Five wishes for the new year
I’ve always struggled with New Year’s resolutions. The struggle wasn’t so much in actually achieving the resolutions, but thinking about new one’s every year was tiring (especially when you’re supposed to be on holiday). So I’ve decided to just stick with my only one last year: In 2012, I decided to never read News24 comments again, and managed to hold out until February. This year I’ll aim for March. Unless news sites disable comments, or South Africans miraculously become literate and open-minded, I won’t have to think of a New Year’s resolution ever again.
Instead, this year I’ve decided to make a list of five things that would make South Africa better. There are constraints: I’m not allowed to say fluffy things, like wishing for greater social cohesion, or less corruption, or fewer racist comments on News24. These things would be nice, but there is no clear policy prescription to achieve them. Also, I cannot choose things that benefit me only (win the lotto), or things that benefit some South Africans at the cost of others (which rules out any dreams of Super 15 glory for the Stormers). And, given that I’m an economist and believe that economic growth is the best way to address the social challenges around us, most of the things on my Great List will be those that, I believe, can make all South Africans more prosperous in the long-run, even if it may not be immediately apparent. Here goes:
1. Open migration
South Africa already attracts thousands of African immigrants, but there is no reason why we should not encourage the immigration of highly-skilled people. The low growth rates of the developed world have forced many to find work elsewhere: why not encourage the highly-skilled to settle in South Africa? African migrants are often also exceptionally skilled, but without a work permit or the option of a South African passport after a period of residency, these skills are suppressed. Skilled immigrants are most likely to become entrepreneurs: if they are here legally, they pay tax and can expand their business, providing jobs and reinvest their profits in their new home. If they’re here illegally, they tend to remain under the radar, and their earnings are remitted to their origin country. It might be difficult to sell to an electorate, but it’s fortunately not too difficult to implement; more open immigration policies is just as easy to implement as the current ambivalent attitude towards foreigners. As a famous Nando’s ad once quipped: we are all immigrants in our own country. It’s time we realise that migrants can greatly contribute to South Africa’s success, and that we demand their equal rights.
2. Competition in education
The annual mourning of the matric results passed relatively smoothly this year. The pass rate was up, although the key statistic that most ignore is that close to 90% of all matriculants scored less than 50% in the final exams. And that doesn’t include the thousands of students that never reached their final year. So what to do about the dire state of our education system? There are no easy answers, of course, and there are plenty of clever people thinking about this, but my suspicion is that the answer lies in encouraging competition. Unions are often blamed for allowing bad teachers to go unpunished: well, why not let students vote with their feet: parents will realise that if they send their child to a school with zero pass rates (yes, in South Africa we have schools where none of the final year students pass the national exam) there is a very high probability that their child will fail matric too, so they will could send them to the better school. Poor-performing schools (those with fewer and fewer students) could then be closed down. The best way to do this is to set a rule up front: if the number of students falls to lower than x, the school closes down. Or why not give kids a voucher? They can then choose at which school they’d like to spend the voucher: the successful one’s will attract more students, which will give the school greater resources to improve further (and higher more teachers, or pay their teachers more). Here the private sector and civil society can join in: schools that grow quickly can receive additional support in the form of new facilities sponsored by business, or perhaps even hostels managed by church groups. Such support would provide further incentive for schools to do well – and the kids to choose well. The bad schools will inevitably see their numbers decline and, if the rules are strictly adhered to, these schools will be forced to close down. This empowers the students to demand the best education their voucher can buy. (This is, of course, much easier to do in urban schools than in rural schools, where substitutability between schools are low because of geographical distance.) The key is that bad performing teachers (and principles) must go down with the bad performing schools.
