Subsidising Steel - Will it Work?

 

The South African Government has been engaged in the pros and cons of subsidizing the production of raw steel, even going to the extent of suggesting the possibility of providing preferred access to electricity for the purpose.  The discussion raises a number of fundamental questions that need to be answered before the Government takes this step of skewing the economy to a much greater extent than it has already done.

Steel production, like mining, is one of those activities undertaken by an economy in its early growth phase.  In a rational economy, the capital generated by the production and sale of raw steel is invested in plant to take the downstream manufacturing of the steel to ever-further stages.  Typically, the next phase is the production of tractors and ships, then the output of the manufacturing capability becomes increasingly sophisticated products, such as machine tools.  These more sophisticated products lead to the next stage in industrial development in a rapidly increasing upward spiral, until the advanced electronic controls become the main product, with the steel products being hung on them.  A BMW, in the words of a senior executive of that company nearly two decades ago, is a fancy computer system with automotive parts bolted on.  The original steel plant is no longer necessary, but is a useful facility.

Of course, this progress relies on a number of factors occurring at the same time.  It cannot happen at once, or even very quickly, and certainly not to order  The production of steel requires a low-cost, low-skilled labour force.  As this labour force becomes more sophisticated and skilled, and, of course, productive, so it becomes increasingly capable of the work required to be competitive in the higher-value add products.  The increasingly skilled labour force becomes better educated and better skilled, and the educational institutions, in the broad sense, become more effective in taking the better-educated labour potential and skilling, and up-skilling, it to meet the increasingly sophisticated requirements of the market and, of course, of the economy..  It is a mutually supporting progression, requiring that all parts of the economy move in the same direction at roughly the same speed.  And as it moves, it automatically takes the wages upward with it.

What has happened in South Africa is that the legislative framework, the labour cost add-on attributable to legislation, the Trades Unions influence, the guilt complex imposed on the successful industries, the hopelessly skewed transport system, the collapsed educational system, from schools through to technical training institutions and systems, all have moved in different directions, to put the country into a state of having high-technology labour costs and Third World infrastructure in the broad sense.  Any attempt to fiddle with the underpinnings of this unbalanced economy is bound to have surprise effects, similar to those that even the State President has admitted to in his State of the Nation addresses.  This is particularly so if the theory behind the fiddling is founded in the Communist Marxist-Stalinist principles of a centrally (mis‑)managed economy, as is so evident in South Africa. 

The Government should be told as forcefully as possible to keep its hands off an element as large as the steel industry, or the agricultural industry, or any of the other foundations of the economy.  The country cannot afford another round of bungling such as has been seen in ESKOM, SAA, Alexcor, Transnet, Spoornet, Education, Health, SANRAL, the South African Police Services, Local Government and all the others.  It cannot withstand the disasters that continue to pop their heads up wherever one looks.  Sooner or later, the economy will throw up its hands in despair, or, even worse, simply slide under the mud

There are some very clear priorities for the Government, and, in any rational society, those priorities would enjoy the entire focus of the Government.  It has an absolute obligation to work on these, and these alone, until the average thinking citizen would agree that the problems have been largely solved. 

·         These include Education, from early childhood to post-graduate and encompassing every aspect of a modern economy, skilled trades-people included.  There can be little doubt that this is the most pressing need in the country.  What we are trying to do in South Africa now is to run a Silicon Valley microchip plant with a rockdrill operator skillset.

·         They include Health, the proper and efficient operation of the public hospitals, before any thought can be given to smearing an expensive and almost certainly highly inefficient National Health Insurance scheme all over the cracks that now exist.  Mr Mantashe proudly claimed in his eulogy to Jacob Zuma that South Africa has overcome the AIDS crisis.  That is quite a statement, in the light of the country having only 1,3% of the world’s population and 17% of the AIDS victims!  Perhaps one may excuse Jacob Zuma for part of this situation – he was not the President who declared that AIDS is a syndrome, and syndromes don’t make you ill.  However, he did nothing to disabuse Thabo Mbeki, although he did take a shower after sex!

·         They include a Police Service that assures all citizens of safety and security in all normal conditions, without tens of billions being paid in each year as compensation for wrongful arrests, while the country suffers the highest rape and murder statistics in the world. 

·         They include an efficient transport system, including rail transport at an affordable cost, a road system that costs as little as possible to provide the road transport companies with reliable, good-quality and safe roads for transport where rail is not effective, and a public transport system that permits the voters to reach their places of employment without exposure to the daily carnage on the road caused by the taxi system.

·         They demand a Local Government that provides people with the opportunity to invest the money that they earn in houses that they build on land that has adequate services. 

 

There are other priorities that almost any responsible citizen will be able to identify without too much thought. 

There are also many activities and policies that seem to have become standard.  Every action of Government that we, the Citizens, permit the Government to do in our name must be subjected to careful scrutiny in the light of the basic priorities and their requirements.

·         They do not include frequent visits to foreign capitals by thousands of politicians and civil servants, none of whom seem to have much clue about how an economy works, and none of whom seems to return with new knowledge from the vast expenditure. 

·         They do not include hand-outs for the purpose of gathering votes, or palaces in the country, or huge purchases of munitions that have no greater purpose than providing a means to funnel large sums into the Swiss bank accounts of favoured politicians and their cohorts.

·         They do not include demanding that the platinum mines pay massively-increased wages and benefits to low-skilled mineworkers, simply because ‘they need more.’  A need for more payment is never a good reason to pay more, unless the increased payment will ensure that the underlying business is improved.  Failure to understand and observe this basis principle of economics will inevitably lead to a reduction in the labour force, as well as in the investment flowing into that activity.  The platinum mines and Goldfields recent move to separate its South African activities from the economic world mining are stark statements of a losing gamble, by the mineworkers and by the Government, against the world economic order.

·         They do not include a dramatic increase in the wages paid to agricultural workers without good reason.  The statement by Tony Ehrenreich to the effect that South African farmers must match world wages for farm labourers is an extremely simplistic, and, one suspects, dishonest, political stratagem by him.  True, South African grape pickers are poorly paid when compared with the United States, for example, but one can see why this is so when one watches the grape harvest on a 3 000 Ha wine farm in California, where a total of twenty workers, using expensive and highly sophisticated machines complete the harvest in six days!  Is this what Mr Ehrenreich is telling his ‘working class’ allies when he exhorts them to strike?

 

Given a Government that concentrates on doing its job correctly, honestly and efficiently, South Africa has the potential to become a world player.  You, Mr  and Mrs Citizen, have an obligation to hold them to that.