Tuesday, October 29, 2013

Actually, we need the other thing administered by someone else

During recent times I have been highly critical of all the economic policies put forward by Julius Malema’s Economic Freedom Fighters, even if I do agree with all the economic concerns they put forward. What I am yet to do, however, is to put forward my own suggestions on how we can alleviate these problems in the short term, while completely solving them in the long run and this, incidentally, is exactly the problem when it comes to my (true) neo-liberal economics; these solutions take time to bear any meaningful fruit, decades in fact, and thus they are almost impossible to sell to an electorate where the majority of people live in abject poverty and feel excluded from mainstream economic activity. Before I continue though, I feel that it is necessary to include a few side notes to ensure that we are all in the same ballpark.

Side note 1: Money is no object

We’re not working from a perspective where we have enough money to do whatever we like, but the perspective that the only function of currency in economics is a) to serve as a meter of value and b) increase economic efficiency. There is nothing to prevent you, for example, from buying your next car with 10 tons of frozen chicken or a couple of tons of grain, but the economic problem arises when you have to pair that which you have (grain or chicken) with that which the car dealer wants or needs. He might prefer to be paid in beef, so then you have to go find a beef farmer who wants chicken or grain and ultimately you could search for months until you find the person who is selling what you want while being willing to accept what you intend to pay with. Now you just pay the man in currency and he can buy his own grain, chicken, beef or whatever else he wants to buy. Your employer could also pay you in product if he so wished, assuming that he pays in a product you need, and this therefore means that the notion that poverty is related to income levels is actually invalid and that poverty is actually linked to the relative cost of living.

Side note 2: The role of private banks

People seem to subscribe to the fallacious notion that private banks are somehow responsible for direct economic investment when in actual fact they perform but a few economic functions. The three chief functions of the private banking system is to a) serve as collection points of the public’s currency (read economic value), b) increase economic efficiency through the pooling of resources and c) to “create money.” What actually happens in the banking system is the following: Let’s say that Mrs. X and one thousand other people have R1000.00 in their bank accounts with ABSA (collection point of currency) and that MR. Y now wants finance for his business to the value of R900 000. Instead of Mr. Y now having to go negotiate terms of loan with Mrs. X and 1000 other people, he merely visits ABSA bank to fill out a loan application (increased economic efficiency), but because the money being lent does not belong to the bank, they have to ensure that Mr. Y is credit worthy and that the clients’ money will not be lost. Mr. Y then pays his suppliers who bank at FNB and the cycle can start over again. Theoretically, the South African banking system can create R40 of credit for every Rand (value divided by the Reserve Requirement) that is banked with them and that is how “money is created,” but financiers have to be remunerated for the credit risk they undertake and that is why banks pay and charge interest to their clients; the reason for the disparity in interest paid/charged is that the bank should receive recompense for its role as financial intermediary. There are of course other safety requirements placed on the banks by the South African Reserve Bank, so the number is actually less but we are not discussing Bank Economics at the moment.

Side note 3: The non-linear value of money

Believe it or not, this is actually a mathematical poker theory that I am applying to matters of economy and it states that R50 is not equal to R50 is not equal to R50. The simple fact of the matter is that the relative value of money is entirely dependent on the overall income of the person it belongs to, i.e. R50 is worth much more to someone who earns R3500 per month than to someone who earns R15 000 per month. Since many of the suggestions that I am going to make will benefit the wealthy and the poor alike, the fact is that even a smaller saving for a poor person would be worth more than a bigger saving for a wealthy person.

