Political Parties – a Dictatorship?

 

To many, political parties are the epitome of Government in a democratic system.  The principle is that they roll up the views of the voters in a coherent way, enabling the Parliament to convert them to legislation that complies with the will of the majority.

But is that really so?

Far too often, the leader of a political party reaches that position by buying favours from colleagues, with promises of high position or of benefits in the form of hand-outs, of lucrative contracts or of personal honours once the leader has gained power.  Many times, the campaign to gain leadership is couched in a devout belief of the desire to improve the lot of one’s fellow man, to impose an economic order that will be more beneficial to the masses.  Most of these are no more than empty words.  In the African context, the ‘average voter’ does not have the mental equipment, the education or theoretical knowledge, to evaluate what the aspirant to the highest post is promising.  The choice becomes an evaluation, in personal terms, of the man and the promises.  A chant of ‘Yes we can’ has the ability to raise an unknown and untested Trade Unionist to the Presidency of the United States.  The donation of three cows to a village is enough to sway the chief of that village to ensure that the villagers vote for a man who has over seven hundred criminal charges against his name and a record of inability to manage his own finances.

How did this come about?

The Party system works by using groups of carefully selected Members to choose delegates to decide who will be the Party’s candidate.  Already at that stage, the elements of dictatorship become evident.  The most vociferous of the Members become members of the electoral body.  Once they are ensconced, they choose those who offer them the greatest benefit to go on to the next round of voting.  At that point, the real electorate is already being presented with a selected range of candidates to go to the next round.  The real wishes of the electorate are excluded, unless the person ultimately chosen is so wildly unpalatable to the electorate that they put their foot down at that point.  At this point, the election of the United States President, from a very small pool of potential, diverges from the South African system, in which the President is elected directly by the delegates, with no say at all by the wider electorate.  That is how it has been possible for the man who is probably amongst the least suitable to hold the highest office in South Africa to gain that position of power.  Once there, he has the power to dictate to the Party what will happen.  He has the power to ensure that anyone who does not toe the Party line (i.e. the line that he dictates) is disadvantaged, by being held back from rising through the ranks as a result of diligent and intelligent work, by losing government contracts, by being penalised by the South African Revenue Services, by being harassed by the Police.  He also has the ability and the power to dispense largesse from the public coffers, by appointment to lucrative positions in the ever-expanding Civil Service, by dispensing Government Grants, by directing development activity to the required position.

The office of State President is no longer a democratically-elected position, subject to the will of the people, and to the obligation to provide full explanations of expenditure and policies.  It is a dictatorship, in the worst traditions of African Independence.  It seems no longer to carry the prime obligation of complying with the Constitution, in law or in spirit.

Worrying signs of this progression are evident in the intention of the Minister of Defence to embark on another spending splurge on weapons and munitions that have no conceivable use in the context of South Africa, other than the generation of huge commissions to those in power and the entrenchment in the minds of the Generals that their best benefit will lie in the support of the Party against a transfer of power through the ballot box.  Another sign is the invasion of Parliament by the Police, a sign that the Party views its control of Parliament as a right.  Yet another sign is the slavish adoration of the Great Leader, Jacob Zuma, by the Party Members who, one after the other, stood in Parliament to proclaim that he had done no wrong in receiving a benefit in the hundreds of millions of Rands through the construction of his private residence at Nkandla, in the face of all the facts, the finding by a Constitutional watchdog, the Public Protector, and the cogent arguments by virtually every Member of the Opposition Parties.

The time has come for all South Africans to take stock of what their democracy, their grand achievement only twenty years ago, has become, and what it is well on the road to becoming.

Democracy and Taxes

http://today.moneyweb.co.za/article.php?id=793440&cid=2014-11-19#.VGwXy2PDvEJ

Democracy and Taxes

 

It has become standard in the modern world to separate the operations of Government from the people who pay the bills.  This situation is nowhere more evident than in the new South Africa.

It should be an essential understanding of Government that the people who make the laws and those who apply them are the servants of the people.  They are there at the will of the people, and they are paid by the taxpayers.  No matter how the machinations of Government are constructed, the taxpayers and the ordinary citizens are the ones who supply the money to keep them there.  South African Airways, although, supposedly run as a business (although there are no obvious signs of any real understanding of the principles of business in that organisation) is, in the final analysis, an organ of Government, and it will remain so until the Government chooses to divest itself of that millstone.  As long as there is any public investment in the corporation, it must be held to the rigid standards of good governance and transparency that should be applied to any organisation owned by the public.  Eskom is another example of an organisation established and funded by the people, by means of diversion of tax money to support it, by guarantees given by the State to enable it to borrow the funds that it says it needs, and by the payment by citizens and taxpayers for the services it provides.  The SABC and Sanral are yet other examples, and there are many more.  And there are as many examples of incompetence in the performance of their duties to provide the services they are supposed to perform, subterfuge, arrogance towards the public and dishonesty in their operations and their reporting to the public, who are their ultimate owners.

