B. February

Updated 24 February 2009
* Latest additions

Boosting farming – 24 February 2009
In the private sector, successful large commercial farmers tend to buy up smaller farms. The number of farms in active production fell from 57 980 in 1993 to under 40 000 in 2007, and gross farming sector income rose from R53.3bn in 2002 to R79.5bn in 2006. But local food self-sufficiency is failing as government buys commercial farms to pass to tribal claimants who then often let production fall. At the same time, many formerly productive fields in former homelands are left fallow. Some say social grants, urban aspirations and HIV/Aids have turned many villagers into reluctant farmers. Others say former rural farmers don’t plant for lack of ready access to efficient markets, effective extension services and cheap inputs. So the budget allocated R605m to revive commercial agriculture on 850 000ha of prime KZN and Eastern Cape farmland. Soil will be reclaimed, irrigation schemes rehabilitated, fields fenced and grain storage facilities built. Such aid to the smallholder sector may stimulate stagnant rural economies through downstream spin-offs. Fiscal funding and organisation of co-operatives may work. Or provincial agricultural departments and the Land Bank may waste tax funds as in the past. (BD/BR 16/18.2)

Containing unemployment – 24 February 2009
Veteran leftist ANC MP Ben Turok would prefer a smaller population. He reckons one reason for our substantial unemployment problem is “many new entrants” to the labour market, including women and rural folk. Others blame cheap imports, so the Nedlac ‘rusty triangle’ of government, business and labour wants a clamp-down. Staying within World Trade Organisation free trade rules, of course, and never mind that it will hurt consumers. Nedlac also wants employers to keep workers employed and retrain them to be employable when the economy improves. As if money’s no object. Cosatu wants independent contracting, outsourcing and multitasking banned. Mining sector unions say members are willing to forego benefits like some holidays and make compromises to keep production going, safely of course. DA labour spokeswoman Anchen Dreyer says government’s public works programme offers short-term contract work at R46 a day – far below the minimum wage. So why not spread such labour market flexibility to the private sector that offers real wealth-creating jobs? (BD/BR 16/18.2)

Listening to lobbying – 24 February 2009
Trade and industry department planned to outsource a study of the effectiveness of import quotas of Chinese clothing and textiles but did it in-house without releasing findings. Then, without consulting industry players, DTI formally sought to extend those import curbs when they expired in late 2008. China is still considering the request. Manufacturers and clothing retailers express disbelief that reinstating quotas and quota checks at borders is on the cards. Industry spokesmen said they don’t need money or quotas – they need the state to prevent under-invoicing because quotas don’t help. The real issue is the value and selling price of illegal imports, not their volume. Academic studies have demonstrated that quotas are flawed in principle and hurt manufacturers rather than help them. But perhaps there’s a bright side to DTI staff ignoring rent-seeking manufacturers and retailers, since they also ignore voter-consumers. Only listening to unionists or to their own inner convictions, officials may make better or worse decisions. But then more unconsulted victims may speak out about bad decisions, and eventually the economic damage perpetrated by DTI may cease. (BD 18/19.2)

Curbing legislative excess – 24 February 2009
The Competition Amendment Bill seeks expanded powers for the competition commission to investigate the private sector without receiving a complaint. Parliament passed it, President Motlanthe sent it back unsigned as potentially unconstitutional, and a select committee left it unaltered. So it will probably pass and end up in the Constitutional Court. Competition law already ignores legislatively-privileged and state-protected true monopolies such as Eskom, Transnet and Reserve Bank to focus upon unprotected private market players who dominate their market sector. The Bill would criminalise five or fewer firms supplying over 75% of the market for particular product or service. It would criminalise two or more firms gaining market share by being aware of each other and acting in a conscious parallel or co-ordinated manner without actual agreement among themselves. It would reverse the onus of proof to assume them guilty until they prove otherwise. The Bill thus assaults free enterprise head-on. Dismissing it, Concourt might reflect upon the analogous need for Concourt to investigate legislation without receiving a complaint. How else will legal draftsmen ever respect our constitutional protections against an overzealous government? (BR 18.2)