With all that being cleared up, what would I do if I had it all my own little way? Well, the only way in which we can make any meaningful impact on the lives of the poor is through the rapid development of our industry, society and even the Government

Phase One: Rapid Industrial Development and Decentralisation

Disband the Industrial Development Corporation and replace it with a Government Business Unit, the board of which will be comprised of the Minister of Trade and Industry, the Minister of Mineral Resources, the Minister of Economic Development and the Minister of Finance as well as several business people nominated by the business community. Its first order of business would be the immediate systematic privatisation of 50.1% of the South African Post Office, South African Airways, the South African Broadcasting Corporation, the entire railway fleet of TRANSNET and ESKOM’s power generating capacity. At no point will international investors own more than 20% of these companies, while the State will retain control the power grid and railway infrastructure in order to exert maximum pressure on the final costs to consumers if the need should arise. The moratorium on private railway companies and power generation will be lifted while the Parastatals will charge rent on the usage of the infrastructure.

Half of the proceeds of these sales will be used for the repairing and expanding the country’s ageing rail and power infrastructure while the remaining funds will be earmarked for the sole purpose of expanding Government’s footprint in certain industries of national or strategic importance. The GBU would, for example, be responsible for creating a large scale steel smelter and mill through public-private partnerships that would be aimed at creating steel products for the local and African markets. In order to facilitate its operation, mining licenses would be changed to give GBU related companies first option on the purchase of a certain amount of resources, 15% for example, produced by private mining firms. The shares in and profits from the new companies and former parastatals will be retained by the GBU for a minimum period of ten years or until the business generates a set return on investment after which the shared held by the GBU will be systematically redistributed to all the people of South Africa who obtain a matric certificate, with an additional number for all levels of tertiary qualification, under the proviso that they do not “come from wealth.”

Due to the time delays, poor quality and corruption brought about by the current tender system, I also envisage the creation of a State Engineering Company to undertake all future public works programs and projects. Since such a company will have to be massive and have a vast impact on private engineering firms, the new Company will initially operate as a conglomerate controlled by a board comprising of the Minister of Public Works and executives from private engineering firms. To ensure that the wealth generated by the Public Works Program is not only shared by these companies, a certain percentage of all projects will be outsourced to small, local construction companies and these companies will then have the option of functioning under a Company Affiliation Program in order to facilitate their future growth and success through the transfer skills, economy of scale and bargaining power brought to the table by bigger firms.

On the subject of land reform, the State will not sell any of the 16.8 million hectares of farmland under its ownership to private individuals. Instead, parts of the land will be converted into training centres for aspirant farmers and once they have proved their ability to run commercial farms, they will be awarded with pieces of land currently under Government ownership. In order to protect food security and the prices of foodstuffs, all outstanding land claims against privately owned agricultural land will be suspended until such time as the State has no further land, apart from the training centres, available for redistribution. Only then will the land restitution process continue under the willing buyer-willing seller principle.

Benefits of Phase One

-          The most obvious benefit from the proposed measures is that we solve our electricity supply problems almost immediately while adding absolutely no pressure or additional burden to the taxpayer and as the private companies innovate, the cost of electricity for end users will decline.

-          We also solve our railway capacity problems. Currently, 90% of our national freight transportation is done at high costs via the road network and the costs are always passed on to the consumer. Not only is rail transport cheaper to the tune of an estimated R2 per ton of freight per kilometre, but we will also experience massive savings via the reduced maintenance bill with regards to road infrastructure that could then be used to fund other social projects.

-          Thousands of job opportunities will be created virtually overnight due to the construction of new power plants, administrative centres and other infrastructure.

-          No more costly bailouts for failing parastatals like SAA and the SABC.

-          By following a program of industrial decentralisation we create the space and opportunity to bring economic opportunity to people living in poorer rural areas, with the added bonus of creating spin off job and business opportunities for local residents and a further reduction in transportation costs.

-          The eventual redistribution of shares will reduce poverty while serving as an incentive for young people to complete their primary education and obtain the maximum qualification that they can.

-          An opportunity to beneficiate our own resources is created that will reduce our reliance on importing finished products from abroad, ease the burden on our foreign reserves and with possible future expansions into Southern and the rest of Africa, these products hold great potential.

-          The abolishment of the tender system will virtually wipe out Government corruption where public works projects are concerned and ensure that quality infrastructure reach more people in a shorter amount of time.

