Thursday, December 20, 2007

Is Zuma's election a disaster?

The man is a moron. Let's not beat around the bush. Anyone who states on the witness stand that he took a shower to avoid getting AIDS after unprotected sex is clearly in no shape to run a country.

There is little doubt in my mind that he's also a crook. The courts have already found that Shabir Shaik solicited bribes from arms deal bidders on Zuma's behalf. Shaik has been in jail for some time.

Zuma's supporters say that if there is a case against Zuma, why has he not been jailed? This is a disingenuous defense by a group of left wing proponents who care less about the man they support than those against who he stands. Zuma's lawyers have fought every attempt to get the man in court. Surely if the man is innocent, he would welcome the Mauritian diary of the head of Thint in court? Surely he would not worry about the seizure of his personal documents? After all he has nothing to hide?

Further, the man is an out and out bigot. He explained to an adoring crowd that if a gay man had stood before him when he was young, he would have knocked him out.

Finally, Zuma is a bumbling populist. Don't ask him his policies - just state your desires and beliefs and he'll agree. At this rate South Africa will be the only Capitalist Communist country in the world.

But I do not believe that having Zuma run this country will be a disaster in itself. His political masters are far more frightening. The day after his election, the ANC voted to reintegrate the Scorpions (South Africa's version of the FBI) into the South African Police. This despite the obvious difficulties posed by the current Scorpion investigation of the chief of police for involvement in organised crime. Of course the ANC freely admits that logic had nothing to do with this decision - the Scorpion's investigation of Zuma for corruption had everything to do with it. Apparently their investigations have been manipulated by Mbeki to further his political battles. How will their integration into the police help prevent their manipulation when the head of the SA Police is a political appointee and not a professional policeman?

The Scorpions decision is one thing. Economics is another. The antagonism to inflation targeting by Cosatu (the Congress of South African Trade Unions) and the SACP (the South African Communist Party has followed swiftly on the heels of the election of their man to the head of the Tri-Partite alliance. They have pronounced that inflation must be managed in the context of broad developmental goals and not as an end in itself. This is all well and good, and there is much that can be written about what the inflation targeting range should be based on the factors driving inflation increases in South Africa. But South Africa adopted inflation targeting as a methodology precisely because the fuzzy interpretation of multiple objectives resulted in continued misalignment with the markets and wild swings in the key economic indicators.

Most economists will appreciate that cost push inflation cannot be targeted by interest rate adjustments. Fine. Then modify the targeting metric (CPIX - consumer price inflation less interest) to also exclude oil/petrol. What I am saying is don't through the baby out with the bath water.

Further there is some debate as to whether the 3% to 6% inflation target range is too low for South Africa - a developing country. The Philips curve demonstrates a trade off between inflation and employment. The lower the inflation rate, the higher the rate of unemployment. The precise relationship varies from country to country. Again, this is all well and good, but then debate the range, don't through out the most successful inflation management methodology yet seen in the world.

But the most frightening news was that of a debate that took place yesterday on nationalisation. Delegates to the ANC conference raised the possibility of nationalising Mittal Steel. Mittal bought ISCOR - an old parastatal - and gradually rebuilt an inefficient dirty apartheid era entity. Since then they have been found guilty of anti-competitive behaviour, charging import parity prices and benefiting from a monopoly position. However, they are now a top quartile low cost steel producer. The competition watchdog found them guilty of price fixing and fined them a substantial amount. That's how markets should work. Workers want them renationalised however. This together with the debate on shopping malls and their impac on traders in the townships. The focus here is jobs - or more specifically the mandate of Cosatu and the SACP.

And to me this is the danger of Zuma's presidency. He is beholden to the left. They voted him in and the ANC executive is now loaded with their sympathisers. There is almost a conflict of interests here. Cosatu and the SACP's focus is jobs for their members and the highest wages they can get. This is one part of the economy and has all the potential to ignite a wage price spiral. On a productivity / skill equivalent basis, South Africa has a tragically uncompetitive labour force. In order to create growth, grow exports, reduce the current account deficit, etc we have to increase output per rand of wages. To focus merely on the jobs and wages side of the equation ignores the prices paid by the consumer and the inevitable loss of competitiveness. Our textile industry offers the perfect case study. Which is more valuable - low price clothing for the poor or higher wages for textile workers? The first part of that debate is consistently ignored by trade unions. However, the impact of rising prices and the need for further increases in wages is not. Hence the wage price spiral.

In fact, unions prefer higher inflation as it allows them to negotiate higher nominal wage increases and they are then seen as having achieved more by their members. Witness the mass hysteria about single figure percentage increases in wages in the low inflation environment of the past decade. This illustrates perfectly why it takes many years to decrease wage push inflation.

One remarkable quote from that the above article:

A delegate to the commission said the minister and other senior leaders in the economics sphere do not explain why they do not agree with delegates’ suggestions for the re-nationalisation as well as a national state-owned mining company.

“The delegates felt it is needed because it would enable them to redistribute resources. But Mphalwa did not explain their reasons for opposing it properly. They might have access to information and obviously know more about international trends, but they don’t explain it to us.”

This is the legacy of the Mbeki years. Decision making in an aloof manner that has done nothing to build a shared understanding of good economic practice. If we are to recreate the South Korean miracle, there is much work to be done in educating the masses and aligning the nation.

The following sensible conclusion demonstrates that this is possible:

“People are seeing the mushrooming of shopping complexes coming up in townships and that is a negative thing because it is pushing out the small businesses and general dealers. But now there are Chinese and Pakistani people, coming in and taking over the small businesses and making a success of them.

“Where does the problem lie? Obviously there is a lack of skills and that might rather be the problem, not the fact that the big shops are coming up. Also, people these days don’t want general dealers, they want specialised shops, so that also takes them away from the general dealers,” the delegate said.

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