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The crux of the turmoil

You cannot be free when you are in debt.

SWELLENDAM – April Fool’s Day on the first has certainly lived up to its name. For around it, we have had a few weeks of utter folly – the price of which will be heavy and long lasting.

I need not recount the dramatic events here, save to lift out one satirical role play by former finance minister, Pravin Gordhan. Speaking at one of the Kathrada memorial functions, he took out a rand coin, dropped it and picked it up again. It was a skit on some political postulate that the currency can fall, because we simply have to pick it up again. Nothing should scare us more than runaway unrealistic expectations. The appalling lack of basic economic literacy, and incoherent populist rhetoric that emanates from it, is simply not recognised enough as a real threat to the well-being of ordinary South Africans. It is one thing when it is confined to an unschooled electorate. It is another when it is displayed and promoted by leadership up to cabinet level.  

At the same time, there is clearly much massaging of truth to suit a particular populist agenda. In large part, the principles of sound national economic policies are intuitively known by all of us and rest on simple logic. In my own training programmes at all levels of economic awareness, I was constantly reminded of just how intuitive and easily understood these basic principles are.

Understanding debt enslavement is a case in point. A lesson in life that we all quickly learn, including many of the social grant recipients and those who have their incomes garnished, is that you can never be free when you are in debt. This means simply that any aspiration for economic freedom, whether displayed in a march of red berets or as a cornerstone of socio-economic transformation, cannot be unencumbered unless there is a deliberate effort to reduce the nation’s indebtedness. Indeed it should be the first priority.

Albeit Utopian and impossible in the modern economy, imagine how different the entire context of the last few weeks would have been, if we were debt free – both as a nation and individuals. Debt plays no small part in personal motives. The urge to be “economically free” for many South Africans is prompted in good measure by the need to discard the chains of their personal debt. To receive some windfall from “radical transformation” is a tempting prospect.

And of course, the rating agency menace and the subsequent downgrades that shocked us all, would simply not have been an issue. I’ve always been somewhat critical of the rating agencies, particularly in the context of financial services, which has assumed an overwhelming, arguably somewhat parasitic, dominance in our global economic destiny. (See article here). However, political trashing of these agencies is not only disingenuous and counter-productive, but quite mischievous. They have their flaws, but they are after all, the referees of credit worthiness. The only way to escape their judgment is not to play the game by not wanting to use other people’s money.

While the cabinet reshuffle may have triggered the downgrades, it’s a moot point whether they could have been held off much longer: simply on the numbers of low economic growth, budget revenue collection shortfall, and a sovereign debt of more than half of GDP. This may sound counter-intuitive, but if I were looking for a positive note in the downgrades, it would be that it may just energise the nation to look at reducing debt dependence.

Then there’s another form of debt that cannot be ignored: that of investment in enterprises, property and other assets. The cost of that debt may be different from interest payment, but it exists nonetheless on expectations that have been held at the time that the investment was made regarding profits, dividends, rentals, and asset appreciation. Unilaterally changing the rules of the game is as much an assault on good faith as a debt default is. It will simply ensure a drying up of those investments, which are arguably far more important to sustainable growth and jobs than plunging ourselves into deeper debt.

All of the above does not support an enslavement to capital supremacy, but rather an appreciation of its vital enabling role in promoting enterprise and one of the three pillars of wealth creation – labour, capital and state.

Still on the subject of economic literacy, a puzzling note that I saw somewhere emanating from the ANC National Working committee (that infamous one where the party “closed ranks”); read “we cannot be dictated to by the markets.” Markets don’t dictate. They just are. If you want to engage them, as we have to as an open economy where foreign trade makes up more than 60% of GDP, then you have to play by its rules. Despite several flaws in ensuring unencumbered expressions of supply, demand, and of price purity and discovery, they still remain the best and only way of ensuring allocation of resources where they are most needed. Ultimately the question is simply who does one trust more in taking decisions that impact on our transactional lives: competitive private initiative or government?