This situation has come about because the politicians have succeeded in their efforts to separate what they do from the decisions of those who pay for it.  The continual harping on the needs of the ‘poorest of the poor’ has succeeded in convincing the electorate, the taxpayers and the recipients of Government largess, that the prime objective of Government is to provide a security blanket for those who cannot provide for themselves or who will not take the steps that are necessary to provide for themselves.  Those good-hearted people, and those who see their best benefit lying in a system that provides for them, albeit poorly, without the necessity for them to do anything for it beyond casting a vote twice in every five years for the party that promises the most, fail to understand that the money must come from somewhere!  The vast bulk of employees do not understand that the money required to pay their salaries and wages does not magically appear in the bank account of the employer every payday.  They do not understand that their efforts on behalf of their employer are what ensures that the money is there to pay their wages.  Government, on the other hand, enjoys the situation that, if it needs money, it can simply take it from the taxpayers.  They do not understand the effort, the risk and the imagination it takes to earn the money that Government simply takes.  However, in the end, if Government fails to provide the conditions in which the taxpayers are able to earn that money, the flow of funds to the Government will simply dry up.  If the Airports Company simply increases the rents and levies payable by the companies operating at the airports, the cost of flying, an important element of the economic life of a country, will become too high to be justified by the benefit to the entrepreneur of those flights.  If the cost of electricity, an important indicator of the health of an economy, is simply pushed up because the State-owned monopoly supplier of electricity is incompetent to do the job, the industries and businesses that use electricity will simply close down.  If the cost of road transport escalates to almost double because the agency responsible to the construction and maintenance of the roads decides that it needs more money (a decision that is neither transparent nor honest, and very questionable in the light of the huge salaries and bonuses paid to senior executives who are manifestly incapable of doing their jobs), the tourist business will slow down, internal transport will ultimately die, and all of the businesses that rely on a good road transport system will fail, either spectacularly or miserably.  If the alternatives to all of these services are eliminated, either by Government edict or by incompetent and short-sighted management of the public-owned organisations that provide them (do not forget that Spoornet put a huge effort into destroying the long-distance rail service that was such an important factor in building the economy of the country in pre-ANC times), the alternative to road transport is severely restricted, and the collapse of the road transport system is facilitated.

Every thinking South African is aware of the rapidly increasing number and scope of the threats to the South African economy.  If they apply their minds, they can see that the country is sliding ever more quickly down the competitiveness slope, that even the basket-case economies in Africa and Asia are progressing more quickly and more sustainably than is South Africa.  Many economists and leaders of business and industry are expressing the view that South Africa is rushing towards the tipping point, beyond which it may not be able to recover without a lengthy period of traumatic economic surgery.  Several of the more realistic of these are already saying that the economy is beyond that point, that even an economically sane and competent new Government will have extreme difficulty in correcting the disasters that the Marxist-Leninist policies of the ANC are building.  Even worse, many of the top leaders in business are withholding comment in public, fearful of the punishment that will be meted out to them by the Party, a group of people who are increasingly adopting the North Korean imperative of unrelenting praise and glorification of the Great Leader, Jacob Zuma, from whom all largesse flows!  Those leaders of business are working quietly in the background to ensure that their businesses are insulated from the economic crash that they discuss in private.

Some economists who should know better, such as Ryk van Niekerk, feel compelled to state that the economy will not collapse, while they point out that the Government headed by Jacob Zuma is the worst Government South Africa has had to endure in over a hundred years.  One cannot help believing that the protestation that ‘things will get better’ stems more from a pious hope than from any understanding of the situation.  It is clear that things will not get better unless the people who pay the bills, the taxpayers, take urgent and effective action to recover control of how their money is spent. 

Thinking democrats, the people who believe that the Government they pay to do the work that they require and authorise must comply with their wishes, must take urgent steps to recover control of the Government from the politicians who see the country as their fiefdom.  They must take meaningful action to make the politicians understand that they are prepared to pay the taxes only if they are satisfied that those taxes are being applied, efficiently and effectively, and, above all, honestly, to achieving the objectives that are needed to ensure that the income that pays those taxes will continue, and will grow.

Nkandla - The End of Democracy in South Africa?

The Nkandla story has had thinking South Africans inflamed for many months, but never more so than during the debate in Parliament on the report of the committee investigating whether President Zuma should be held responsible for the cost of the upgrades to his private home, a bill that exceeds R246 000 000.  Predictably, the ANC Committee found that Zuma could not be held responsible.  Amidst all the rhetoric, several facts stand out clearly:

1.    In accordance with a Cabinet memorandum, itself a questionable method of controlling the excesses of Ministers and the President, Zuma was entitled to State funding for improvements to the security arrangements at his home.  Most of the expenditure did not relate to such security matters.

2.    Zuma appointed architect Minenhle Makhanya as his agent to oversee the construction.  Makhanya instructed that the upgrades were implemented.  In addition to this role being illegal in the process of expending public funds, an interesting point arises.  In South African law, an agent is a person appointed by the principal to act in his stead, and his actions are imputed to the principal as though the principal himself had so acted.  Zuma has claimed that he did not know what was happening at Nkandla.  Two conclusions may be drawn from this statement.  Either Zuma is clearly lying about his state of knowledge, because he was personally present on site on at least several occasions, and so could not have known at least the approximate extent of the expenditure, or he has acted in a way that is so negligent as to defy belief, a conclusion that is probably as damaging to him in his role as the Chief Executive of South Africa Inc. as the conclusion that he is a simple, and simple-minded, liar.  Or, probably, both.  However that is viewed, the simple fact is that the agent acted on behalf of Zuma, and Zuma must bear the consequences for those actions.

