Changing economics

THE RECESSION may be officially over, but its effect on unemployment and the economic pressure on the citizens of the country is now at its worst.

There are probably very few South Africans who will disagree with Cosatu general secretary Zwelinzima Vavi when he says the country is in a crisis and that the economy should be regarded in a completely different way.

The lowest official unemployment figure during the upturn was just over 23%. No government can survive such a high unemployment rate in the long term - and South Africa has had to cope with it for more than two decades.

Vavi said last week that social unrest and racial violence are symptoms of the serious economic crisis being experienced by the country.

"We have to find a completely new way of thinking about the economy. We can't continue with approaches that don't work. We are simply unable to break the back of unemployment, not even with the best conceivable intentions," he said.

Meanwhile Business Leadership South Africa (BLSA) said last week there was room for considerably wider economic talks under the Zuma government. BLSA will be exploiting this.

In the same vein, Cosatu will presumably announce a strategic plan this week in which it prepares the way for a considerably broader consultation process, which includes the business community. Its proposals for this are fairly predictable: an easing of monetary (lower interest rates) and fiscal policy in order to encourage industrial development and investment in infrastructure.

Fiscal policy has in fact already been eased, but arguments for interest rate adjustments are becoming stronger. Research by the University of Pretoria's African Institute for Economic Modelling (Afrinem), Unisa's Bureau for Market Research (BMR) and Dynamic Wealth indicates a "structural inflation rate" of 5%. Structural inflation is inflation that is not related to demand in the economy and therefore does not respond to interest rate changes. It should therefore really be excluded from inflationary targets.

This confirms Cosatu's argument over many years that interest rates are far too high to allow the economy to reach its full growth potential and that our interest rates not only curb inflation, but also economic growth.

In other words, our inflationary target of between 3% and 6% is far too low to be sustainable. The lower inflationary target should actually be above 5%. Paper is patient, but Afrinem and the BMR are highly respected economic analysts. It will be difficult to ignore their research.

Critical look

There's little doubt that this will land on the table when Reserve Bank Governor Gill Marcus and Finance Minister Pravin Gordhan meet for talks on monetary policy.

So it's a given that macro-economic policy will be discussed seriously next year and that changes are highly likely. Those who advocate inflationary targets will have to take a critical look at their own reasons.

It seems as if BLSA, which consists of the country's 60 largest companies, has realised that a vacuum has developed in the organised business sector as a result of race-sensitive issues and other problems in Business South Africa (Busa). BLSA will hopefully fill this gap.

Will the greater business sector realise that there will at least have to be changes in monetary policy?

If the Zuma government wants to make its economic mark on the country, real social dialogue will have to take place between government, business and labour on this question.

All three of these groups will have to rid themselves of their ideological prejudices and unite in search of rational solutions.

Apart from monetary and fiscal policy, it's clear that the country is heading for an enormous energy bottleneck, and we are very far from a solution. It will be a long process that will have to be applied over years, perhaps even decades.

It's going to be very expensive and will cost money that the country simply doesn't have.

There will be no solution without enormous input by the private sector.

Is Cosatu mature enough not to place ideological hurdles in the way of the resolution of our energy problems?

Useless public service

Vavi himself made remarkable admissions last week about the terrible state of affairs in the public service. The public service is in fact useless. A state in which the government influences the pace and direction of economic growth, is impossible without efficiency and excellence in the public service.

There are many reasons for the collapse of the public service. One of them is cadre deployment - that is, nepotism. Another is the overprotection of civil servants who make a mockery of discipline in the public service.

Even before the first democratic elections in 1994, civil servants enjoyed exceptional protection, and even then it was difficult to dismiss inefficient officials. Since 1994 civil servants have enjoyed full trade-union rights, and today it's virtually impossible to dismiss an official. Any attempts at doing so are extremely expensive, because suspended officials usually enjoy full payment until their disciplinary hearings are finalised, which can take two years or longer.

The four major Cosatu-affiliated public service trade unions - Sadtu (teaching), Nehawu (general workers), Denosa (nursing) and Popcru (police and corrective services) - play a major role in the overprotection of officials.

Will they have the courage of their convictions to be honest in weighing up their own interests against those of the country?

2010 is going to be an exciting year.

- Fin24.com