Our economic cage has certainly been rattled quite disturbingly these last few weeks. Even some of our high profile economists are sharply divided between doom (see here) and tempered optimism (see here). For what it’s worth, exposure to some extreme economic crises in the past 50 years has left me with deep faith in the inherent resilience of the South African economy.

On the political front, one could not expect much else from the ruling party but to close ranks against what it saw as an onslaught against the party, rather than the president himself. The ANC is passionate about its brand and its tarnishing by one man is unlikely to be easily forgiven behind those closed ranks.

The keys to business sentiment, investor confidence and economic stability lie among others in:

  • Concerted and visible efforts to consolidate and reduce our debt.
  • Protection of private property rights as entrenched in the Constitution.
  • And a healthy respect for and understanding of market realities.

Nothing that has come from the ruling party’s official economic policy discussion document, as outlined by Enoch Godongwana last week, contradicts those imperatives. It remains to be seen whether it changes at the ANC policy conference in the coming months. In the meantime, the party has called for a galvanising of all interests to counter the effects of the past few weeks. 

That’s somewhat ironic when its leader is the most divisive, if not polarising force in the country today.

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All of which is completely lost on the vast majority who have no clue about rather complex economic matters and are simply living from hand to mouth. This clueless electorate then votes in a liberation movemment who in turn elects an even more clueless leader to the helm. How on earth can democracy ever hope to work in the third world?

Except for the words ‘liberation movement’, you have just described the USA…

Hahahaha.. I’m sorry there is no comparison here. The US is a 1st world country with an educated population (maybe not the best educated in the world, but up there). While there is a lot of Trump bashing going on, his heart is in the right place and he is doing what he thinks will be best for his COUNTRY. Plus he has to clean up the mess Obama left with resistance every step of the way from those “who know better”. At least there is one capitalist left in the world.

The biggest flaw of democracy is that the majority can be wrong

Yes. Democracy was born in Greece but Socrates was against democracy. He said that democracy cannot work unless people are well educated and few countries have well educated voters. Even in the USA its mostly smoke and mirrors, entertainment value and celebrity mania that drives the majority of voters. Americans are notoriously ignorant of world affairs.

That is why people must attack the corruption and not the ANC. Explain to the poor ANC voters that it is the ANC elite handing over power to Gupta and others that is forcing them to pay so much for everything. That the insane corruption is going to cost them their pension.

The ANC has sold them out and is being “colonised” by Gupta, Russian and others.

What has Zuma done that wasn’t done by Mbeki. At the end of Mbeki’s term Patrice Motsepe was a billionaire. At the end of Zuma’s term Atul Gupta will be a billionaire.

I left Suid-Afrika for Sydney when Mbeki was in charge and the rand was 9 to the dollar. Mbeki or Zuma – same thing.

The small minority who is truly “economically free” are those entrepreneurs who provide the majority, who frantically strive to enslave themselves, with the means to do so.

The owners(shareholders) of banks, micro-lenders, cellphone companies and satellite TV services provide the enslavement clients stand in line for, wish and pray for and even go as far as misrepresenting their actual situation for.

The part of society that strives for “economic freedom”, “social justice” and “material equality” is always ignorant to the fact that the strategy implemented to achieve their goals is actually driving them deeper into slavery, abuse, poverty and injustice.

Socialist strategies only creates more dependence and widens the wealth disparity. The owners(shareholders) of the retailers are the ultimate beneficiaries of the social grant payments.

Economic freedom can only be reached through education in economics. Education = Freedom. Books are cheap, and to read does not take any effort, so the fact that people do not read about financial matters only proves that they find comfort in slavery.

“The one thing we learn from history is that we do not learn from history.”
― Georg Wilhelm Friedrich Hegel

For some, it is easier to get a million doing nothing so another can make a billion.

Correct. Ignorance causes suffering and democracy cannot operate alongside voodoo. Democracy is a foreign concept to Africans but it is very useful for pulling the wool over the eyes of ignorant idealists in the West who have poured money into Africa for decades with nothing to show for it.

It makes no sense for a country to be carrying debt. The interest payments is a constant drain on the public purse.

Unless they use that debt to live the high life and then use the poor to stay in power.

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