3.    Zuma has stated in Parliament that the total cost of the home was paid by the family from a mortgage loan, but he has consistently failed to provide any evidence of this.  Either he is lying about the mortgage loan, or the family has managed to scrape together R246 000 000 during his career as a politician.  Zuma is known to have had limited financial skills, so he must be a brilliant investor, or, more likely, the numerous allegations of his involvement in corruption are correct.  An investigation into his tax returns is likely to yield fascinating results, both in terms of how he earned the money, and whether he has paid the taxes on those earnings that he is so loudly demanding at the G20 should be paid by productive corporations.

4.    The funds that were used to pay for the upgrades were diverted from community projects, projects that were funded by vote of Parliament to uplift the ‘poorest of the poor’.  This diversion was handled in an underhanded way, which is, to say the least, illegal.  Zuma would have us believe that he had no knowledge of the source of such funding.  This alone is sufficient to demand his removal from office.

5.    Zuma has consistently refused to answer the questions of the Public Protector, an office established under the Constitution for the explicit purpose of protecting the public from the sort of excess and illegality represented by the actions of Zuma in this matter.  His refusal to answer questions, his lengthy delays in responding to the Public Protector, and his ignoring of the findings of the Public Protector are all in flagrant contempt of the Constitution, and are certainly grounds for his impeachment.

6.    Zuma has been protected by the ANC from having to appear to answer questions in Parliament about this matter.  His role as President does not put him above Parliament or the law, but enhances the need for him to provide the fullest information to the Representatives of the People.  His failure to fulfill that obligation shows the contempt in which he holds the Constitution and the organs that uphold it.

7.    The ANC is willing to go to extraordinary lengths to shield this man from his legal and moral obligations, and so must be construed to be complicit in his breaches of those obligations.

What should be concluded from this event?  Certain conclusions are inescapable.

1.    President Zuma will go down in history as the worst President ever to lead South Africa, Prime Minister Hendrick Verwoerd included.  He has brought the country to a new low of honesty, integrity and competence.

 

2.    The ANC has proven that even an advanced nation such as South Africa has the capability to become an African banana republic.  There is an increasing belief in South Africa, even amongst the Black population, that ‘things were better under Apartheid’!

3.    The outrage felt by the public, particularly the tax-paying public, in South Africa is such that the country has edged significantly closer to an outright revolution.  It is fair to say that the economic stability of the nation will be severely impacted by the fallout of the Nkandla Scandal, coming on top of the Arms Deal Cover-up and the Marikana affair.

4.    Thinking and moral investors will cross South Africa off the list of possible investment destinations, to the extent that that has not already been done.  They will see that it is a country in which no organ of State feels itself obliged to comply with the terms or the spirit of the Constitution, and therefore a place where the laws of the land no longer have any meaning other than what the ruling Party decides they have.  This has been a long time coming, twenty years in fact, but it has now reached the status of a new Apartheid, ignorance of property rights, extreme corruption, in which a loss to corruption of R30 billion is considered to be an improvement and a situation of more than two-thirds of municipalities fail to obtain a clean audit, a country in which the education system, if it can be said to exist at all, is ‘improved’ by adjustment of the pass mark to 30%.

5.    All of those South Africans who wish to live honest and productive lives will be looking for places to which they can emigrate.  It has been a disturbing trend in South Africa that people believe that the only way to succeed is to join the corrupt system, and feed off the incompetence that has been fostered by Zuma and his cronies.

6. The ANC has proven that democracy as a concept has no meaning in South Africa.  The Party is prepared to ignore all the safeguards that the Constitution has put in place to protect the people against the excesses of the political leaders and the dishonesty of the cadres they have appointed in positions of power.

If there is to be any hope for South Africa, President Zuma and his Cabinet, together with his Party, must be removed from office soon.  A five year wait until the next election is too long for the country to survive as a democracy.  In the meanwhile citizens should be alert to moves being made by the ANC to bring the military into the fold.  Remember, when the citizens revolt in Africa, the first step of the sitting dictator is to impose military rule. 

Certainly, that is unconstitutional, but who in the present Government has shown any regard for the Constitution?

State Criminality

One of the essential elements of a developing State is an insistence by the Government on the maintenance and observance of private property rights.  If a citizen is to exercise his or her ingenuity and invest funds and time in the development of new businesses and new ideas, that citizen has to have the assurance that the results will be available to him or her.  Would you take the trouble to grow a vegetable garden if you knew that the products would be taken by a passer-bye without even a ‘thank you’ for the trouble you have taken, the money and effort you have invested?  Of course you would not!  It is more likely that you would join the ranks of the thugs that prey on the far-sighted and hard-working citizens who become the victims.  Investing the money, the time, the effort and the risk required to create something that did not exist before, and would not exist apart from your effort, would make no sense.  If you had the drive to do it, the chances are that you would move to a different neighbourhood where you could retain the fruits of your effort, a neighbourhood where the prevailing view was that you should be rewarded for those efforts, where the people in control could recognise that what you take out of the work is a fitting reward for the contribution you make to the good of the community.  Soon, those neighbourhoods that supported the ‘rights’ of the thugs to take from the productive members of the community would be denuded of those creative and hardworking members who drive the economy of the community, leaving behind the parasites, the criminals and the leaders who permitted and encouraged the institutionalised criminality.  The neighbourhood that offers protection from deprivation of your rights will benefit by the addition of the efforts, skills and intelligence of those driven from the places where theft, in any form, is not only tolerated, but also undertaken by the authorities.

