Johan Fourie's blog

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Sangomanomics

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A few weeks ago, a few hundred protesters marched through the Cape Town city-center demanding free housing, sanitation and other services. The boisterous crowd, spurred on a by a member of the ANC Youth League, then went on a pillaging spree, destroying cars and, notably, the livelihoods of some of the city’s poorest entrepreneurs.

While this event is not unique to Cape Town – as a quick Google search for the words ‘service delivery protests’ would show – the New York Times decided to publish an opinion piece by T.O. Molefe which use the Cape Town protests as setting to build a case against ‘the false doctrine of (economic) growth’:

Twenty years ago after this country was reborn after more than three centuries of rampant and institutionalized racial discrimination, it remains mired in economic disparities.

Unfortunately, despite evidence showing that the economy almost tripled in size over the past two decades and inequality worsened, pundits, business leaders and policy makers, including Ms. Zille’s party, continue to insist that growth heals all. It just needs to be made more inclusive, they say.

The solution, they say, lies in deregulating the labor market to get people into jobs — regardless of whether those jobs are secure or allow people to live with basic dignity — and relaxing exchange controls to give South African capital greater global mobility, because it will all trickle down to the poor in the end. They are wrong. The solutions they propose have been tried elsewhere and have failed. But such arguments are particularly infuriating because they relegate to a side show the goal of remedying the racial and economic inequality created by colonialism and apartheid — those same forces that pushed Ms. Boltney and millions of others to the city’s periphery — out of sight.

Since its rebirth, South Africa’s has had in place the moral and constitutional basis for ending inequality and poverty in the most direct and equitable manner possible: redistributing wealth and income from the rich minority to the poor majority.

But, instead of pressing ahead with this, the country’s leaders succumbed to a false global doctrine that — using the World Economic Forum’s archaic assessments of competitiveness — views the basic human rights protections contained in South Africa’s Constitution and labor regulations as factors that reduce the efficiency of markets. Such egalitarian laws, in this view, prevent the country from competing for foreign direct investment with countries like India and Indonesia, which do not have the same progressive founding ethos of social justice and human dignity.

It is perhaps slightly ironic that Mr Molefe uses Cape Town as the setting for his attack against the capitalism. The Western Cape is one of the fastest growing regions in South Africa, where poverty levels have fallen most significantly (but also where migrants are moving to, which suggest that conditions and opportunities must be better there than elsewhere, right?). I have other questions too. Perhaps Mr Molefe would tell us in greater detail when and where labour market deregulation has failed? Or where growth has failed to reduce poverty? Or why he calls competitiveness ‘a false global doctrine’?

Mr Molefe, author of ‘Black Anger and White Obliviousness’, suggests that ending poverty and inequality will be achieved through the redistribution of wealth and income from the rich to the poor. When last did Mr Molefe investigate South Africa’s income distribution? If he used the Census 2011 to do this, he would realise that even if all of South Africa’s whites left the country tomorrow, and their incomes were transferred directly to the poorest, we would still have lower per capita incomes than Brazil, Russia, Latvia or Gabon. In other words, we would still be poor. And does he know that if all white South Africans left the country tomorrow, the Gini coefficient would stay the same? That is because the major trend after apartheid has been the large increases in inequality within the black (and white) population.

Sangoma_muti

I suspect Mr Molefe also failed to read any of the most recent work by economists that attempt to address South Africa’s legacy of discrimination. Based on years of excellent research, Servaas van der Berg summarises the difficult solutions we face if we are to reduce inequality and increase living standards. Yet Mr Molefe would probably disregard such advice, given that it is posted on a World Bank website, an institution he clearly despises. There are valid reasons to criticize the work of the World Bank. Jagdish Bhagwati has done so. Yet Mr Molefe would do well to read Bhagwati’s latest book – Why Growth Matters – which explains the miracle economic transformation still underway in India. In fact, Mr Molefe’s use of India and Indonesia is extremely ironic: these are two countries in the world that has made the most rapid improvements in poverty in the last two decades by doing exactly the things he warns against.

First-year textbooks often use the metaphor of doctors to explain what economists do. When a patient feels ill, they go to a doctor who, through various tests, identifies the cause of the illness and prescribes remedial medicines. Similarly, when a country is performing poorly, it is the economist’s job to identify the causes of the problem and identify remedial policies. Economists in South Africa are doing this, in education, in health, in fiscal policy, monetary policy, environmental policy and labour markets.

Unfortunately, as elsewhere in South Africa, the advice these doctors give are sometimes difficult to swallow. Their diagnosis suggests that the symptoms of the disease will remain for a long time, and its demise will be painful and expensive.

So, instead, we visit a sangoma. With no formal training as a doctor, this is someone who prescribes a remedy that is more to our liking. Sometimes, if we’re lucky, the symptoms would disappear. But mostly it doesn’t, and often-times it is likely to worsen. That is because there is no scientific basis for the prescriptions.