Is remaining poor in a good state a respectable goal? – 16 February 2009
Governing elites that get their services elsewhere happily leave basic service delivery unreformed, says Oxford’s Paul Collier. We are gravely mistaken if we believe economic freedom is the problem, rather than the solution, and if we see government as the only answer, says Tony Leon. SA has seen a better life for a few, but not for all the people. But Jacob Zuma insists our nation is in a good state and a vote for the ANC is a vote for a better life for all. He wants a new mandate for the ANC to govern and expresses satisfaction with progress so far. But he offers no suggestions for improving economic growth as we sink into recession, only promising comrades that a new ANC government ‘will then ensure that our nation remains in a good state.’ It may indeed prove challenging to stabilise infrastructure, power supply, crime and Aids, but that’s not better lives for all. Leon urges courage to admit that much of the growth we congratulated ourselves on in budgets past was illusory; that we spent more than we earned; that we imported more than we exported; and that we have borrowed to make up the difference. So much for ‘transformation’. We need sensible change and growth. (BD 10.2)

Growth depends on technology, not redistribution or ‘developmentalism’ – 16 February 2009
The budget raised taxes and public spending, and Reserve Bank promises further interest rate cuts. But it isn’t taxes, public spending and interest rates that transform our daily lives for the better. It’s greater wealth-creation enabled by technological advances applied in the productive private sector’s farms, fisheries, mines and factories. For two centuries since the industrial revolution it’s been possible to achieve about 3% annual average productivity increases. That’s no thanks to workers becoming stronger, faster or smarter, though sometimes training can help. It’s thanks to improved production processes and equipment discovered and developed by scientists and engineers, co-ordinated by entrepreneurs and financed by capital investors. Over time, virtually all manufactured products become cheaper in real terms, and of better quality. Meanwhile productivity in services hasn’t increased by as much as 1% annually, and has often stagnated or declined, as in Britain’s National Health Service. But that’s state-owned, and who would claim or expect productivity improvements in a sheltered-employment sector funded by taxing wealth-creators? (Star 10.2)

Government shouldn’t re-enter steel and synfuel business – 16 February 2009
The state needs to find R787bn over the next three years to prop up its failing Eskom, SAA and other infrastructure. That’s over R16 000 from every South African man, woman and child, or around half our annual GDP income per capita. Yet the parastatal Industrial Development Corporation hopes to re-enter the steel business versus ArcelorMittal, formerly the privatised Iscor, and the synfuel business in partnership with privatised Sasol. A 3-4 million tons a year steel mill would cost well over R15-billion and the IDC would take a stake in a R100-billion synfuel plant. Are they quite mad? ArcelorMittalSA isn’t expanding, questions the viability of an additional steel mill, rightly opposes any state subsidies, and could even pull out of SA. Sasol, which also isn’t expanding, may seem more of a loyal local boy but foreign shareholders won’t rush into public-private partnership in interventionist states and could also pull out. The ANC should ‘stick to the knitting’ – aiming to fix whatever it won’t privatise and enjoys protecting from competition and forever subsidising with our taxes. (BR 11.2)

Government should withdraw from mining business – 16 February 2009
Falling house prices push bondholders towards ‘negative equity’, and falling metal prices drive black empowerment investments in mines ‘underwater’. Absa Bank warns it can no longer support drowning black empowerment deals in the mining industry. They were legislated as direct state intervention in the economy, and obviously need to work in hard times as well as good times. Like cash-strapped homeowners, empowerment partners can always sell their stake if they can find a buyer. Government should delay or scrap empowerment obligations on mining and other firms, like it delayed (and should scrap) its royalty tax on minerals recently nationalised without compensation. Nedbank warns the state not to bail out black investors in mines, since instead of creating capitalists it nationalises them. Government should proceed with care during the forecasted several years of low commodity prices. African states like Congo DRC, Mozambique and Madagascar scrap plans to nationalise minerals and cut mining taxes to support major employers and exporters. It’s suicidal for the ANC to further disadvantage SA’s shrinking mining sector, which needs much less state interference to survive. (BR/BD/BDW/BT 12-15.2)