South Africa under the ‘leadership’ of the ANC, unfortunately, has come to view private ownership as evil, except, of course, when that ownership is in the hands of the Party favourites.  The change has taken place slowly, each step being promoted with plenty of rhetoric about the need to protect the ‘poorest of the poor’.  The private ownership of mineral rights has been taken away.  The right if a businessman to choose his employees has been compromised.  The contract between employer and employee has been skewed to the extent that an employee has all the rights and the employer none.  There is a plan to take 50% of the ownership of productive farms from the farmers who have invested the funds, the time and the ingenuity to build them to provide the food supplies to the nation, and to hand that share to the workers, without compensation to the farmers who have built them up to provide the nation with food.  The argument that the workers also built the farm is specious.  They were paid for their work, while the farmer took the risk, and, if the pay was not sufficient, they had the right to withdraw their labour and apply it elsewhwere.  The ownership of mines, banks, insurance companies and all other businesses of any size is required to be ‘shared’ with members of the ‘previously disadvantaged’ groups.  The fact that such transfer of ownership is paid for from the dividends received from the shares transferred is designed to confuse the gullible – it is a simple donation by the remaining shareholders of a part of the business and the income from it that would have flowed to them, in the absence of this State-sponsored criminality.  It is State-mandated theft.

Now the Department of Trade and Industry is embarking on the next phase of the theft.  It is planning to deprive the owners of the patents that are sorely needed in this country of their rights, by enforcing the granting of licences to use those patents at a low or zero licence fee.  Of course, this is done to benefit the ‘poorest of the poor’, so no-one can argue the morality of it.  We all know that the ‘poorest of the poor’ is a form of Holy territory, not to be exploited (except by the governing Party).  We all know that the benefits of those patents should be made available to the country, that we can’t afford to pay for their use, so the jackbooted Capitalists who invested their ingenuity, their time, their money to create those patents, must simply hand over the rights to use those patents at a price to be determined by the noble political leaders in the interests of the ‘poorest of the poor’.

To put the story in a context that even the most obtuse can understand, let us imagine that you, a hardworking man or woman, have sold a possession that has taken you half a lifetime to acquire.  You are walking down the street in South Africaville, the money in your pocket, when a thug steps out and sticks a gun in your face.  “Give me half of what you have in your pocket,” he says.  Surprised (or perhaps not – this is, after all, South Africaville) you respond.  “Why half?”  The thug looks at you earnestly.  “I’m being fair to you, to leave you with half of what you have worked for!”  He is surprised that you do not understand the fairness of his act.  After all, half is better than none!  “What right do you have to take half of what is mine?” you ask, flabbergasted.  “My friends all agree with me that I am entitled to take half of the fruits of your labour!  That is the democratic system!”

That is emphatically not the democratic system.  It is the socialistic system!  It is theft, pure and simple.  The fact that the majority of voters agree that the Government may act in a criminal way does not make it less criminal.  We need to evaluate our actions, and those of our Government, on an objective basis of right and wrong.  That objective basis must comply with the standards of the civilised world. 

As citizens of a country, we have an obligation to support the provision of certain services, such as (effective and honest) policing, the construction of roads (preferably roads that will not develop potholes in the first rainstorm), education (of a standard to make our children able to earn their own way in the world).  We do not have an obligation to pay a bloated, ineffective and corrupt Civil Service.  We do not have an obligation to pay for thirty-two Cabinet Ministers, none of whom seem to have any understanding that they are the servants of the people and, as such, they have an obligation to inform the people of what they are planning, what they have done in our behalf, and the real truth of the areas for which they are responsible.  As citizens, we are entitled to expect value for our money, and a true accounting of the use of it.  As citizens, we are entitled to retain all of the assets and income that we and our ancestors have worked for.

We are not the fiefdom of the ‘new royalty’, the band of thugs who believe that everything we own is ultimately the property of the State (a different way of describing the Association for Nepotism and Corruption), to be exploited for the benefit of the people who can’t or won’t work to produce their own income.  We are not a resource to be exploited by the Government for its own ends.

To revert to the proposed change in the laws relating to the rights of the owners of patents, it is clear that the ANC-led Government is determined to undermine the rights of ownership which are an essential of a law-abiding economy.  The proposed changes will continue to reduce the incentive for people to invest in the future, or, possibly worse, to move away to a new country which understands that an entrepreneur will invest only if he can reasonably expect to receive a return.  There will be an increase in the stagnation of the economy that is already evident, and the only likely promoters of a recovery from that stagnation will choose to escape to a more enlightened, more honest country.