-          It will also go a long way in preventing instances where a project has to be re-launched due to poor quality, like when the bridges in Limpopo washed away because they were poorly built by some “Comrade in Thief’s” On Point Engineering company.

-          The protection/expansion of our food security and production would take great strides in containing food price inflation that averaged 14% for the first half of 2013 alone, while the salary increase for the average South African worker was around 5.5% for the same period.

Of course, these are just a few suggestions on what we might do to solve our structural economic problems and I am sure that there are many more suggestions out there, so please don’t be shy to contribute your thoughts because I certainly do not presume to have all the answers. It should also be said that what has been posted here is but a part of the overall solution, but this is a long enough piece already.

Monday, October 28, 2013

My open letter to Julius Malema

Honourable Comrade Mr. Julius Sello Malema,

As a result of the letter you reportedly sent to the Beeld newspaper that explained why white people should vote for you, I would like your clarification on certain matters raised in the letter.

Your policy on land reform

In your letter, you allude to the fact that “The skewed ownership and control of arable land in South Africa is not only a black and white issue (which it vividly appears to be), but an intra-white unequal reality where less than 2% of the white population are in ownership and control of vast tracts of South Africa’s land. So we still have millions of white South Africans that still do not own the land, because it is owned by a few white individuals” and while this assertion is entirely accurate, I wish to know how your organisation proposes to deal with certain issues.

As a white youth in terms of the political definition, i.e. under the age of 35, I have no desire to own farmland or to operate a farm. I grew up in a farming community and I can tell you from both my personal experience and economic education that the reduction in the amount of farmers in the country is the result of a natural- as well as an economic regression. The natural regression I speak of is the simple fact that many young people like myself, even those whose parents have been farmers all their lives, simply have no desire to become farmers themselves and leave rural South Africa in search of professional economic opportunity in the larger cities of the country. In the event where they inherited their parents’ farms after they passed away, the land was simply sold to the highest bidder which is most often the neighbouring farmer.

The economic regression in the number of farmers in the country is the result of the fact that farming has very much become an economy of scale enterprise. So much so, in fact, that farming is quite simply not viable as a commercial business if one is not able to own a certain amount of farmland. The simple economic fact of the matter is that cost of seed, fuel and other necessary inputs have outgrown the income one can generate from a small scale farm by a staggering margin and fuel alone, for example, has experienced a 560% hike in price over the past two decades. With this in mind, how does your organisation propose to bridge the gap between the required initial capital outlay of purchasing the required equipment as well as the seasonal input costs like seed and fertilizer (plus the rent you aim to impose on the farmer) and the income that they can generate from a given tract of land? It is crucially important that this gap is bridged, because if it is not, the majority of South Africa’s arable land will degenerate into subsistence farming that will feed the tenants and cause widespread famine in the rest of our nation. Additionally, please inform me whether or not your Government will also take responsibility for or write off the outstanding bonds that the current owners of the farmland have against it.

Also provide me with an explanation of how you aim to counteract the skill disparity between the current owners and future tenants of the farmland. This is also not a black and white issue, even if it vividly appears as such, but most of the people in the country simply do not possess the required skills and knowledge to successfully manage a modern commercial farm. The historical facts surrounding land restitution projects are that as many as 80% of all land reform projects fail or are sold back to the previous owners within five years of the transfer taking place. The manner in which you aim to address this problem is economically important since a large scale failure of agriculture invariably leads to the type of hyperinflation that we have seen in our neighbouring Zimbabwe after its rapid land reform process.