Friendly is as friendly does – 10 February 2009
Jacob Zuma innocently needs the ANC to become more involved in the economy and adopt a more business-friendly approach … the era of the developmental state that actively intervenes in the economy has arrived. Durbanite Mark Wade calls it directly contradictory to use “business-friendly” and “developmental state” in the same sentence. The first term implies a free and democratic capitalist economy. The second implies a totalitarian state where the government interferes with every aspect of individuals’ lives and businesses, undermining all principles of an open and just society. Wade wants clean, honest and competent government, not one riddled with dirty deals. Maybe it’s too much to hope for such a transformation of tax-funded human nature. The easier business-friendly route back to a competently, efficiently growing economy might involve much less taxation, government and interference. Large tax cuts begin to be discussed in some recession-hit economies. No SA party-politicians are offering any such major liberalisation. But maybe falling tax revenues and growing voter disillusionment can transform a depressing situation and herald better lives anyway. (BD 3.2)

Enough active intervention already! – 10 February 2009
Editor Peter Bruce says there may be enough people in the ANC to articulate a vision of a dynamic and efficient and economically active state but there certainly are not enough people inside or outside the party to make it actually happen. Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy in Singapore, tells Davos we need a fundamental examination of the whole global system to see what went wrong. For SA, isn’t it obvious? Bruce reckons if the state does play a central role in “transforming the economy” it will mess it up. That’s exactly what’s happened since 1994. Inflexible labour laws threw millions out of work to sustain twice – twice! – the unemployment rate of Economist magazine’s next-worst economies Belgium, Spain and Colombia. AA/BEE retired or sidelined tens of thousands of competent old whites, advanced hundreds of thousands of not yet competent young blacks (and many competent ones) and drove able white youngsters overseas. Exchange controls, high taxes, crippling business red tape, low real interest rates and variable high inflation deterred local savers, foreign investors and entrepreneurs. Mining, agriculture and manufacturing stagnated as infrastructure rusted and handouts proliferated. Enough active intervention already! (BD 2.2)

Breaking ranks and pointing fingers – 10 February 2009
Following Sasol’s lead, DPI Plastics sought indemnity from Competition Commission prosecution and fines by snitching on a pipe-manufacturers’ cartel. Presumably directors exposed the employer association to further shareholder interests. Shareholders generally prefer state-cooperative firms so nobody’s rushing off to Constitutional Court, and regrettably Concourt takes no initiative. Yet workers’ clause 18 right to associate freely is blatantly privileged by law that unbalances contractual relationships, for example to enable striking without the risk of being locked out or fired. Meanwhile employers’ similar right is blatantly restricted, for example by criminalising so-called price collusion and market carve-ups. The statist view that such so-called market failures can permanently harm consumers has found as much unthinking general acceptance as has union privilege. Hardly surprising with no tall poppy keen to argue the principled, cost-benefit free market side. Still, wouldn’t it be grand if public agencies would also fall to mutual snitching and public oversight bodies would investigate as energetically as the ‘competition’ monopoly harasses private enterprise! (BD 3.2)

Just which economic myth stifles growth? – 10 February 2009
SACP deputy general secretary Jeremy Cronin has it in for finance minister Trevor Manuel’s alleged neoliberalism. His remedy – even more socialism – is simply cock-eyed. But his assessment of the state of the nation is spot on in identifying economic myths propounded as gospel by mainstream economists and financial and economic journalists. The economy has been well managed since 1994. All the basic economic fundamentals are in place and should not be tampered with. Owing to sound economic management SA is a safe haven in the global turmoil. Our financial sector is healthy. Were any of these myths even half-true, SA would have grown like other ‘developing economies’ or even like China and India. Such fast average annual real GDP growth, needed for better lives, was denied by Manuel’s ANC socialism mythically renamed third-way mixed-economics or, by Cronin, neoliberalism. So does SA’s relative failure to grow result from 30% taxation and hyper-regulation, or from faulty economic punditry? (BD 3.2)