Some of the readers have asked what can be done, in the face of a Government that is increasingly irrational in its actions to preserve the power of the ANC.  Short of an uprising by the enlightened citizenry, the obvious solution is to employ the tactics of Ghandi.  Apply passive resistance.  Make every action by Government as difficult as possible.  Raise objections to every tax, delay payments to Government, and compliance with its demands, as long as is possible under the law.  Talk to foreign investors and inform them of the true situation in the country.  Write to foreign newspapers to tell them of Nkandla, the Arms Deal, the deprivation of private rights of ownership, the new Apartheid, Marikana.  The greatest strength of the Marxists who are running the Government is the apathy of those who are being exploited by it.  The situation in South Africa will not improve unless the people who are supporting the policies of the Government by paying their taxes, tolls, levies, licence fees, airport taxes, electricity bills and the numerous other demands of Government and Government-owned organisations show their dislike of them.  In the end, the person who pays is entitled to call the shots.

The inevitable collapse

As the pending economic catastrophe continues to build, the Deputy President has joined the bandwagon, admitting that numerous mistakes have been made by ‘previous administrations’, and promising that the current bunch will do better.  Thinking South Africans will be excused for saying that they have heard it all before.  They did not believe it then, and they believe it even less now.  Perhaps the Honourable Deputy President should learn that the ANC of five, ten, fifteen or twenty years ago is the same ANC that continues to mismanage the once-strong South African economy.  The truth is that the ANC has demonstrated clearly that it has no ability to ensure the provision of the fundamentals necessary to build the country, but has chosen to use the country as a resource to build their personal wealth, in a fashion typical of numerous other African banana republics.

 

What are the fundamentals of a strong economy?

The first fundamental is an education system that produces children who are capable of working productively in the economy.  No-one, apart from the ANC, can claim that South Africa has that system.  The ‘improvements’ in the Matric pass rate have been achieved by reducing the pass rate to 30%!  Can you imagine driving over a bridge designed by an engineer who achieved 30% in Maths?  Can you imagine a coal storage bunker to hold 10 000 tons of material being designed by such a man, or a shopping mall?  Oops!  We have those examples!

The second fundamental is a civil service that is both competent and honest.  No-one, apart from the ANC, can claim that South Africa has that civil service.  The Deputy President has claimed proudly that nearly 30% of the municipalities have achieved a clean audit report!  Isn’t it remarkable that the pass rate on audit reports is the same as that required for a Matric?  In any civilized society, a government that achieves less than 100% clean audits for its activities would be thrown out at the next election, or, more likely, would take the honourable route of resigning and handing over the reins of government to a competent group of people.  Unfortunately, honour is a concept that is foreign to the ANC, as has been shown so clearly by the shenanigans of the State President.

The third fundamental is a government that the people trust, headed by a man of impeccable credentials.  The laws governing banks and insurance companies require that every senior officer and Director of such institutions should be a ‘fit and proper person’.  The standards used to determine this quality include history of conduct, relevant education, current competence and other similar factors.  On that basis, very few of our numerous Ministers and Deputy Ministers, not to mention the senior civil servants, would qualify.  Does that mean that the management of the country requires a lower standard of competence and integrity than the management of a bank or insurance company?

The fourth fundamental is that the government recognizes the needs for infrastructure investment and ensures that the requirements of the developing economy are met before they become bottlenecks.  Things like roads, rail systems, electricity supply, telephone and internet systems, postal service, are all essential elements of a modern economy.  Not one of those elements is met to anywhere near the level required by South Africa.  However, this cannot surprise anyone who understands that the State President was not aware of the R246 000 000 being spent on his personal estate!

The fifth fundamental is that the people of the country have a Government that they can, and do, trust.  South Africans have, unfortunately, become accustomed to the lies and dissimulations of the senior members of Government, their avoidance of pointed questions even in Parliament, their consistent unwillingness to comply with the law in relation to disclosure of information.  They have learned to question the motivations of the top people in everything they do, to the extent that a popular talk show host asked what the State President was doing in Russia recently.  The answer came a couple of days later, when Russia announced that it had signed a contract to supply R111 billions of nuclear power stations to South Africa!  In the climate of distrust that now prevails, the frenzied attempts by the Departments of Energy and Public Works to explain that these were really only pre-tender feelings out of the capabilities of possible suppliers all fell on deaf ears.  The question, however, remains unanswered.  What was the President doing in Russia? The events related to the Arms Deal are still creating ripples, regardless of the attempts by the Commission to paper over the cracks.

The sixth fundamental is that the government does what is required to ensure that as many people as possible are enabled to look after themselves.  With 17 000 000 grant recipients, living on the backs of 4 200 000 taxpayers, that can certainly not be said to be the case in South Africa!  Add to that the fact that 27% of all employees in South Africa are employed by the Government.  Experience of the competence of all forms of government must lead to the conclusion that at least half of those Government employees are in reality recipients of a different form of social grant.  It requires little intelligence to understand that this is a situation that cannot continue.  But then, intelligence is not one of the noteworthy attributes of the present Government.

 

It is clear that South Africa is on an accelerating decline.  The only question is how long it will take to collapse. 

