PETER BRUCE: SA can avoid going cap in hand to IMF

I once heard an Italian entrepreneur explain inequality via the simple adage that the rich invest smarter than the poor.

He was talking about Italy, but his point was that the working class get poor advice from poor fund managers because they think they can’t afford the good ones.

I was reminded about what he said while reading a brilliant essay on the acute policy dilemmas President Cyril Ramaphosa faces in the April issue of a UK magazine called Standpoint, written by the former Oxford don and Rhodes scholar RW Johnson.

Johnson is a polarising figure in SA but he is not to be ignored. His work is affected by a profound disappointment with the ANC in government. His last book, How Long Will SA Survive?: The Looming Crisis, was a best-seller at home and in it he famously prophesied that it would not be long before we became so indebted (under then president Jacob Zuma) that we would need to ask the IMF or World Bank for rescue.

That is still no fantasy, despite the fact that Moody’s, one of the three big international debt ratings agencies, recently decided to maintain its investment rating on our sovereign debt. The state has manifestly run out of money and has just fallen R50bn short of the tax revenue target it set itself a year ago.

Johnson’s essay in Standpoint is a polemic, which is probably why it reads well. This passage about our state-owned enterprises (SOEs) caught my eye. He is writing here about Eskom, which "now owes more than $35bn, has seen its staff double in the past five years even as its output fell, pays the highest average salaries in the country and has run out of money to pay salaries.

"The government’s answer was to illegally raid the civil service pension fund to keep things going and to ask the local banks to lend Eskom $1.72bn to tide it over for a few months. All foreign banks have backed out, the local banks are ‘considering’ and even so Eskom’s bankruptcy will be only months away.

The same is true of the crises in education, the rigidity of the labour market, and public service pay. There is simply no road to structural reform through consensus-seeking corporatism. 

This was, under apartheid, the world’s eighth-biggest utility, legendarily profitable and producing the cheapest electricity in the world. Yet the government can’t afford Eskom to go bankrupt because all its debts are government-guaranteed and because cross-default clauses mean that any SOE that goes bankrupt automatically results in a calling in of loans to all the rest.

"It is obvious that any solution to the Eskom mess has to include large staff redundancies, a pay freeze and the large-scale sale of assets — and something similar applies to all the other SOEs. There is no hope of getting such solutions agreed by Cosatu or the communists.

"The same is true of the crises in education, the rigidity of the labour market, and public service pay. There is simply no road to structural reform through consensus-seeking corporatism. Yet to agree to structural reform is to admit that the whole trajectory of ANC government since 1994 has been wrong — and it also means a fight to the death with the South African Communist Party, the unions and the ANC left."

By "corporatism", I presume Johnson means the ANC’s (and Ramaphosa’s) relationship with the unions; that this is an immovable impediment to meaningful structural reform. But if you follow his logic to its inevitable conclusion we are doomed to economic collapse.

Some members of the Cabinet have even been heard to mutter that this would be okay, that we could somehow start again.

Fortunately, neither Ramaphosa nor the unions believe this nonsense. They are acutely aware of the disaster constantly at our door.

Which is why I think Johnson is wrong. When push comes to shove on reforms, Ramaphosa will in time be able to make them. Or enough. He would like to start now, with an early election. It would catch the opposition on the wrong foot for a start. And, in a way, the unions are easy. After the death of Gen Franco in Spain, negotiations for Spanish democracy saw trade unions given huge property portfolios. They had a price for reform and it was paid. Next!

The biggest structural reforms here would affect not just the unions but business too, which needs seriously to examine the way it creates wealth. The methods it uses now are exclusive and elitist and business shouldn’t be elitist. It should be in and among the people and not merely selling to them or living off them. That’s how you keep a market, how you keep profit, alive.

Imagine how rich we would be if we could grow trust among each other here.

A sensible solution to the land debate could trigger a massive economic boom if we used it to crowd more people closer to, or into, our big cities in decent accommodation they could come to own.

And there is no end of models we could follow. I highly recommend the chapter on land in a book called Democracy and Delusion, by Sizwe Mpofu-Walsh, for a taste of what is possible. Yes, his father, Dali, is chairman of the EFF, but that doesn’t alter the value of the book.

If it wasn’t for people like Bill Johnson on one side and Sizwe Mpofu-Walsh on the other we’d never be able to start constructive discussion here in SA. Let’s use people like them to find a way of avoiding having to beg the IMF for help.

Whatever that way is it will have a name.

It will be called consensus and it is created only once all sides to an argument leave their big guns outside, get around a table and don’t leave it until we have a new economy we can all call our own.