3. Broadband for everyone
I’ve argued this before, and will do so again. Part of the bad performance in education, I believe, has to do with kids (and their parents) not demanding better education. And the lack of demand is because they don’t believe they will require the skills taught at school for their future jobs. If you believe that your only job after school will be as a farm hand, or unskilled miner or taxi driver, then why study at school? At the cost of sounding fluffy, students need more, well, hope about the future. The internet can help with that. It’s not only the greatest library that there’s ever been, but it’s also the greatest tool to discover and develop your own passions, skills and interests. And, here’s the catch, it’s relatively free – if only the infrastructure is put in place to allow access to it. In a very interesting recent experiment, kids in two Ethiopian villages that have never seen books in their life, were given boxes of tablets, taped shut, with no instructions whatsoever. What happened? In five months, they were programming and teaching themselves English. Just imagine what they would do if they’d been given five years. Providing broadband to every South African household would be an expensive undertaking, but it would be the best investment the government can make in our future. Kids could learn to code at a young age, which is, aside from English, the most important language of the future. It allows entrepreneurs, even the most isolated and under resourced, access to a global market. It makes South Africa, truly, alive with possibilities.
4. Keep minimum wages to a minimum
The Economist recently wrote a review article about minimum wages that argued that, at least at low levels, minimum wages aren’t that bad. But nearly all the papers The Economist use as evidence consider only the developed world; high minimum wages in a country with an unemployment rate of above 25% will only protect the high-paying jobs of a few at the cost of many. The reason for the high minimum wages in South Africa is clear: Unions – with their interests in protecting the salaries of their members – argue that workers must earn a ‘living wage’. (This sounds very much like the labour arguments of the 1920s, when white workers agitated for ‘civilized wages’ to the detriment of the large pool of unemployed black workers.) Unfortunately, unions in South Africa, for historical reasons, have exorbitant political power, which means that the interests of the unemployed lose out to the interests of those fortunate to have a job. COSATU has already announced that farm workers in the Western Cape will strike from the 9th of January demanding a R150 minimum wage; the sad reality is that at that price, farm owners will have to let thousands of workers go – if we assume that the daily wage would have to double from the current R75 to R150 and a wage elasticity of -0.71 (as calculated by Fallon and Lucas for South Africa), then a back of the envelope calculation will show that the number of farm workers will fall from 116 000 to 70 000, i.e. the destruction of 46 000 jobs. Political parties, unions and the media would want to find a scapegoat for this destruction of jobs and farm owners will probably have to bear this burden. But it won’t be their choice: it will be the consequence of power hungry individuals demanding higher minimum wages in a market that cannot afford it. No research about the impact of the minimum wage, no sense about the opportunity costs of forced higher wages, just politics and foolishness. And 46 000 people without a job. That is not only sad, it’s also incredibly unfair.
5. Saving the savings rate
Imagine filling in an online application for a home loan, and as soon as it appears online, you have thousands of potential lenders screening the application and deciding whether to support your project. Call it crowdbanking. With South Africa’s saving rate appallingly low, one initiative to get South Africans to save more, I believe, is to show them the consequences of their savings. So, if you’ve just matriculated with seven distinctions but none of the banks are willing to offer you a study loan (you don’t have any collateral), then why not go to The Crowdbank. The interest rate is determined through an auction process of potential suitors. And the transaction is administered through a reputable financial institution. Something like this already exists in a slightly different format for African entrepreneurs: MYC4.com is a platform that connects entrepreneurs in several African countries with investors from across the globe. Entrepreneurs would visit a local MYC4 office, explain their financing needs, and if the MYC4 partner agrees that it is a worthwhile project, the project will appear on the website (this video explains it well). Anyone can now invest in the project, stipulating how much money they are willing to invest and at what interest rate. If enough people support the project and the borrower is satisfied with the interest rate, the funds are transmitted to the entrepreneur. I’ve been investing since November 2012, and although two borrowers are behind on payments, I’m due to make a positive return by the middle of this year. But it’s not only about the positive return: I’m investing in Emmanuel R. Wambura’s fish shop, in Michael Kalenga Bwana’s bar, in Rose Wangui Mwaura’s farm (she has three cows), in Howard Shimba’s wholesale store (all in Tanzania), in Theogene’s Magnifica Hotel in Rwanda and several others. It’s not just business, it’s personal. Given South Africa’s extremely high inequality, this is one way of “redistribution” that promotes entrepreneurship and economic growth for those outside the formal economy. And, by the way, it’s a lot of fun.
Here’s to a productive and prosperous 2013!