I completely disagree with the notion that the current owners of the farmland have required it through illegitimate means as it is not lawful to punish a person for an action that was lawful at the time it was committed. You cannot, for instance punish motorists for every time they legally drove at the speed of 120 km/h when you decide that the maximum speed limit on the country’s roads should be 100 km per hour since their actions were legal at the time when they carried them out. There is also the question of whether is it actually juristically possible to punish the current owners of the land for the transgressions of their ancestors, since I am not aware that it is even possible to punish a person for the crimes committed by their great grandfather or even their brother or sister. While this is merely a philosophical difference of opinion, you should in the very least acknowledge the fact that the current owners, and in many cases their ancestors, of the farms have transformed the land to which you refer so regularly from untouched pieces of land into successful, viable agricultural land with all the equipment and infrastructure you might need. If only for this reason they should be compensated for their efforts or, failing compensation, they should be allowed do de-capitalise the farm by selling all the equipment and recycling all the infrastructure before they are removed from the farm, because whatever your argument may be, both the infrastructure and capital was obtained by legitimate means, even if the land itself was not.

The nationalisation of mines

With regards to your policy on the nationalisation of mines, can you please clarify for me exactly how your organisation proposes to prevent the loss of skills, knowledge and capital that will be associated with such an action without largescale infringements on the Constitutional and Human Rights of the citizenry?

It is by no means a stretch of the imagination that many of the current mine managers and executives will simply leave the country or make themselves unavailable to you for employment in the event that the mines are nationalised and it is at this juncture that I wish to remind you that Freedom of Movement and Freedom of Association are two of the central Human Rights included in the Constitution of the Republic of South Africa. How do you propose to prevent the loss of skill that their departure or unavailability would bring about?

On a more economic note, where will your Government get the estimated $2 trillion needed to purchase the mines and associated capital goods from the current owners? Alternatively, please give me an indication of how you propose to manage the exchange rate of our currency in the event that you plan to also do this without compensation? Moreover, the expropriation of

 the mines will also lead to a total collapse in direct foreign investment in the economy, so considering South Africa’s virtually non-existent culture of saving, where will the money to fund your proposed industrialisation and beneficiation of the resources come from and where will the resulting products be sold at comparable or lower prices, because most of our trading partners are only interested in the pure resources and not any resulting products which they produce themselves?

Join hands in fighting poverty

Sir, you must guard with extreme vigil against the notion that white people are insensitive to the plight of blacks or that the wealthy are in objection to the aspirations of the poor. While I do not presume to speak for anyone but myself, I consider this to be the most foolish thing that any modern day South African can make themselves guilty of, because the simple truth of the matter is that we are all affected by the extreme levels of poverty currently affecting the country as a whole and black people in particular. This is, however, not the time for rash political statements that create more economic questions than they answer as I have asked you but a few of the barrage of questions that your policies create by default. While I clearly understand your frustrations with the economic system as it currently stands, and thus your affection for the Freedom Charter of the ANC, we must all accept the unpalatable truth that the world has simply changed too much during the intervening period to ever allow a system of neo-communism to succeed or be effective. The very principles that founded Communism have been disproven through the many instances throughout world history, and even our own recent national history, where systems built around too high a level of central control have failed and miserably so. Their failure can almost invariably be ascribed to the fact that a too centralised modus of control simply allows too small an amount of people to abuse the system for their own gain, but if we really want to change our fortunes, we must first bring ourselves to accept a few unspoken truths

The unspoken truth of economics is that land is finite and that resources eventually run out, but that the capacity of a country’s people is without limit. There are for example, millions if not trillions of ounces of undiscovered gold beneath the soil of our rich nation, but they are located in such a manner that it is either impossible or uneconomical to exploit them; thus rendering them worthless to our economy. The unspoken truth of business and innovation is that very few innovators in the history of the world have turned the entire system on its head and that the super-wealthy people of today and history have merely changed the parts of the existing system that they could not bring themselves to agree with; Henry Ford, for instance, did not re-invent the automobile, he merely changed the production process while computers worked with punch cards until a man by the name of Bill Gates came along. The unspoken truth of politics is that no Government (regardless of its form, size or the economic system under which it operates) can ever empower its people. All a Government can do is to provide its people with the opportunities they require to empower themselves; something denied to black people by the Apartheid Government as you keep reminding us.