The likelihood that Mr Molefe’s prescriptions improves the welfare of our poorest citizens is far smaller than if Mr Molefe had understood the science of economics. There is a reason sangoma’s are popular; they give easy answers to difficult questions. Sangoma’s are also quite vocal, and shamelessly promote themselves.

I fear we will see the proliferation of sangomanomics in the coming years, with no or even negative consequences for those who most suffer the perils of poverty.

Written by Johan Fourie

November 14, 2013 at 19:27

10 Responses

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  1. […] View Original: Sangomanomics […]

    Sangomanomics | MemePosts

    November 30, 2014 at 19:30

  2. […] Over on his blog, Stellenbosch University economist Johan Fourie coined the comically prejudiced word “sangomanomics” (yup, a portmanteau of ‘sangoma’ and ‘economics’) to say: […]

  3. […] Over on his blog, Stellenbosch University economist Johan Fourie coined the comically prejudiced word “sangomanomics” (yup, a portmanteau of ‘sangoma’ and ‘economics’) to say: […]

  4. […] Over on his blog, Stellenbosch University economist Johan Fourie coined the comically prejudiced word “sangomanomics” (yup, a portmanteau of ‘sangoma’ and ‘economics’) to say: […]

  5. Johan, there is a lot I could say here but I will try to keep it short and leave more detail to later academic work and summaries thereof. I think there are a lot of problems with the claims you are making.

    First, it is not uncontroversial to claim that economics is a science. In fact there is very little evidence to support that claim. What reliable ‘laws’ do we have? That the minimum wage will create unemployment? Oh wait, the evidence is mixed. That trade always improves welfare? Evidence is also mixed. In fact, it’s trivial to note that you can construct a social welfare function in which trade often reduces (weighted) social welfare by causing some members of society to lose jobs or income. In which case it depends what weight we put on different individuals’ welfare, a normative not objective issue. Maybe that’s not a very realistic/representative social welfare function, but that’s a whole different kind of discussion.

    Second, and linked to this, you should consult the different contributions of Bhagwati (not actually a very successful academic economist as defined by publications) and Atkinson (“The restoration of welfare economics”) in the AER (P&P 2011). Two quite different views on what economics is about. Similarly, one might note Amartya Sen’s recent disagreements with Bhagwati. You are claiming that scientific economics is basically your view of economics, which I would suggest is wrong on two counts (it’s not a science and there isn’t consensus) but most economists would at least acknowldge one. Please do not therefore claim that your fight is the fight of all economists because that is simply false.

    Relatedly, it would be advisable to reflect on the incentives (because we know about those, right?) for economists to claim they are doing ‘science’ even if they aren’t. Like smuggling-in personal ideologies and biases under the guise of scientific opinion. And it’s easier to get funding for stuff that claims to solve social problems ‘scientifically’. Or do we not believe that economists respond to incentives?

    As for labour market liberalisation and the like. We have a nice example on the perils of crude ‘liberalisation’ from what was done to the Soviet Union. Shock treatment led to asset stripping, a collapse on many measures of social well-being (despite the fact that these may not have been great anyway) and the creation of a highly unequal society dominated by oligarchs and securocrats. So much for just leaving things to markets. And on that you could read Stiglitz, Rodrik, Chang and a fair number of others.

    Given all this, I think it is inadvisable to assume that those you disagree with just don’t understand Econ 101. Maybe they just have a different view of economics, which could – potentially – be correct. You might also want to read my recent short review of Manski’s book that just came out in Development Southern Africa, where I address some partially-related issues in econometrics.

    SM Muller

    November 15, 2013 at 18:24

    • Sean: You note that it is ‘not uncontroversial to claim that economics is a science’. Then you state: ‘In fact there is very little evidence to support that claim.’ Searching for evidence to disprove a hypothesis is following the scientific method.

      Science need not be all quantitative; as economic historians we would be the first to agree with that. And it is certainly true that economists disagree on many things. But our deliberations – whether minimum wages cause unemployment or whether trade promotes growth – are based on the fundamental principle that we validate our hypotheses with facts.

      I would certainly advise reading Stiglitz (although, there’s a lot, so be warned), Rodrik (one of my favourite) and Chang. But also read Krugman, the AER and first-year economics textbooks.

      Naturally, not all of Eco’s 101 is true in every situation. In fact, by disproving it is how economists win Nobel prizes. But invalidation requires hypothesis-testing and facts, bringing us back to the scientific method.