The process of collapse will be painful to all in the country, and the longer it takes for that collapse to reach the nadir, the more pain will be suffered, and the longer and harder the recovery will be.  The Germans have a saying:  rather an end with suffering than suffering without end.  We collectively have the choice, to allow it all to continue, or to put an end to it, the right way or the hard way.  Perhaps it is time for those with their hands on economic power to stand up and say ‘No more!’  Perhaps it is time to recognise that this country belongs to the people who work to support it, not to the parasites who steal from the public.

The 2014 Interim Budget for South Africa

The Interim Budget Speech by the new Minister of Finance Nene was as unconvincing as intelligent South Africans have come to expect.  It repeated all the pious hopes uttered by previous Ministers, and by President Jacob Zuma, but it offered no new ideas or glimmers of hope.  And there is good reason why this should be so.

The underlying cause for the numerous problems that beset South Africa is very simple.  The governing Party is using its political power to buy votes.  It concentrates its efforts on ‘improving the lives of the poorest of the poor’, but, unfortunately, economic activity does not grow in that politicised sector.  Growth comes from business, industry and agriculture.  Government has put a large amount of effort into making doing business in South Africa more difficult, with numerous charges, levies, fees and innumerable reports and submissions to a multiplicity of Government bodies, none of which appear to have the capability to make any meaningful use of the data gathered.  The fact that the labour unions represent a large portion of the voter base for the ANC and the SACP has resulted in a very militant labour situation, with demands for high wages that do not reflect the low productivity of the workers, and an apparent inability on the part of Government to moderate such demands to accord with economic realities.  The demands for increased participation by the Black population in the management and ownership of existing businesses represents to huge threats to such businesses.  They result in a much higher cost of doing business.  The average businessman would be delighted to employ a Black worker at an appropriate level, but having to employ an under-qualified person to do a job merely to meet a quota requirement has two important results.  It makes that business uncompetitive, reducing its ability to compete internationally, and it drives up costs locally, becoming an important driver of inflation.  The need to ‘sell’ a substantial shareholding in the business also represents a sizable cost factor.  Regardless of the disingenuous protestations of the ANC politicians and their stooges, the canny investor knows what level of profit can be achieved from the investment.  Any action that reduces the net profit to the investor on his investment must be balanced by an increased level of profit, sufficient to make that investment an acceptable one.  Bear in mind, the ‘investment’ is not necessarily expressed in financial terms – it can also be the value of the business creator in terms of his ideas, skills, ingenuity and experience.  If the return on the investment is not sufficient for any reason, that investment will seek an alternative home.  This is certainly one of the reasons that so few new innovative businesses have been established in South Africa in recent years.  And foreign investors are not the suckers that the ANC seems to believe them to be.  They have followed the discussions regarding the handover of 50% of established farm businesses to the workers.  On the face of it, this is the sort of thing that would appeal to a Marxist Party member.  It makes a large handover to the voter base at no cost to the Government, it gives a wonderful ‘story’ at the next election, where the ANC will use it as a reason to be returned to power, and it provides a wonderful opportunity for the Party faithful, with large bank accounts derived from their Party affiliation, to rake off another substantial bite of the wealth presently owned by the Whites.  However, it ignores the fact that it is no more than institutionalised theft.  To take from a man, or a family, the farm that he has built up over generations, with personal effort, investment and risk, and to hand it to the employees without paying any compensation to the dispossessed owner, is no better than highway robbery.  It will result in farmers taking pre-emptive action to protect his assets and his source of income, as is already happening, and it will result in a catastrophic collapse of agricultural output.  More than two-thirds of farms already handed to Black farmers have failed, and there is no reason to believe that the new idea will work any better.  Already, the number of commercial farmers in South Africa has reduced from 62 000 when the ANC came to power to less than 25 000 today, drained by the continuing threat of farm killings, which the Government still fails to combat in any meaningful way, by the politically-inspired farm labour strikes which have driven up costs to an unaffordable level, and by the continued attack on this bastion of White effectiveness in the re-opening of Land Claims, and the new Zimbabwe-inspired theft of productive farms. 

Canny investors see the new idea, of legislating a requirement to hand over farms to employees without any compensation, as being the first signs of a new wave of dispossession of businesses and assets.  After all, if it is done in relation to farms, why should it not be done in relation to banks, insurance companies, IT firms, security firms and every other productive asset?  The short answer is that the ANC certainly has this in its long-term planning (next year or the year after, but, in any event, before the next general election, when it will be in dire need of another ‘good story to tell’).  Any intelligent investor will see the clouds on the horizon, and either get out while the going is good (consider Anglo American, Billiton, SA Breweries, Old Mutual and many others) or simply not come.  In the Consultancy business of which the writer is part, several reports written to evaluate South Africa, amongst other potential investment destinations, have concluded that it ranks low in practically every meaningful criterion – ease of doing business, honest dealing by Government, corruption, education stand of the workforce, worker productivity, energy cost and security, safety of employees, labour relations, security of repatriation of the investment, time required to get into business, and many other factors.  The result has been that the potential investors have elected to establish their businesses in other destinations.  An increasing number of companies which have already invested in South Africa have requested a similar evaluation of their investments, and an increasing proportion of them are withdrawing from the country.  These are not high-profile decisions.  The companies making them do not generally want to make a political statement, but the number of job losses is mounting, running to many thousands per year, and the unfortunate consequences of these decisions are mounting, as the investors, previously strong proponents of South Africa, have come to realise that this is no longer a place they wish to be, and spare no efforts to inform their colleagues of the reasons for the decisions.

