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Comment                                                                                14 February 2017

Unpacking some Packaging    

by Cees Bruggemans                 words 750

“Making America Great Again” and “America First” could easily be applied to South Africa, too, even if we would probably have to walk somewhat different paths. As the Trump presidency accelerates towards its stated goals, and given the potential fallout and implications also for SA, it might pay to unpack some of the packaging on display.

This is a populist President, living by simple hard-hitting slogans that resonate with his electorate. Its literal application may have some light as well as dark sides, as they would have in SA when applied here.

 

There are three dimensions that have come forcefully into view, deregulation, trade protection and migration. When sticking with populist prescriptions, how much fat is cut away, and how much muscle?

We undeniably live in a bureaucratic age, where regulation has mushroomed. In the case of SA, hundreds of new regulations have come into being, many of which may be questioned as to their economic impact.

In America, this may be even more prolific. When we therefore hear the populist cry of having to eliminate two old regulations for every new one introduced, or “we can cut 75% or more of all regulations & be better off”, this tends to resonate positively with an over-regulated population.

But these goals are one-sidedly presented, aimed at improving the business environment, making it easier, cheaper for business to operate, and prepared to take more risk, invest more, hire more labour.

There is most probably a very long list of superfluous regulations. But there is also much intended to protect the consumer, labour, the environment. Are all of those equally superfluous? And who will judge, business or some independent agency competent to do so?

With “fair trade” similar problems are encountered. The Trump slogan focuses on bringing jobs back to the old mining and industrial rust belts of middle North America. But that is a very limited definition of what is at issue.

By raising trade protection, and otherwise patriotically jawboning businesses to invest in the US, will costs to consumers go up, eroding their real incomes, and destroying jobs elsewhere in America and the world?

Does America really want manufacturing jobs back, a fading sector most radically hit by technological automation? Does the President know best which jobs to preserve or attract, or does the market place do a better job?

There is nothing wrong with the slogan “fair trade” if other countries “dump” below cost, or are prepared to trade less business regulation, taxes & protection for their labour and environment in favour of more jobs. These are conscious trade decisions, just as the insistence on examining the foundations of such trading relationships.

Both regarding regulation and trade, Trump isn't wrong about there being scope for right-sizing. But it is the manner in which one proceeds that will decide whether only excesses are addressed, or the culling knife goes much wider, at great economic and social expense.

Migration is the third populist leg on which Trump is trying to make his mark. The question is how they go about it. Foreign labour can be highly useful, as many countries and histories have shown, not only in the upper reaches of skills and talent, but even lowly seasonal workers in agriculture. Also in America.

The Trump electorate appears to want more severe measures. Terror activities are one dimension of late in focus. Criminal activities, especially the drug trade, another. Anyone without the right papers is now in focus, and the past two weeks even the right papers didn't help if from the “wrong” country of origin.

This is a drastic tightening of the rules. Not for the first time, of course. Up till the early 20th century, anyone could enter the US, provided not suffering from some disease. But nearly 100 years ago, with the flood from Southern Europe (Italy especially) steadily rising, the US Congress decided on restraining measures that greatly cut back the incoming stream.

In recent decades, millions of migrants from the south have changed American demographics, and have created resistance in parts of the electorate. It is this uncontrolled flooding and its social fallout that has increased intolerance.

Better regulation, trade rules and migration control would likely add to American welfare. But simplistic populist slogans may well hopelessly overdo it, resulting in unnecessary personal tragedy, but also loss of welfare generally.

It is for the American President to indicate where he wants reform, following his electorate. But hopefully common sense will prevail, where necessary reviewed by the courts, and of course the Congress which makes and passes the laws.

 

Cees Bruggemans

Bruggemans & Associates, Consulting Economists

 

Website www.bruggemans.co.za

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