Economist Robert Solow, who is close to notching up a century on earth, once drew an analogy from sailing that bears an important lesson for those who manage the economy.
“Apart from the activity itself, the main thing I like about sailing is that it teaches you that the water and the wind out there don’t give a damn about you. They’re doing whatever the laws of physics tell them to do and your problem is to adjust as best you can,” Solow said in a 2002 interview with the Minneapolis branch of the Federal Reserve Bank.
Nineteenth-century philosopher and political economist John Stuart Mill gave a similar warning 135 years earlier. “The winds and the waves are very unfeeling. Would you advise those who go to sea to deny the wind and the waves — or to make use of them, and find the means of guarding against their dangers?”
Contained in Solow and Mill’s words are important lessons for SA, which has been on the longest downward phase of its business cycle — a measure of an economy’s growth and contraction phases — since the end of World War 2.
Solow’s point is that some things — the water and the wind in a sailor’s case — are a given, and to challenge them is to invite disaster. They are best dealt with by adjusting to them as best one can.
Economic management is similar. Policymakers must take great care that they don’t sap the energy and vitality of entrepreneurs. Another economist, Kaushik Basu, reminds us that governments should always seek to “harness the profitmaking urge of private individuals and corporations” to achieve their objectives — that’s what a good sailor does with the wind and the waves. Whatever economic policies the ANC pushes for must be informed by the economic realities within which the country exists — realities that, like the water and the wind, don’t give a damn about us.
IMF wolves
SA is not a giant oil tanker like China or India. It is a small, open economy that accounts for about 0.6% of global economic output as measured by GDP. That immediately constrains the country’s ability to sail against the wind. China can, if it so desires, push multinational investors to abide by certain requirements, such as sharing technical knowledge with Chinese partners, because of its huge domestic market. That’s a luxury SA lacks. Even if one were to redefine the entire Southern Africa region as the “SA market”, it still doesn’t add up to much in terms of purchasing power.
Despite the activity of digging up stuff and selling it to the rest of the world declining as a percentage of SA’s overall economic activity, mining still matters far more than most politicians realise. The sale of SA minerals to the rest of the world is what enables the country to keep what leftists see as the IMF “wolves” at bay.
That’s because more than 60% of what this country earned in 2021 from the sale of goods to the rest of the world came from mining. This trend continued in the first quarter of 2022, according to the June quarterly bulletin of the Reserve Bank. A country that fails to generate enough earnings from selling its goods and services to the rest of the world ends up with a balance of payments crisis. That’s what has sent Ghana back to the IMF for the second time in three years, and the 17th since independence in 1957.
Mining, which accounts for less than 10% of economic output, makes a substantial contribution to the country’s ability to pay the rest of the world. Yet it has for several years been getting short shrift from the mineral resources department and government in general. It bears policy-uncertainty scars. And because of where mining activity is located, it, like agriculture, carries the burden of the collapse of municipal government in small and rural towns.
The wind and the waves (business) can be great friends of a sailor (policymaker) who works with them. But a good policymaker accepts that the wind and the waves have their own logic (the profit motive in the case of business people), which can’t be bent to the will of government. That policymaker should know too that businesses can, without abandoning its own logic, help a government achieve greater societal goals such as creating jobs.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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