It is time for the politicians running this country to realise that it is no longer possible to make political decisions based on their personal financial benefit.  They must now take the ‘radical’ steps of demanding that any person benefitting unjustly from a Government contract be brought to justice, serve jail time, be banned from any form of business with the Government and its bodies in the future, and be forced to refund any benefit unjustly received.  It is time that the Ministers and the State President accept that they are not kings and queens, but servants of the people, elected to work solely in the interests of the public, and subject to the Constitution and the laws that bind all of us.  It is time for politicians to understand that they represent all of the people, not only the constituents who elected them.  It is also time for the politicians to understand that, if they cannot come up with anything better that populist moves, the sole objective of which is to gain re-election, they must stand aside, to allow people who are competent to manage the economy.

There is not much time left to pull this country back from the brink of African mediocrity.

The Inflation Imperative

 

A factor has arisen that is starting to raise warning signals in the minds of those who understand the theory of economics, and particularly in those minds that experienced the world immediately post World War II.  It seems that the view has come to be accepted that inflation is not only necessary, but also desirable.  There can be no more deadly belief than this.

Inflation is sought by the CEO of the large corporations, whose inflated salaries are padded by the big bonuses based on the (monetary) value per share, and whose welfare, in the short term, depends on the (monetary) earnings of the companies they steer.

Inflation is loved by those who speculate on the Stock Exchange, because it permits the belief of never-ending share price increases.  It is a fundamental of the brokers on the Stock Exchange, who give learned statements on the investment value of companies, while their brokerage fees are based on the monetary value of the shares in those companies.  The recent boom on the Stock Exchanges of the world were partly the result of too much easy money chasing a short-term fixed supply of shares, caused to a large extent by the misguided boost in the supply of cheap money by the central banks, in the belief (hope?) that the funds being created would be channelled to assist cash-starved businesses to keep alive, to grow and to create more employment.  In fact, those funds were diverted to a very great extent into speculative activities on Stock Exchanges, leading to a widespread perception that stock exchange activity could be seen as a proxy for economic activity!  The cause of the boom in share prices is the very definition of inflation:  too much money chasing too few goods.  The sales of the companies being chased were increasing, the costs were being held down, and the profits mushroomed, leading the worldly-unwise mid-twenties traders to buy the shares.  After all, the share price was increasing.  Right?  It is true that the share price was increasing, but was the company’s intrinsic value increasing?  In many cases, the answer would have to be no.  Sales were galloping forward at ten or fifteen per cent per year, in money terms, but the number of loaves of bread being produced, the litres of milk sold, were stagnant.  The number of man-hours expended in production were not increasing, and may even have fallen.  The growth in sales represented nothing more than the increase in prices.  Consider this:  in 1967, a three bedroom house in a good middle class suburb of Sandton sold for R16 000.  In 2012, that same house, now nearly fifty years older, sold for R1 870 000.  A top-of the-range BMW cost R10 831 in 1974.  The top-of-the-range BMW today would cost in excess of R1 800 000.  Admittedly, it has better gadgets, fancier trim, but 16 000% more value?  A two-litre bottle of milk cost R16 two years ago, today R24.  The cost of a driver’s licence renewal rose from R150 five years ago to R224 now.  The financial world is fond of the Government official rate of inflation, which, today, is stated at about 6,5% p.a., but ask the man in the street what his experience of inflation is.  The answer is likely to come back at between 15% and 20%.  The official rate of inflation has very little to do with what the people actually experience in their daily shopping.

What does this mean for investment (not the JSE variant, which is no more than an institutionalised form of slot machine)?  Investment means the purchase of productive assets by the use of saved funds.  The saved funds may be the money presently available, or it may be the funds that will be saved in the future from earnings in order to repay the loans taken today.  Investment happens when businessmen and –women see an opportunity to earn a profit by taking a risk now in the expectation that the investment made today will generate an increase in their earnings in the future.  They will not take that risk unless they are confident that the investment will continue to generate an excess of income over costs in the future.  That will not be the expectation when they believe, usually on the basis of experience, that the costs will gallop ahead faster than the increase in value of the production of the investment.  And that happens, of course, when the cost of staying alive is increasing more rapidly than the earnings of the people doing the buying.  That is what inflation does.  In the short term, people compensate for their shortfall in earnings by maintaining their desired level of expenditure by using credit wherever possible, but the day of reckoning will come, when the credit has to be repaid, and the asset has been consumed.  Credit is an inflation-generator of note.  The banks give out a multiple of the savings flowing into them, and the difference between the two represents an increase in the supply of money.  The classical definition of ‘inflation’ is ‘too much money chasing too few goods’.  The cycle is apparently endless.  The increased sales (or the maintenance of a level of sales not warranted by the earnings of the buyers) goes into the banks, to be re-lent at a multiple of the amount notionally saved, to finance the consumption expenditure.  More money is chasing the same amount of goods.  Unfortunately, the cycle is not endless.  It comes to an end, when manufacturers recognise that the end is in sight, or when the fiscus decides to step in and soak up some of the excess profits generated, or when Janet Yelland decides to warn the ‘investing’ public that stocks are over-valued.  Whatever the reason, the cycle stops, usually abruptly and often catastrophically, and the resultant cutback in consumer spending progresses speedily to retrenchments of bottom-level employees (any management consultant will tell you how management can never believe that the true source of cost increases is the incompetence and surfeit of management staff, usually at the top.  You need only look at the expenditure of Government on salaries and wages to see this!).  That results in an avalanche of spending reductions and job losses – the Negative Multiplier Effect, in which the loss of one job leads to the resultant loss of between eight and twelve other jobs, in a repeating cycle.  It does not require many months for the loss of one hundred jobs to result in the loss of ten thousand jobs, as the unemployed stop buying shoes, going to a restaurant for a pleasant meal or skip a haircut for another month, to stretch the available funds to buy another loaf of bread for the family, instead of the mince they would have bought last year.

