. In general, this means that there is a race to the bottom in terms of prices. At the moment, the price of goods and services generated by India and China is lower than the price of goods and services generated by most South African industries. Somehow we shall have to reduce our prices in order to compete. But the easiest way to reduce the prices is to reduce wages. Unfortunately, that will reduce domestic demand for goods and services, meaning that economic growth stalls on that front. Also unfortunately, there’s no guarantee that foreigners will buy our goods — so we could stall our domestic economic growth without boosting exports. This is a lesson for the DA: economics is not easy. However, Wilmot James says that there are tremendously clever people who have worked on the DA’s economic policy. The Creator would not trust Wilmot’s judgement, but all one can say is, they will certainly need it. Now let’s see what they are saying. In the preamble, they say that we should model ourselves on Peru and Vietnam, who have grown at 6% whereas we have grown at 3,5%. The first problem with this, is that Peru is not exactly a brilliant example of equality, although they say that it is. Evidently we can’t altogether trust the DA. The second problem is that Vietnam is a socialist state with very tight state controls over investment. The DA appears to be giving us a choice between growth with inequality via capitalism, or growth with equality via socialism. What’s it going to be, then, eh? But also, they say “Economic growth is the essential ingredient”. Well, yes. But most of the countries in the world have managed to create jobs with fairly modest growth. The United States, for instance, created jobs in the Clinton era despite having economic growth well below South Africa’s in the last decade. This focus on economic growth is thus a spurious fetish. Meanwhile: “South Africa remains a country of insiders and outsiders with Big Government, Big Unions and some anti-competitive Big Businesses on one side, and millions of ordinary of South Africans on the other” (p.9.). OK, so government, unions and business are all together? This sounds a very odd analysis to me given that unions and business are usually in opposition. Unless, of course, what is being described is a kind of social contract, like that in the Nordic countries or Germany (where there is high employment and rapid economic growth). If that exists, is it such a bad thing? Let’s see. The document says, without providing evidence, that apartheid caused inequality (which is blindingly obvious) and that the post-apartheid government has made matters worse (which is possible, but it would be nice to see some data). It then goes on to provide some rather muddled statistics about unemployment and poverty, which we need not be told, are high in South Africa. What should we do? They start by saying that state-dominated development is not on, because it leads to “regulatory failure, inefficient resource allocation, reduced innovation, reduced competition, poor corporate governance and heightened corruption”. So the method by which all states have succeeded in the past, is a failure. This is a very convenient fantasy, but it is no more than a fantasy. What they actually say they want is a capitalist road which has “many similarities with the pragmatic and successful policies pursued by countries with open, market-oriented economies such as Brazil and Mauritius, rather than the solidly statist policies of Russia and China”. Hang on. Brazil’s economic growth rate is no faster than South Africa’s. Mauritius is a tiny island running on sugar-cane and tourism. Russia is a capitalist country. China’s economic growth is driven by capitalist development (although with strong enabling forces from the state) and, by the way, this is the only one of these four countries enjoying an 8% economic growth rate. The comparisons and distinctions drawn here are pretty much comprehensively invalid and the conclusions even more so. Again: “at current growth rates, it would take South Africa 35 years to reach the per capita income levels of a developed country like Poland or Portugal. If GDP growth were to increase to 4% it would take approximately 17 years, while at 8% it would take less than a decade”. Absolutely true, and look at the state of Poland and Portugal today. Meanwhile, this says absolutely nothing about reducing unemployment and inequality, both of which are extraordinarily high in Poland and Portugal, and growing steadily. It is starting to look as if the DA’s plan is not really interested in these matters. Indeed, there follows some unsourced gee-whiz statistics derived from countries (other than China) not experiencing 8% growth rates. They then say that they support inflation targeting (i.e., keeping inflation low by raising interest rates) which is based on the idea that it is more important to control inflation than to promote economic growth. They add that they want to abolish all exchange controls (which are the tools through which all rapidly developing countries prevent the capital flight which is South Africa’s bane). They hint that they want to restrain wages and also allow prices to rise, which would necessarily depress demand. It looks as if the DA not only does not want to increase employment, it doesn’t really want growth either. What, then, is it after? More BBBEE (gosh, I thought they were opposed to crony capitalism), more state-based land reform, a better social security system, and tax cuts. Go through those with great care. The first benefits the rich. the second will almost certainly do nothing, the third might benefit the poor, the fourth benefits the rich. None of this does anything to promote equality or employment, nor does it serve economic growth. Head in hands time. It appears that the DA is simply packaging dumb ideas borrowed from the ANC as if they had anything to do with their alleged project. Then they say we need to promote competition, which will supposedly reduce prices, according to what people learn in first-year economics. More powers for the Competition Commission! But, less powers for the Ministry of Finance (that is, less “red tape”). An “environment conducive to innovation” — that is, bullshit. An “incentives-driven industrial policy” (bribing businesses to do things). And making the government free of corruption. Now, none of this will actually promote competition (indeed, bribing businesses, like BBBEE, obviously undermines competition). They also suggest that, since banks aren’t loaning money to start-up companies, the government should provide this money. That’s surely a recipe for enhancing corruption, especially since they demand deregulation — so the government should provide money to start-ups without strings attached. Gaaah! One cogent proposal: we have to spend 10% of GDP on infrastructure, specifically transport. This might be a good thing, assuming that transport is the problem (which they have not proved). On the other hand, doesn’t this mean cutting spending on everything else? Or are they proposing a massive increase in taxation to fund this? They don’t say. Then there are the power and water problems. Break up ESCOM and build more dams. OK, that’s the end of the executive summary, and that’s really all you need to know.


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