PETER BRUCE: A lifeboat for the revolutionaries

This column caused quite the stir last week despite it being basically an attempt to help warn left-wing economists that they might be about to further the aims of state capture, as espoused by Ace Magashule, by continuing to argue for an expanded Reserve Bank mandate and a massive spending spree by the state with little regard for the inflationary effects.

I wrote it after watching Neil Coleman, co-director of the Institute for Economic Justice (IEJ), on television having Magashule’s statement after an ANC national executive committee (NEC) meeting read to him in a live interview with Vuyo Mvoko on eNCA; I was frightened at how enthusiastic he was about what Magashule was proposing. Because, as it turned out, Magashule had made a lot of the stuff about the Bank up, and it hadn’t been agreed at the NEC meeting. He had added it to the official statement and I assumed, in my innocence, that Coleman didn’t know.

Things got a bit rough — I was accused on social media of all sorts of stuff and Coleman was lauded for trying to make a really thoughtful contribution to economic debate. He had already written the first of a two-part series on new ideas for the economy for the Daily Maverick and I wondered whether, in the second, he would perhaps steer clear of Magashule’s hole.

Sadly, as it turned out, he jumped right in again, but in the meantime he had managed to throw a few insults my way via Twitter. “I didn’t respond to the scurrilous attack by Peter Bruce on progressive economists, & myself in particular, because I didn’t want to stoop to his level. This brilliant response by @mike1001Nsmith focuses on the NB issue — the need for genuine economic debate,” he tweeted.

I didn’t see that until later because he didn’t tag me in his tweet. But I did see one where he recommended that Business Day make free to read a series of articles on the economy that he found agreeable, so I tweeted, tagging him, asking if he thought the articles were worth giving away for nothing. I was just asking …

“No, yours can happily stay behind a paywall,” he tweeted in reply. “But these articles need to be made broadly accessible — they add value to the public discourse because they engage with real debates, not caricatures and childish smears.”

Jeez, Neil, I had no idea I’d smeared you. I was just trying to alert you to the precipice I thought you couldn’t see. If I’d wanted to smear you I would have had to assume you already knew exactly what Magashule had been doing when he read that statement. You didn’t, did you?

Anyway, I’ve never met Coleman or read him. Here are his two articles for Maverick:

Part One: Let’s build a new economy for the many, not just the few

Part Two: Building Blocks for a new economy

Like his co-director at the IEJ, Gilad Isaacs, it turns out, he writes very long articles, with footnotes. I get eight hundred words max. To these guys 800 words is an introductory paragraph. Like I say, we’ve never met but I did find this paragraph, something Coleman had written about me, also in Daily Maverick, in November 2014 when the minimum wage debate was raging.

“Peter Bruce weighed in the next day,” wrote Coleman back then, “in his usual understated way, repeating virtually verbatim what Montalto said: ‘A national minimum wage would create large swathes of new unemployment. It doesn’t matter. Cosatu wants it at R5,000 a month. Hell, if that’ll create jobs and boost spending and thus growth, why not make it R10,000 a month?’ (Business Day 7/11/14) And with that facile statement, presumably the debate is closed.”

Nice one there, Neil. You’ve obviously been a fan for a while. As a reward, I thought I’d pay you some respect and actually read part two of your Maverick series. I might quote it a bit.

You write: “In the first of this two-part series I argued that with the necessary bold thinking, political will and intelligent strategies, we can build an economy which benefits the many, and not just the few. Although our economic problems may seem intractable, various international experiences show that a dramatic social and economic turnaround is indeed possible.

“To achieve this, we need to avoid the recycling of outdated ideas, which have not succeeded in moving us forward over the past 25 years. The president, in particular, needs to give leadership on addressing this economic challenge, and engage relevant and fresh ideas, as he did in confronting the complexity of the land issue.