Inflation is also dearly beloved by the fiscus.  Ever-increasing prices mean more VAT revenue, increasing wages mean more PAYE revenue, increasing profits mean more company taxation, increasing dividends mean more Company Tax revenue, increasing nominal prices mean more Property Taxes and Estate Duty.  All of this adds fuel to the fires of the Government, who are more than delighted to spend this increased tax revenue on things that buy votes and that add to their Swiss bank accounts.  Remember how smug Pravin Gordhan was when he begged for applause at his announcement that the annual budget was now more than one trillion Rands?  Of course, the increasing revenue flow makes the economy look stronger, particularly when compared with the artificially low stated rate of inflation, and that calls in more trillions of loans, often denominated in US Dollars or Euros, paying a rate of interest double or more of that for US bonds.  When the crash comes, as it surely will, those loans will attract interest at a much higher real rate, because of the crash of the SA Rand, and the repayment will cost fifty per cent more in Rand terms.  Does this scenario start making sense to you in the light of what is happening now?  The Government, unwilling to cut back on its wasteful pork-barrel expenditure, will continue to borrow, at ever-increasing rates in the face of declining security ratings.  The end result will be that our children and grandchildren will be repaying the debt that we allowed our Government to heap up on the hope that the cycle will go on forever.

What inflation does is debase the value of our real investments in the past.  It wipes away the benefits of frugality in our early years, making all of us poorer in later years.  It disincentivises saving, because we all know that R100 put away today will have the spending power of R1 when we reach retirement.  That knowledge says to us ‘Spend today on a high life, because there is no hope that you will be able to afford the little luxuries you forego today when you reach retirement.’  A current Liberty Life ad tells us of how the father of the founder had to live on a pension of R28 per month in 1965.  What it does not say is that the Legal Advisor of a major corporation started work in that year, with two university degrees, at a salary of R130 per month.  If that person were to start the same job today at a salary of R50 000 per month, the pension of Mr Gordon senior, on the same scale, would be R10 769 per month.  Not an exciting pension, but it demonstrates clearly the effect of inflation!  In order to earn that pension, at an assumed rate of earnings (by no means guaranteed!) of 8% p.a., his pension investment fund would have to stand at a current value of R1 615 000, or 103 500% of our young graduate’s annual salary in that year.  And don’t forget, two degrees is somewhat more than the start capital of most 22-year olds!

What inflation does is force us to pay more for the same value, more for our milk, more for our houses.  If you doubt the real meaning of that, look at the price of a Cadbury chocolate bar.  A year ago, a 200 gram slab cost R15, now a slab costs R22, and the mass is only 150 grams.  The cost has increased by 46% for a slab, and the value has decreased by 25% - our inflation rate of ‘6,5%’ has generated an increase of nearly 100% in the cost per unit of value in only one year!

Industrialists recognise the cycle of slowdown, far in advance of the Stock Exchange pundits and the Reserve Bank experts, none of whom seem to understand basic economics.  They understand that things are not likely to continue in the same blind, bling way.  They hold back on buying new productive equipment, believing that it is likely to stand at least semi-idle in the near future, while the cost of the capital invested continues to drain their resources, the reserves that they will need to survive the bleak years after the economic collapse.  They prefer to maximise profits now and hold onto the cash.  That, of course, aggravates the situation, but it is the prudent thing to do.  When the time comes, the cash will be available to acquire assets or even whole companies at knockdown values, while the less prudent, or less-experienced, will be banging on the doors of the banks for the funds they desperately need to keep in business.  The banks, in turn, will be banging on the doors of Government, demanding bail-out money, threatening the collapse of the economy, a situation that they were instrumental in creating, if public funds, in the form of investment are not made available (remember African Bank?) or lower interest rates or quantitative easing (read the inflationary creation of unbacked, fiat money), or preferably all three.  All of that, of course, will come from the wallet of the taxpayer, from you and me.

And the person at the end of the chain is the blue-eyed, rosy spectacle-wearing man in the street, who allowed it all to happen.