In summary, Comrade, we are sadly reliant on the existing economic system for it is the source of our power to change our country for the better and we must find ways of innovation inside that system if we are to succeed in our shared vision. I think that you would be pleasantly surprised about the amount of people, even your political “enemies,” that would support your policies if they were geared towards this and, in favour of furthering our discourse in this matter, I would provide you with examples of my meaning. Government currently owns 14% or 16.8 million hectares of arable land in South Africa and I cannot think of one person who would object if you proposed to use this land in the training of aspirant farmers or even it being used for the first instances of land reform in order to protect or improve our food security. I have also heard rumours of a desalinisation plant on the coast of the Northern Cape that could provide water for an irrigation scheme in the otherwise arid province; this is something I would support to the fullest and why not use this as another avenue for giving land to the landless. I would certainly never object to any comprehensive and workable suggestion on how to prevent and handle the staggering levels of corruption currently plaguing our Government on all levels and very few people would object to the national rollout of biometric systems to ensure that all of our country’s teachers are in class and teaching on time.

The simple truth is that Government lacks the credibility required to get the people to co-operate with any proposal if its own house is not in order and my suggestion would be that you start there before you attempt to slaughter the geese that lay the golden eggs.

Kind regards,

Spyti K


P.S: My sincerest apologies for the lengthy nature of this letter, but if I am to make an informed decision on possibly voting for your party, I must use this opportunity to the maximum. I also apologise if my use of the word “honourable” was too liberal to your liking.

Wednesday, October 16, 2013

The new South Africa (#ProudlyBroughtToYouByEveryone)

It is not every day that I take to getting into debates with socialists like Malaika wa Azania because, well, we could debate until the cows come home and be no further along than we were when we started out because I reject her socialist principles on the basis that it is a system that is proven to open the door for human rights abuses too widely and its failures are all too well documented in the history of Nazi Germany that added a racial element to socialism in order to create what we know as fascism today. She will doubtlessly reject my neo-liberal economic theory on the basis that the unbridled capitalism and consumerism of the modern world will lead to the further exploitation of the poor. The fact that the common consensus surrounding neo-liberal economics and its support of laissez-faire concept of classical liberal economics is actually erroneous since neo-liberal economics was custom “designed” as a third way between the prevailing economic theories of liberalism and socialism at the time, which led to the great exploitation of ordinary people and the near melt down of the international economic system, but this is beside the point as this reply is specifically aimed at Malaika’s latest post on the Thought Leader blogs.

There is no doubt that modern day South Africa has inherited a hugely flawed economic system (#Proudly Brought to you by the Apartheid Government), but it would be hard to argue that we have made significant strides in changing this system since the adoption of democracy nearly twenty years ago. The simple fact of the matter is that we have missed the boat on the one opportunity to truly change our economic system (# Proudly Borught to you by the ANC) and if one considers the meteoric rise of organisations like the Economic Freedom Fighters, the only logical conclusion is that a peaceful and systematic transformation of the economic system, will be beyond our reach in the very near future.
If, however, we want any hope of changing this system, we must first understand its origins and the fact that our economy looks the way that it still does today is no accident. The systemic problem in our economy that everyone keeps referring to is the fact that it operates and relies on a system of a small number of economic elite making large profits off the work done by an unskilled or semi-skilled majority of working poor. Consider the vast difference in the income of a few mine bosses and their companies in relation to the workers who actually go down into the mine and haul the ore to the surface and while this is not necessarily a bad thing, what we have to realise is that the level on which this occurs in our economy is simply not sustainable. The real unpalatable truth, however, is that the origins of this system can be traced back to a single moment in time.

"There is no place for [the Bantu] in the European community above the level of certain forms of labour ... What is the use of teaching the Bantu child mathematics when it cannot use it in practice?"