“We need to go beyond the debates on state capture, as critical as they are, to tackle the serious issue of moving the economy out of its current deep morass.” This last bit is Coleman brushing aside as a mere intellectual inconvenience that what he is about to say is what Magashule would really, seriously, want him to say.

And then I liked this bit: “We have many talented and progressive thinkers in the country — in universities, think tanks and civil society — on a variety of economic and social questions, whose ideas have often been marginalised because they don’t conform to conservative economic orthodoxy. Their creativity in solving our problems now needs to be harnessed. I outline some ideas here, and link to concrete policy proposals that have been made. These are by no means exhaustive, but show that it is a fallacy that progressives are not offering alternatives.”

By “progressive” thinking, left-wingers mean left-wing thinking, obviously.

“These proposals build on the three types of intervention that Part One argued should be introduced in a carefully sequenced manner, and implemented with the necessary boldness. These were: (i) a macroeconomic investment and stimulus package to get our economy going; (ii) a stabilisation package to protect the most vulnerable people, communities and sectors; and (iii) a package of measures to systemically transform our economy over the medium term. Naturally, some of the issues are overlapping.”

Sorry, I know this is really boring but we have to keep going. Here he goes again: “Of course, we need to debate where such additional funds may come from [really?] and we should not be reckless with the national purse. Our national debt, for instance, is not particularly high, but Eskom’s financial fragility is a real danger. Most importantly, this discussion should proceed from the basis that a fiscal stimulus is essential and not finding the funds is economic suicide.

“Third, we must make use of a broader range of appropriate tools. For instance, increasing interest rates most effectively targets inflation caused by ‘overheating’ (too much demand) in the local economy. South Africa’s inflation is largely ‘imported’ due to oil prices, exchange rate movements and other factors beyond our control. We are therefore relying on the wrong tool.

“The technical solutions involved in managing monetary policy require delicate balancing acts, but we cannot be dissuaded from debating the issue by pure assertions of inevitable economic catastrophe.”

So, repeating the lessons of history amounts to making assertions. This is where the Left begin to wobble. They claim to be victims or marginalised, but even when someone like Coleman is allowed acres of space to lay out an alternative, he doesn’t actually have one. We will find the money, um, somehow. No mention here of productivity or just doing our jobs properly.

What’s worse, what he does have are exactly what he passionately argues we need to avoid, remember? “We need to avoid the recycling of outdated ideas, which have not succeeded in moving us forward over the past 25 years.”

Inflation doesn’t matter much to Coleman, and, yes, we can talk about where the money for stimulus is going to come from, but you have to wait for what you somehow sense just has to follow all that ignoring of dangerous stuff. It comes as the first point in his “stabilisation package” to protect the vulnerable and the poor.

Can you guess what it is? “Interventions which improve people’s quality of life and reduce social distress, including action to contain costs of essentials (for example, food and transport) and improve services,” he says.

Yep, you guessed right. Price controls.

Now, I’m sorry but price controls are an idea about as fresh as a sumo wrestler’s bum after a workout. It’s Clement Attlee after Churchill, a rickety old socialist swerve around the inevitable outcome of targeting growth rather than prices. It doesn’t work. It is certainly not new. And it absolutely has to be avoided.

Once you cap the price of bread, what happens? You have to cap the price of flour, of wheat, of petrol. Before long you’re trying to control the prices of everything. And if you start subsidising instead of capping you end up in the same boat.

Sorry, Neil, but you have to find another way round this. The market has to work. I found this piece on price controls in The New York Times. I know it’s mere journalism but it might interest you. Then there is this study from Harvard. (I know, again I know, the Harvards of this world are part of the problem) on efforts to control prices in Argentina.

“Our results suggest,” the authors say, “that new technologies, such as the Internet and mobile phones, may allow governments to better enforce targeted price controls programs. Still, this does not make price controls an effective policy to reduce aggregate inflation, because the effects are short-lived and do not spill over to non-controlled goods. Furthermore, firms adjust to targeted price controls by using strategies that may obfuscate consumer options and increase price dispersion.”

