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Africa Brief                                                                             22 January 2017

The Banality of Binary     

by Cees Bruggemans                   words 860

It is a stark choice, the one between two extremes. Yet SA is facing exactly that this is year regarding the choice of its next leadership. Between the extension of a patronage state, in which a small elite sees the entire economy at its service; as compared to a return of serving people and country, for a better life for all.

But this sense of a binary is playing out on a far greater canvas, too. For it is essentially what President Trump is offering America, and beyond it to a far greater watching world. The difference between outstanding success or failure.

 

It would seem the choice for ANC leadership is already a two-horse race, even if more names remain game. We can't be entirely sure what type of leadership either leading candidate would give us, even if speculation on this score is rife.

As with past political candidates, we have to experience their mode of leadership to know whether the burdens will get bigger, or whether achievement will again become the new hallmark.

In a much greater respect, similar starkness faces the larger world in a single individual, the unpredictable, unconventional Trump.

Viable democracies hate imbalances. They work towards fading them. However, sometimes imbalances have to get very big for disenchantment to overcome established power structures. The rich world seems to be going through such a phase, where many have been successful in life, but many have been left behind, economically and socially. Enough to lead to election upsets and for unknown political quantities to come to the fore.

Trump is such a quantity. A Dollar billionaire various times over, a showman of many years standing, a man who has known how to perfect a personal brand, but also someone of outrageous statements, and possibly inclinations. It certainly drew the attention of the US electorate, and enough liked what they heard. This one would change the status quo for sure.

But having honed the populist slogans (Making America Great Again; jobs, jobs, jobs, giving back self-respect and middle-class incomes, America First), with the implied building blocs (tax cuts, infrastructure spending, deregulation, trade protection, migration), the devil they say is in the detail.

Trump comes across as a wild man, speaking to the moment. But does he have a viable plan, well thought out? And will his cabinet prove capable of delivering, and Congress of supporting, what he decrees?

The domestic binary potential here takes the breath away, as do the first broad brush attempts of climbing aboard the geopolitical stage.

At first blush, tax cuts and infrastructure spending will lift growth. So would deregulation as businesses find their lives becoming easier to navigate. It would lift earnings streams, something equity markets love.

The American electorate took 18 months to render a verdict. Even though Clinton won the popular vote (by a margin of nearly three million), Trump played the states with great shrewdness and collected more electoral votes, clinching the presidency.

Equity markets took a mere few hours to figure this one. Those caught short burned (Dow Jones futures down 800 points on election night) after which the long climbing triumph began. The man had been elected. He promised tax cuts and deregulation. Buy on the expectation this is for real. And that lasted two full months. But markets in the end need more oxygen to keep going.

Even before inauguration, disappointment set in. The first post-election conference didn't cut it. This doesn't mean that there could not still be delivery, once the presidency starts rolling, good men and women all. But there is some doubt.

America doesn't really need a fiscal push. Its recuperation is advanced enough to start maturing. But its supplyside could do with more. Trump has promised the down-and-out coal miners redemption from new coal efforts. What there should be is a lot more focus on human capital, even in rich America.

Trump’s policy efforts may generate some more growth, but may not succeed in addressing longer-term structural ills. Meanwhile, much short-term damage could be done to global trade. Fiscal deficits could rise, and so too the national debt. Visions may not materialise. Disappointment may set in. And this over and above the daily noise of scandal and counter thrust.

Meanwhile, global moves may turn out to be brilliant as compared to disastrous. Telling China a One-China policy is no longer acceptable, while apparently willing to harshly disrupt trade. Telling Russia’s Putin that deals can be done and done away with hurting sanctions. Telling Europe it can only fail, considering its migration policy, with Germany the main target, and telling NATO partners that everyone has to pay their fair share (or else…).

Turning the existing world order, traceable to the Nixon-Kissinger efforts of the 1970s, up side down, and inviting increasingly angry retorts.

All of this could work, in some respects, for America, and make Trump even more popular. On the other hand, there is much here that could go the way of the Dodo, too.

For SA, the risks are many. Upside would be more global growth. But downside would be trade interference, increased uncertainty, higher interest and bond rates, more currency instability, and this feeding through our fragile system, too.

 

Cees Bruggemans                                                                          

Bruggemans & Associates Consulting Economists

 

Website www.bruggemans.co.za

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