      Johan Fourie

      November 15, 2013 at 19:03

      • This is not the place for a full exposition of my views on whether economics is a science, I promise to write that paper at some point. I do not agree that economics utilises a substantively scientific method, at least not at the moment. Furthermore, there is a massive chasm between the findings of economic analysis and making policy recommendations that many economists currently leap in a distinctly non-scientific fashion. The reason, however, I raised the issue is because your original blog post creates a very misleading image of what economics is, along with a bolstering of that under the claim to scientific practice that happens to serve your evident personal views on what is socially important. But let me deal with the specific issues within that.

        Molefe criticises an approach to economics that advocates labour market liberalisation (Read: removing protections for workers) and relaxing exchange controls as a basis for ‘trickle-down theory’, while neglecting pressing social needs that could partially be relieved by greater redistribution. That is entirely defensible, though also contestable. (One example of the inability of economic evidence to clinch an argument, as one would hope if it were a science). On that one issue, as I am sure you know there is a literature on the role of exchange controls in preventing/limiting financial crises and another advocating a Tobin tax. Exchange controls have been dramatically reduced since apartheid but growth has not been sustained, so where’s the evidence?

        On the issue of labour market liberalisation. While many economists, including in SA, have done work on the possible effects of union-maintained wages there is no clinching evidence that shows that if we reduced these employment and growth would result. There are all kinds of assumptions you can make in – for example – a CGE model to produce that outcome, but on the issue of assumptions I would again recommend reading Manski. Other assumptions could be made about the shifting of profit overseas and reductions in aggregate domestic demand that might produce estimates of higher unemployment as a result. Why do we favour one set of assumptions over another?

        The blog post creates a caricature of the idea of redistribution, in which more redistribution means stripping (only) white South Africans of their entire wealth. As Molefe notes in the comment here, that was not what he was implying and nothing in the article suggests it was. This is not dissimilar to an earlier economic literature that essentially claimed that inequality was desirable as it was inherently associated with growth. I think this has been discredited but it often reemerges in other forms. For contrary views one can read Bowles&Gintis, Sen and Stiglitz. But one can also ask: what are the social consequences of cutting protections for, and transfers to, the poorest and in particular what will those be if that approach to obtaining economic growth fails? Possibly disastrous, but there is a disinclination to acknowledge that from those who are not likely to suffer during the process of trying. Presumably the weights in their social welfare function are different?

        Finally, the way in which some economists interpret the post-1994 economic performance is very interesting. My suspicion is that if – as a counterfactual situation – the economy had been growing at 5% since 1994 many economists would spin a charming story about how this was due to the relaxation of restrictions on capital flows and trade, not labour protection, industrial policy or affirmative action. But in the actual situation where growth has been sluggish and there have been massive job losses in many sectors due to lack of trade competitiveness (remember the social welfare function) the role of trade liberalisation and exchange controls is ignored because that kind of causal relationship simply doesn’t accord with ex ante beliefs and, possibly ,ideological views. Instead slow growth is blamed on labour laws that were present in the early 2000s growth spurt you mention in the comments. In the absence of identification of causal relationships this doesn’t seem very scientific. In this regard it is instructive that while the Luddites were disparaged by some economists for a long time, even the likes of Krugman are now starting to reconsider. [And his article is in fact very relevant to the debate here: http://www.nytimes.com/2013/06/14/opinion/krugman-sympathy-for-the-luddites.html%5D.

        To summarise in relation to your blog: you cannot abrogate the role of purveyor of science to bolster a position that is in many respects normative. You are of course entitled to disagree with Molefe’s view that income redistribution may achieve better (social and economic) results than further liberalisation of trade or labour protection. What you may not do, I suggest, is claim that your position is scientific and his is not. And the less said about the doctor-sangoma analogy the better.

        SM Muller

        November 16, 2013 at 09:55

  6. Excellent analogy, Johan. Witht the elections coming up next year we are sure to hear more from these types whose advice would end up killing the patient!

    Waldo Krugell

    November 15, 2013 at 05:33

    • Hi Johan,

      Thanks for the mostly thoughtful response. The false doctrine I refer to is neoliberalism, but I did not use the word because people’s eyes glaze over when it’s used. I see now it’s not the word, per se. It’s the suggestion that growth is not the silver it’s touted to be that causes neural pathways to short circuit..

      Question: “perhaps slightly ironic that Mr Molefe uses Cape Town as the setting for his attack against the capitalism. The Western Cape is one of the fastest growing regions in South Africa, where poverty levels have fallen most significantly (but also where migrants are moving to, which suggest that conditions and opportunities must be better there than elsewhere, right?).”

      Answer: There’s much being made about the progress South Africa — and the Western Cape, in your question — has made toward reducing poverty (though not much can be said about inequality). Is it enough? Clearly not. The people who marched to Ms Zille’s office last month live literally between fire and flood. Migration does not explain it all. The Cape Town, spatially and socioeconomically, still stands as a (very, very slowly crumbling) relic of apartheid and colonialism, as do most other metros and areas in SA. If the Western Cape and Cape Town represent the best of the progress we’ve made, the kind of progress marked by good governance and high levels of service delivery, then we are in serious trouble. This is why I used it as an example; that and the fact that I live here and am writing about what I see. Even in the the fastest-growing province,

      Question: “Perhaps Mr Molefe would tell us in greater detail when and where labour market deregulation has failed? Or where growth has failed to reduce poverty? Or why he calls competitiveness ‘a false global doctrine’?”