I hope these links are useful to you, Neil. You included a number in part two of your contribution. One of them was a paper by Pamela Mondliwa in which she makes a point I have made at least 20 times in the past year: “Countries develop by changing the structure of the economy to move from sectors of low to high productivity and complexity and, within sectors, through upgrading to higher value-added activities. This is a process of structural transformation. South Africa has not made significant progress in transforming the structure of its economy and, by some measures, has in fact regressed. It has prematurely deindustrialised, with the contribution of manufacturing to GDP declining from 21% in 1994 to 13% in 2016.”

As you will know, that is straight out of the Ricardo Hausmann (Harvard) playbook, but, sadly, she doesn’t read it until the end, offering instead a detailed range of interventions that rely solely on the state getting its act together and helping business out more. Typical of “progressive thinking”, the solutions involve creating and then controlling a bewildering range of instruments to create an outcome.

It completely ignores the Hausmann thesis, which is that economic complexity grows out of investment and the personal exchange of skills from the skilled to the unskilled. They cannot be taught any other way except in person and by years of repetition. Yet she instead proposes a series of intricate “targeted interventions” which, if they are all implemented correctly, would result in an explosion of jobs.

“Improved competitiveness and investment in expanded capacity to meet growing regional demand means the trade balance would, instead of deteriorating, improve by 30% from a deficit of $5-billion (R65-billion) to $3.5-billion (R45-billion) between 2018 and 2023,” she writes.

“Given estimated growth in demand for machinery and equipment in SADC including South Africa of around 4% pa, this means output growth of approximately 40% higher than in 2018. Direct employment creation of 45,000 over three to five years (2023), with the multiplier meaning around 270,000 jobs being created in total. The impacts across electrical machinery and in the related value chains is substantially greater.”

Not going to happen, Neil. Those numbers remind me of the thumb-sucks Rob Davies used to do over at trade & industry every time he updated his absurdly meticulous industrial plan. He also had a million “interventions” that seemed to go nowhere.

The implication of her introduction that she ignores here is surely that we require an immigration regime that encourages skilled foreigners of whatever provenance to come and live and work here? But nowhere in your two lengthy articles do you mention immigration. Instead they carry the scent of isolation, of import substitution like in the old apartheid days. Old, broken ideas. Nothing new there, Neil. Nothing “fresh and relevant”.

Primarily, though, the arguments the Left are putting forward are fatally wounded by their disregard for inflation. It is all very well to argue for a new dispensation — we all want change that helps people out of poverty — but you cannot have your progressive cake and eat it. Your remedy triggers increases in the prices of everything and you can’t control it. Here’s what’s happening on your doorstep.

The Left and the centre have to find other ways. Whatever gets done here has to be done together or it will invite disaster. Deal with it. Ebrahim Patel reckons he can control prices though tougher competition regulations. Maybe. Some commentators disagree, but he would have been chuffed to read this cover story from The Economist late last year.

Having said all of that, Coleman is right when he says that our economy is dysfunctional. It needs fixing and, as he says, the fixing is complicated and multifaceted. But we differ on a fundamental thing — the role of the market in all of this. If you have the time to read him, have a drink every time you see the private sector being brought into the solutions he and his many links provide. You’ll be sober as a judge by the time you’ve read them all.

But without the private sector, without its support and its dynamism, no restructuring of our economy is possible. As a society, we are shaped almost entirely by the way we create wealth and the way we distribute it. It is not a pretty sight and it needs to change.

But that can only happen when all the elements of our society agree to sit down and listen to each other without tossing grenades from their respective trenches. Can we do that? The necessary condition for proper discussion, to have the “genuine debate” Coleman mentions in one of his tweets about me, is to recognise that we are in trouble, that there is no trust. If we can build trust we can do almost anything, and the harder it is the better we’ll end up if we do it together.