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Archive for February 2013

Spending priorities

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SKAIt is difficult to find fault with the 2013 National Budget Speech of yesterday. Min Pravin Gordhan delivered what is certainly a sound and realistic attempt at what he calls “ensuring value for money”. There was tough talk on corruption (“Let me be frank. This is a difficult task with too many points of resistance! … There are too many people who have a stake in keeping the system the way it is. Our solutions, hitherto, have not matched the size and complexity of the challenge. As much as I want, I cannot simply wave a magic wand to make these problems disappear.”) and a new Chief Procurement Office has been set up to reduce these inefficiencies. There is an attempt to reduce the budget deficit to keep government debt below or on the 40% debt to GDP ratio. And there was renewed emphasis on achieving the long-run goals of the excellent National Development Plan.

But there is also much to learn from what is not said. For the first time in five years, there was not a single mention of land reform or redistribution. Min Gordhan does well to acknowledge that growth opportunities are in cities and that spending should be targeted to improve urban areas, although his spending projections does not reflect these sentiments: The Department of Rural Development and Land Reform (R8.9 billion) still receives a greater share of the pie than the Department of Tourism (R1.3 billion), which is responsible for a growing industry and contributes more to GDP than agriculture, the Department of Energy (R6.7 billion), the Department of Public Works (R7.7 billion) and the Department of Science and Technology (R5 billion). This allocation is in addition to the R5.7 billion for the Department of Agriculture, Forestry and Fisheries, even though, as the Department for Rural Development acknowledges, “agriculture is the primary economic activity in rural areas” (page 787). It is clear that rural areas still receive proportionately more than they contribute to GDP or are likely to contribute in future.

Instead, if Min Gordhan is serious about improving competitiveness and productivity, there are more obvious spending priorities. While enough has been written about education, another source of competitiveness that receives scant attention in the Speech – actually, only one reference – is spending on Science and Technology. As history shows us (read Joel Mokyr’s The Gifts of Athena, for example), it’s through scientific innovations that improve both labour productivity and total factor productivity, in other words, that allows us to produce more things with fewer inputs. Adaptation is especially important: Japan and South Korea’s success was first due to successful adaptation of American technology. This allowed them to move to the technology frontier and only then would they begin to innovate and expand the frontier. This process is however not decoupled from education: as James Bessen shows in a recent paper in the  Journal of Economic History, the massive productivity gains in the late nineteenth century weaving industry in England was not only due to more machines, or better machines, but also because workers became more adept at using the new technologies. High-tech tractors on large, commercial farms don’t require the traditional skills of tractor drivers anymore, but rather the skills of someone that can read GPS coordinates and monitor computer screens. Such technological shifts necessitates investment in scientific infrastructure that can help with broad based technical education, and not just pockets of excellence. If South African labour is to be more competitive, we must learn to adapt these new technologies.

Unfortunately, Science and Technology is at the back of the spending queue. A commendable R1.9 billion has been allocated to the Square Kilometre Array Project, a flagship project showcasing South Africa’s astronomy and engineering skills that has been lauded by the South African media. But this leaves little room for any other investment in science infrastructure. In fact, “over the medium term, R279.5 million has been allocated for infrastructure required to provide the scientific community with research and development facilities that are state of the art to ensure the country’s global competitiveness in research, development and innovation” (page 811 of the ENE). To put that into perspective, that is marginally more than the state spent on the president’s retirement home in Nkandla.

A competitive economy requires large-scale investments in science and technology infrastructure that will allow South Africans to adopt and adapt new technologies. The Budget of 2013 does not reflect this reality.

Written by Johan Fourie

February 28, 2013 at 14:48

Ramphele’s choice

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Yesterday Mamphela Ramphele launched a new ‘political platform’ in South Africa, a move that may have important implications for South Africa’s political landscape.

