The DA has come up with a seven point plan to fix the economy now that it has entered its first recession since 2009.
According to the DA this is the fifth year in a row that South Africans have been in a recession on a per capita basis, and amongst the world’s biggest economies we’re the only one that is in recession.
The DA’s plan for getting us out of this mess is as follows:
Scrap reckless economic policies like the proposed nationalisation of the Reserve Bank and the undermining of property rights through expropriation without compensation.
Announce the privatisation, or part privatisation of SAA, and the split of Eskom into separate power production and distribution businesses.
End Eskom’s monopoly and allow cities to purchase directly from independent power producers, increasing competition and lowering costs.
Introduce a fiscal austerity package to contain current spending and stabilise national debt at 50% of GDP. Commit to funding any further revenue shortfalls by cutting wasteful expenditure, not through new taxes.
Cut the size of the Cabinet to around 15 ministries.
Exempt small businesses employing fewer than 250 employees from complying with restrictive labour legislation, other than the basic conditions of employment.
Immediately pay all outstanding invoices owed to small businesses from National and Provincial Governments, amounting to a fiscal stimulus for small businesses of R 20.7 billion and R 7.1 billion respectively.
This to me illustrates why the DA would be a disaster if they were to ever win the general elections.
The second point, privatising SAA doesn’t work because the ANC tried that, and nobody wants to buy it.
To privatise SAA would require getting it into a salable position and once you’ve done that, you may as well continue running it because now it is in a position to make profits.
But that is not the real big problem I have here. The big problem is point 4.
Austerity does not work. Brown University’s professor of political economy Mark Blyth released a video explaining why in 2010.
Okay so he’s talking about the situation leading up to the global recession, but in South Africa we’re not that far off.
eNCA in January published an article warning about how indebted South Africans are. It isn’t the smartest bit of economics on their part, we’re more in debt because of low income rates and high unemployment not despite it, but it shows we’ve got a bit of a personal debt problem.
Not only that, but what Blyth is talking about with which end of the economic spectrum is going to get the punishment from austerity programs? Our financial crisis right now was largely driven by state capture.
The people who were capturing the state aren’t the ones who rely on government funded social services.
Worse, look at point 6 on the DA’s plan. At the same time that they want to cut government spending, they also want to undermine labour rights, meaning that the working class ends up with less money, or less security making them more reluctant to spend.
Morally this disgusts me. Why should workers essentially be expected to shoulder the burden of funding a business in its start-up phase, when they’re not the ones who are going to get the profits? Why should the workers go hungry for the boss’ benefit? The whole point to why business owners get the profit is because they’re the ones investing and taking the risk – but this policy shifts that burden to the employees.
But justice concerns aside, what it means is you’re cutting government debt at the same time that you’re weakening labour’s buying power – who is going to buy the goods? Where does the demand come into our economy here?
We’ve got trade wars going on right now – we can’t rely on an export market.
If you look at the Greek crisis – every bailout in Greece was joined to harsh austerity measures.
Greece is Back in the Markets – revisited. Nice pic from Llewellyn Consulting that put this in perspective. Y is real GDP X is Years. Reality, not fantasy. pic.twitter.com/cZ6McOwz6Q
— Mark Blyth (@MkBlyth) August 31, 2018
There isn’t much recovery going on there is there?
Not only that, but austerity doesn’t actually lead to lower national debt. The reason for this is that government spending is often all about the ounce of prevention being better than the pound of cure.
This is why America spends much more on healthcare than Europe does – universal healthcare drops the costs because you get various benefits such as herd immunity and health problems getting caught in regular doctor’s visits before they become disasters.
Healthcare isn’t the only sector where this comes into play. If we spend more on social welfare, we can get away with spending less on prisons for example. Improving prison conditions can lower recidivism meaning we need fewer prisons.
Spending more on giving everybody access to clean water, means spending less on people getting sick, and decreases the cost to productivity that comes from that.
A study released earlier this year in the journal Social Work Research found that childhood poverty cost the US about 5.4% of its GDP.
If childhood poverty is costing America over 5% of its GDP, how much is it costing us? This is not a problem that can be solved with austerity, because a reluctance to spend means a reluctance to invest in the things which actually lower our costs.
It is similar to businesses that operate on outdated computers – the cost of repairing those computers is generally more than buying a new and better one, but they’ll keep repairing them because they cannot justify the expense of the new equipment.
To repair the damage done by decades of neglect by the ANC is going to be expensive. Investigators and auditors are going to need to be paid, creating internal controls to restrict the damage any individual can do in any department is going to cost money, and it will cost money to enforce any of the findings involved in this.
If we are going to fix it, it is going to mean higher taxes, but that isn’t a huge problem.
Right now in South Africa we pay a lot of off-the-book taxes. The cost of security, the cost of medical aids, the cost of private schooling, the cost of sick days, the cost of “black tax” – these are all state functions that we are essentially paying for twice because the state isn’t performing its functions to a satisfactory level.
If higher taxes means systems in place to prevent the massive theft and corruption we’ve seen over the past two decades, if it means the money gets spent where it is needed and our services become genuinely good – it would still be a net saving on the consumer side.