That, ladies and gentlemen, is the exact moment in history that our economic system and its associated modern problems were born, with the promulgation of the Bantu Education Act way back in 1953. Now logic would certainly suggest that the easy solution to the problem would be to simply address the educational disparity between black and white children, but the sad truth of the matter is that we have failed miserably and that only a fool would suggest that there is even a hint of parity between the no-fee public schools and former Model-C or private schools. There simply isn’t and, heartbreaking a commentary as it is, we have no option but to come to the very inconvenient conclusion that “Bantu Education” is actually alive and well, but the colour that matters now is the colour of your money and not your skin. The logical deduction from this statement is that the system will remain as it currently is. The obvious question arising from this conclusion is why this has not been the singular focus of the majority Government since taking power in 1994.

Call me what you will for this, but this is no accident either.

The major problem with politics is a lot like the agency problem faced by large businesses where the people who manage the company are not necessarily the people who own it and this often creates a difference of opinion on where the company should be heading because the two groups have different interests. When you apply the same principle to politics, the people who set the economic and social framework are not necessarily the people who have to rely on them; I cannot imagine, for example, that any Government Minister or even a Member of Parliament is reliant on things like RDP housing or the public healthcare system and this is exactly why education was not priority number one from day number one. A politician will do and promise the people nearly anything in order to cease political power, but once they attain that power, all they are interested in is staying there and the sad truth of the matter is that a singular focus on education does nothing to improve the lives of the voting public, because frankly, school children do not vote. Knowing this all too well, the Government decided to embark on a populist path where they side with the people (the working poor) against the capital (the economic elite) and that is why we are seeing policies like Affirmative Action, Employment Equity, Black Economic Empowerment, the Reconstruction and Development Program and the list goes on.

These “redress” or “transformation” measures as we’ve come to know them are not a bad thing. They are very good, in fact, and are even supported by my neo-liberal economic theory, but what we have not come to terms with is that none of these programs have the power to eliminate our poverty and income (education) disparity problems. They only have the power to temporarily relieve them, but given the vast percentage of the public purse and the effect on inflation they entail, they tend to be economic monsters that grow as time passes by until they reach a point where they can no longer be sustained by the economy and the whole house of cards comes down. If we now consider the increasingly strict nature of something like the new BBBEE codes, the declared opposition to fronting, the ever growing inflexibility of the labour market and the staggering rise in the amount of people dependent on social security, we have no choice but to acknowledge the fact that we are fast approaching this point and that the opportunity to truly change our fortunes through the equal education of all our children will be lost forever once we go past it.

The worst part about it is that we, the people who have access to all the information and can sit down to read or write pieces like this one, allowed it to happen.

We allowed all of this to happen because we allowed ourselves to get caught up in the populist and often racist politics that goes on around us, because we are blinded by our own short-sighted, narrow and frankly selfish interests. We get into petty squabbles surrounding things like white privilege, black victimhood, the DA being a white only party that wants to bring back apartheid and most importantly, who gets to represent the poor on these forums or we write opinion pieces on corruption, the educational achievements of Jacob Zuma or, my personal pet peeve, what society should do to address the rape situation in the country and then we have the proverbial balls to get up in arms about organizations like Red October that actually got off their asses and did something. This is precisely the reason why we are seeing such an increase in amount of public money that is lost to corruption each year; it is because we can vilify the DA for doing everything in its power to obtain the Nkandla report, while it should be us who are beating down the doors of Government and demanding answers or demanding that heads roll. We have allowed ourselves to be duped into giving up our interest in our own country and its future in order for an unscrupulous politician to obtain a vote he/she thinks they are entitled to because they “fought in the Struggle,” want an equal country for all or some other form of worthless political ideology…

I’ve spent enough time on my soap box for one day, but I know that when I put my six month old son to bed tonight, I will once again start to wonder. I will wonder if the architects of Apartheid would have gone through with it if they had known that their grandchildren would have to go through a situation like this. I would wonder whether those who had died in the ensuing Struggle would experience a sense of shame at our inability to see this through and I would feel my own sense of shame because the way things are going now, there is simply no way in which I will be able to spare him having to go through this as well, even if his father had always been destined for it.