Or it may not. Political parties that are created around the image of its charismatic leader often struggle to sustain the initial enthusiasm: think of Bantu Holomisa’s UDM. And where a person rather than principles guides policy, the internal debate – the checks and balances that established political parties offer – often disappears.  Instead the party’s constituents are subjected to the whims and feelings of a person in need of approval. That is a dangerous situation: Robert Mugabe was globally celebrated for his role in Zimbabwe’s independence and economic success of the 1980s; today he is ridiculed and chastised.

Ramphele

Don’t get me wrong: Mamphela Ramphele is a leader of great repute and character. She has the perfect CV for South African politics; I suspect that Helen Zille would have offered to step back had Ramphele decided to join the DA. At the moment, though, Ramphele’s political platform (called Agang, an unfortunate choice in my opinion – their followers have already been called ‘Agangsters’ by opposition parties) is little more than an idea, a hope in the minds of the electorate. Here’s one of their tweets: “Do you remember our commitment to promote human dignity (Ubuntu) & banish humiliation & disrespect of our apartheid past?” Not exactly what I’d call a policy statement.

And perhaps that’s exactly the issue I have with this new addition: it is the easy way out for Ramphele. What South Africans need more of is the execution of existing policies, not fluffy statements that is meant to make us all feel better about the future. We don’t need an economic CODESA: we have a brilliant plan for the future – the National Development Plan – compiled by one of the few leaders that can match Ramphele’s impressive CV, Trevor Manuel. It’s a plan adopted by the ruling party, touted during the State of the Nation speech, and one with which the main opposition agrees. Even academic economists are happy with it. But the success of a plan is judged on its implementation. What we now need are the entrepreneurs, the unemployed, the national, provincial and local government officials, the teachers’ unions, the trade unions, the unions for minorities, the business, church and community leaders, the farm owners and farm workers, the mine owners and mine workers, and all other South Africans in-between to buy into this plan. This is not easy. In fact, it sounds terribly difficult.

Which is the reason someone with Ramphele’s capacity should have asked herself what is it she can do to help make the National Development Plan a reality. Starting Agang might not be the best way to do this.

Written by Johan Fourie

February 19, 2013 at 11:40

Damned – and damning – lies

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Did you know that 83% of statistics are made up on the spot? This quip is as old as South Africa’s unemployment problem, but as with all clichés, underpins an element of truth. A more telling fact, though, is that  92% of people believe the statistics they read on blogs and in newspapers. Especially if you cite a reference (Fourie 2013). Which makes publishing (especially in print, where mistakes are more difficult to correct) a powerful medium to affect change, for good or bad.

For these reasons, it is problematic when public and private institutions begin to spoon-feed journalists, who are time-constrained and perhaps a bit lazy, rubbish statistics. After the release of the first estimates of the Census 2011 data (which was, understandably, widely publicized), some commentators raised objections to what seemed like strange demographic patterns. The immediate response from StatsSA was denial. Late last year, however, they acknowledged their mistakes and fired two staff members for making serious calculation errors. Even so, some suspect, errors remain in the data.

While these errors were unintended mistakes, Servaas van der Berg, professor in Social Policy at Stellenbosch University, writes in a recent blog post about the absurd unemployment statistics that are published by a private firm, Adcorp. Adcorp’s Employment Index estimates that South Africa has an unemployment rate of 5%, which is considerably less than the standard unemployment estimations of between 25% and 33% for the narrow definition of unemployment. It is also much lower than most of the rest of the world. Van der Berg points out that these errors are not only problematic because they are useless, but that they can actually influence peoples’ behaviour and result in the adoption of incorrect policies.  He cite’s the high graduate unemployment that Adcorp calculates (above 50%!): if this is true, who would want to go to university if the general unemployment rate is only 5%? These numbers simply do not reflect reality.