      Answer: Starting with the last first, as above, neoliberalism’s the false doctrine I speak of, as Susan George explains (http://www.tni.org/article/short-history-neoliberalism). My fault. I should have explicitly said this. That said, WEF’s assessment of competitiveness, particularly it’s assessment of labour-market efficiency, is archaic because it does not take into account the social costs of a market where “workers are allocated to their most effective use in the economy and provided with incentives to achieve maximum productivity”. The kinds of labour-market reforms being mooted in SA, like making it easier to hire and fire workers, will increase this social cost, leaving workers and those dependent on them vulnerable. It’s actually quite easy to hire and fire workers in SA, if, as any modern organisation should, you have in place the performance and employee-development programmes that as a by-product will produce the paper work needed to show that the worker

      If we can accept that we require regulations on the extent to which the environment can be exploited, why do we struggle with the idea that people should be afforded the same protections?

      Comment: Mr Molefe, author of ‘Black Anger and White Obliviousness’…

      Response: I have a question of my own: was the title of my short introduced in this specific paragraph to indicate that I’m pursuing some kind of racial agenda, considering that the short isn’t about anything that’s being discussed here? It’s about how and why race matters in SA in public and political discussions.

      Question: “If he used the Census 2011 to do this, he would realise that even if all of South Africa’s whites left the country tomorrow, and their incomes were transferred directly to the poorest, we would still have lower per capita incomes than Brazil, Russia, Latvia or Gabon.”

      Answer: You’ve assumed (on my behalf and why?) one kind of redistribution model (and one that targets whites only). I’m more moderate than that. Our tax system is in parts progressive (and in other parts regressive). The redistribution model I favour makes income, capital-gains and related-party donations tax, as well as estate duty, more progressive. So, in other words, a form of wealth tax. What’s collected should be redistributed through an unconditional basic income grant that provides for the basic socioeconomic rights in the constitution.

      Comment: “Based on years of excellent research, Servaas van der Berg summarises the difficult solutions we face if we are to reduce inequality and increase living standards.”

      Answer: I do not disregard the role education has to play in reducing poverty and inequality, as Mr van den Berg argues. However, in SA, socioeconomic position is the primary determinant of learner AND teacher performance in our two-tiered education system. I don’t want to resort to chicken-and-egging, but schools do not exist separate of the society and communities they serve. We can’t think we can build a quality school if we aren’t at the same time addressing the primary issues that affect its performance.

      Comment: “Yet Mr Molefe would probably disregard such advice, given that it is posted on a World Bank website, an institution he clearly despises.”

      Answer: Clearly, you say? I’ve never written a bad word about the World Bank.

      Comment: “Yet Mr Molefe would do well to read Bhagwati’s latest book – Why Growth Matters – which explains the miracle economic transformation still underway in India. In fact, Mr Molefe’s use of India and Indonesia is extremely ironic: these are two countries in the world that has made the most rapid improvements in poverty in the last two decades by doing exactly the things he warns against.”

      Answer: I’m not anti-growth. It’s just that its effects are oversold. In South Africa, growth has not (and likely will continue not to) have the transformative effects it’s being touted to have (or at the rates it should). Even if somehow made equitable, it still maintains the status quo.

      Finally, I’m not going to get into the doctor versus sangoma discussion, or the cultural prejudices contained therein except to say doctors and traditional healers play complementary, not antagonistic or mutually exclusive roles, for most South Africans. See Lief Petersen’s comment here (http://www.africacheck.org/reports/do-80-of-south-africans-regularly-consult-traditional-healers-the-claim-is-false/) for more on his research.

      TO Molefe

      November 15, 2013 at 13:24

      • Thanks for the response, TO Molefe. There is certainly some middle-ground here, especially when we talk about specific policies. I think your idea of a redistributive wealth tax has merit, for example, but it needs to be done in an environment where wealth is increasing, i.e. where an economy is growing. (And there is the small matter of what this extra government revenue will be spent on, seeing that the government already struggles to spend?)

        My fight – economists’ fight – is against those who belittle economic growth because, mostly due to confirmation biases, they cannot “see” the benefits. South Africans are far better off than they were in 1994. This is mostly due to high growth rates in the early 2000s. Had we sustained those growth rates, unemployment and especially poverty would have been significantly lower today, regardless of how much redistribution through government had taken place.

        Johan Fourie

        November 15, 2013 at 16:35


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