Directly harming mining, fishing and consumers – 03 February 2009
UK-based Bridon International exports fishing and mining rope to SA. Five years ago SA’s Scaw Metals complained to SA’s International Trade Administration Commission of Bridon ‘dumping’ at prices Scaw didn’t want to meet. Itac slapped on a temporary extra import tax. The principle is that five years is more than enough time for local industry to match international competition. Itac was about to recommend that the trade and industry minister should terminate the anti-dumping tax but Scaw got an interdict from Pretoria High Court. Judge Eberhard Bertelsmann agreed the recommendation was “irrational and unreasonable and must be regarded as a misdirection”. Itac chief commissioner Siyabulela Tsengiwe defended Itac, saying “You must remember there will always be an unhappy party. The work that we do has a direct impact on the bottom line of firms.” That’s truer than he knows. In the absence of protectionist legislation and Itac, Bridon’s products would have replaced Scaw’s or Scaw would have risen to the challenge by at least meeting Bridon’s prices. Local fishing and mining firms would have enjoyed those benefits of free trade. But the work done by legislators, Itac, Scaw and the judiciary has directly ‘impacted’ – forcibly struck and damaged – the bottom line of those wealth-creating firms and the satisfaction of their customers. (BD 26.1)

Let them eat cheap bread – 03 February 2009
Farmers in the Free State complained that late rains would halve their crops and called for government protection from imports. Instead, saying it found no justification for higher duties on wheat and wheat flour, due to the high international wheat price, Itac abolished the 2% blanket import tax on wheat. This sensible action favours free trade and consumers. Stellenbopsch University agricultural economics prof Nick Vink agreed that it made no sense to increase tax protection for farmers. They already enjoy the advantage over importers of not having to trek their crop over the Drakensberg from Durban port to Gauteng mills. Regrettably Itac also reinstated the 1999 variable tax that pre-dated the blanket one but it only kicks in below $157 (R1619) a ton, well below the current international price of R2754 a ton. Free State agricultural economist Johann Willemse said the concept of food security isn’t always wrong despite international trade. If you have a large trade deficit, he said, there’s a problem if you don’t earn enough from exports to pay for food imports. He may not realize the rand floats and would just float down a bit, to the delight of most local economists. There’s no excuse for forcing consumer bread prices up unless you’re a rent-seeking farmer or a patronage-dispensing government. (BR 26.1)

Never too late to reduce taxes – 03 February 2009
To eliminate unnecessary cost-raising import taxes on products not made locally, Itac reviewed various parts of the tariff book and forwarded recommendations to trade and industry minister Mandisi Mpahlwa. That’s a year late but can promote desired downstream beneficiation and vital infrastructure development. Up to 85% of the tariff book relating to lead sectors identified by industrial policy for intervention will be streamlined if cabinet doesn’t chicken out. High import tax on chicken legs will probably remain, since who needs cheaper food? But anything that drives down manufacturing input costs should boost economic growth. Businesses that have to compete with cheaper imports will make the productivity-raising effort. The investigation covered machinery, capital equipment, and durable consumer goods like consumer electronics and white goods. Regrettably the department’s sacred cow Automotive Production and Development Programme was preserved by excluding car parts, and Itac also recommended “justified” increased import tax on “a number of” products. (BD 27.1)

Help stamp out corruption? – 03 February 2009
Could SA become a “fully-fledged gangster state”, wonders Brian Pottinger in his book ‘The Mbeki Legacy.’ He relates how corruption in many liberated African states has become so entrenched as to form a “proxy state” operating alongside, and often collaborating with, the formal state. Sociologist Peter Berger differentiates between “good” corruption where an official takes R100 to facilitate registering your car and “bad” corruption where he also keeps the state’s R230 registration fee. Would pragmatic citizens care either way? The Public Service Commission hasn’t received enough funds from Treasury to sustain its various corruption-busting duties. Does this matter? Might it even boost wealth-creation, growth, jobs and better lives for all? Pottinger says “If the government reduces the corrupt “proxy state” it courts the certain consequence of a further decline in service output.” In other words, says Stephen Mulholland, without corruption to oil the wheels in a corrupt state, service delivery slows down, corrupt officials demand more pay and taxes rise. (BD/Cit. 28.1)

Author: Dr Jim Harris prepares the weekly Regulation Updates from press reports. The updates may be republished without prior consent but with acknowledgement to the author. Views expressed in the updates are the author’s and are not necessarily shared by the members of the Free Market Foundation.