But it is Van der Berg’s second contention – that such statistics may receive enough media attention to influence policy – that is even scarier to contemplate. And it may not be too far away: after a quick search, I’ve found references to Adcorp’s rubbish statistics in several of South Africa’s leading dailies: The Citizen (14 Aug 2012, p. 22), The Star (11 Oct 2012, p. 11), The New Age (11 Jan 2013, p. 13), Volksblad (11 Jan 2013, p. 8), Business Day (11 Oct 2012, p. 2). Only a few media reports reflect the tension between the generally accepted StatsSA data and the Adcorp estimates: the Mail & Guardian (12 Apr 2012, p. 7) and an especially well-written article in the Financial Mail (2 Mar 2012, p. 43).

The wrong Census 2011 statistics can have serious implications for how national government appropriate funding to the various provinces, for example. As Tom Moultrie, UCT demographer, notes in a remark on one my previous posts:  “If you were an MEC in the Northern Cape, how would you plan rationally, if StatsSA’s own estimates suggested that the population of your province lay somewhere, with 95% certainty between 984 000 and 1.307m? (That’s a 14% range either side of the point estimate of 1.146m!).” Similarly, the calculation of incorrect unemployment figures may suggest to government that their policies were successful when in reality they were not, or vice versa.

South African editors and journalists are powerful agents and should be more diligent in their assessment of credible news sources. Adcorp’s Employment Index should be off their list.

Written by Johan Fourie

February 13, 2013 at 14:54

Remembering history

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Last week I wrote about the 1913 Land Act and its counterfactual, and sent the post to several opinion-makers. While the first few days were relatively quiet, Lindiwe Mazibuko, leader of the opposition in the South African parliament, responded on Friday afternoon with the following tweet: “Do not send me offensive, ahistorical ‘the blacks should be grateful’ drivel masquerading as analysis. I am not that person.”

I guess that warrants a response, although to be honest, I’m still a bit flabbergasted by Ms Mazibuko’s knee-jerk reaction. Like most authors who receive critical referee reports, I gave it some time. I reread the post. I got second opinions. I reread the post again. And in the end I decided not to respond directly to her. Perhaps I should’ve been clear that I don’t make any policy recommendations. Perhaps I should’ve emphasised that this is a thought experiment: that I don’t wish to make judgments on what should have been, but rather, what might have been. So let me be absolutely clear: I don’t believe ‘blacks should be grateful’ and I do not advocate such a view in my post.

In preparation for my first graduate Economic History class this morning, though, I was forced to think about who writes economic history in South Africa, and why we do so. Reading Barry Eichengreen’s excellent contribution on how our understanding of the causes and consequences of the Great Depression influenced US policy-making during the recent Great Recession, I wonder whether we will learn similar lessons from our own history. South Africa has a disfigured history, and the period of oppression of the majority by the minority is still fresh in our collective memory. Which means we tend to not want to talk about it. Or, worse, we tend to cluster everything before 1994 in the ‘evil box’, with the insinuation that nothing that happened in South Africa before the democratic elections can be useful for understanding and improving our country today.

We  need leaders that can engage critically with our past, and more so if our past is one of suffering, discrimination and inequality. As Eichengreen notes, knowledge of the past is especially helpful in times of crisis. Ben Bernanke’s research on the Great Depression allowed the Federal Reserve to react quickly to the recent financial crisis. John F. Kennedy won a Pulitzer for a popular history of the Senate and could fall back on his knowledge of the events of Pearl Harbor when faced with the Cuban Missile Crisis. But more broadly, a remembered history – even if it is tainted (whose history isn’t?) – also reinforces the principles of democracy that many had fought for. As Ms Mazibuko would acknowledge herself, past practices are increasingly popular with the current generation of politicians and bureaucrats. If we ignore the past how will we recognize déjà vu?

Let’s debate the past, even if we don’t agree with what happened, how it happened and why it happened. Let’s tolerate alternative opinions because we might be wrong. The most discouraging aspect of this exchange with Ms Mazibuko is her rejection of this basic liberal tenet.

Written by Johan Fourie

February 7, 2013 at 13:31