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Comment                                                                                2 April 2017

Playing fast & loose    

by Cees Bruggemans                 words 400

Watching Charlie Rose one evening last week, there was Larry Summers saying something profoundly relevant: “improved business confidence is the cheapest form of economic stimulus”.

You don't have to create exceptional incentives that cost more than you think to get the economy going. Or as Chris Stals once put it: “less is more”.

 

Of course, if your focus isn't on working through the private market economy but to bypass it wherever possible through direct government intervention, we are missing each other completely.

And that is the modern South Africa, already for many years. Government is busy with building some central authority paradise and squeezing out private business where it can. No wonder that business holds back, on risk-taking and investment, with private sector employment levels slowly fading.

But in our case, like a few select others around the world, such as Venezuela, the game is yet more intricate. A ruling political clique has captured the state and together with select business friends are apparently intent on a very special redistribution of the national income & wealth.

Instead of the general population benefiting most, the redistribution is increasingly narrowly intended. This is wonderful for the families so favoured, who show their new found wealth at every opportunity. It is less beneficial for those who remain outside this very select circle.

For them, either their tax burden is going up steadily, or their poverty remains largely unaddressed, through unemployment and squatter settlement living.

Both those whose real income and wealth is being whittled away, and those who are prevented from attaining a better life, tend to experience rising levels of frustration and anger, as can be observed in our daily news flow.

Yet political loyalty can be stronger than any other form of bondage, for many historical reasons. And this is capable of maintaining the democratic support for this new order as described.

It isn't a country that will experience much economic growth or productive job growth, or one in which social satisfaction will be rising.

It isn't beyond the capability of such a country to restart its engines, and maintain a much faster pace of social and economic development. For the resources are there. What is missing is the will, for the incentive structure has been completely distorted.

One needs to await further evolution of the political system to be able to identify why it should go better with the economy, too. That for now is not possible.

 

Cees Bruggemans

Bruggemans & Associates, Consulting Economists

 

Website www.bruggemans.co.za

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