Finance Minister Tito Mboweni’s Medium Term Budget Policy statement must certainly go down as one of the economic highlights of the past year. It reminds me of one of those mischievous moments when you are in a silent reverent group, and you scream hysterically: “FIRE!!”
Apart from load-shedding, the MTBPS’s sombre message was the ultimate party pooper – or perhaps funeral wake pooper. In retrospect, one can only wonder whether there was some ulterior motive other than signalling a very tough budget come February. Economists often forget, or perhaps even deny, that emotion and sentiment are more important economic drivers than maths, theories and statistics. One may take heed of Nobel laureate economist, Robert Shiller’s comments that “gossip, half-baked philosophy, and fake news drive economics — not only numbers”. Could South Africans be talking themselves to death?
I have argued previously that our own debt hysteria has to be tempered by the global context. But not so well bull-horned, perhaps for good reason, was a subtle throwing down of the gauntlet to labour. A conspiracy theorist could be forgiven for connecting some obscure dots between Mboweni’s message of doom and the South African Airways strike. Is organised labour flexing their much weakened muscles? It’s early days yet but much of the Minister’s stance seems to have been shaped on a textbook austerity approach that has had very mixed results elsewhere and that has contributed in no small measure to growing populism: polarising society between haves and have-nots and the establishment versus the rest: umbrellas in Hong Kong, yellow vests in France and ancient stones in Greece.
By its very nature, fiscal austerity logically and immediately cuts into GDP and slows down economic growth. Its benefits may be longer term, but the short term impact is often disruptive when it leads to job losses (civil servants and elsewhere); higher taxes; lower disposable incomes and reduced spending. One cannot dispute the need for the medicine. It’s the side effects that should concern us – especially if the medicine has to be swallowed by a powerful, ideologically driven, intransigent and angry labour bloc and the despairing unemployed. It is extremely lame to preach patience and endurance from an elitist podium to a hopeless mass. Democracy has shifted substantially from seats to the streets and planning solutions in plush offices at a centralised level are meaningless unless driven at ground and micro level. “Representation” is seldom that.
It’s a tired old refrain of mine but I might as well sing it again to the tune of auld lang syne.
Wealth creation is and always has been the outcome of contribution – creating something meaningful for others. That principle dates back hundreds of thousands, if not millions of years, when man first honed a rock into a hand axe. (See article here). It is the most enduring economic principle of all and gives us the real answer: easily understood and applicable at the lowest and smallest level of economic activity. It will ultimately rescue us. A large part of my writing, and my website has covered the detail.
It is no coincidence that the more we have moved away from adding value as the supreme principle of creating wealth and generating prosperity, the more we have created distortions and arguably many of the critical problems modern economies are facing. These include mountains of debt; over-financialisation and the ability to accumulate wealth without tangible effort; contamination of price discovery through overwhelming speculative and derivative markets; critical levels of inequality and the growing displacement of labour as a significant contributor to and beneficiary of wealth distribution, which in turn feeds market demand.
All it will take is to temper our pursuit of benefit and increase our pursuit of contribution. That means redefining our understanding of business, and indeed our economic system: away from the money and institutional paradigm to a relationship perspective based on serving each other. That is NOT a socialist view, but an evolved human perspective. The primary purpose of any enterprise is to serve its market. As the unfortunate industrial action at S.A.A. has shown us, nothing will bury a company deeper and more permanently than imposing its will on customers and letting them down.
Sound business principles are fully accommodated in having a common focus on wealth creation and ensuring optimum distribution that meets the legitimate expectations of all contributors and encourages continued contribution. That implies changing our view of labour from cost to contributor and treating them as such. In turn they have to behave as such. Through understanding, transparency and regular information sharing, expectations can become flexible and manageable. This has to happen at an enterprise or local level. It cannot be centralised. The most important principle rests on the axiom that any economic construct has to reflect the best of what we are and can be. Do we honestly believe we achieve that through appealing to the worst in us: greed, fear and insecurity?
The underlying prospect, or dream if you will, is quite simple. At one point the financial froth will be blown off the global cappuccino economy and with it many of the 1%. Albeit with much pain and discomfort, we will be left with the real economy — the actual coffee. We will be able to smell it and taste it again.
A return to wealth generation based on productive enterprise should place emerging economies, especially those with abundant resources, in a better position than they are now.