South Africa: a crisis for business over social reform

Guardian

I was recently in South Africa to make a film for the BBC, and everyone thought the horrific police massacre of striking miners – 34 killed and 78 injured – at Lonmin’s Marikana platinum mine last August was a watershed for the country. It seemed to symbolise the unresolved legacy of apartheid: a wealthy white-owned corporation pitted against its poor black workers. Lonmin took me underground to observe its awesomely impressive hi-tech operation.  More than 30,000 are employed in a complex of mine shafts and smelters stretching across 250 sq km, producing nearly a quarter of all the world’s platinum, and part of a mining industry that contributes a vital fifth of South Africa’s economic output.

Yet in the shadow of the mine, most of its migrant workers live in Wonderkop, a sprawling shanty settlement of 40,000 people with no running water, no proper electricity, no sewage – families in unspeakable poverty. I saw even more destitute circumstances 700 miles south near Mandela’s birthplace in the Transkei, home to the widow of one murdered strikers, their extended family income suddenly destroyed.   It was hard to see how two decades of democracy had made any improvement to their living standards.

Under apartheid, government and big business were run exclusively by the white minority. When white rule finally came to an end, the fear was that white businesses and investors would flee. Instead a deal was struck. Mandela’s extraordinary leadership and insistence on reconciliation ensured a peaceful transition toward a stable multiracial democracy. Big business was reassured and stayed. A black majority now ran the government but the white minority still ran the economy. This deal could not have been otherwise or the emergence of the joyous “rainbow nation” would never have occurred.

But it is a deal now in crisis. Companies like Lonmin have brought black South Africans into their management – they recently appointed a black African CEO, Ben Magara. A new black business elite has been empowered– even creating some black billionaires. In return the ANC-aligned trade unions have tried to ensure strike-free production, with some of their leaders also part of the new enriched black elite.

The arrangement met the requirements of global investor confidence, but left most workers on low wages and, at Marikana, their ANC-aligned National Union of Mineworkers – a pillar of the anti-apartheid struggle – lost rank and file credibility to a breakaway union. Negotiations collapsed and violence soon followed, the ANC appearing to turn its guns on its own people with dreadful echoes of apartheid.

Marikana has become an emblem of what ANC critics say is a cosy deal with white-run business at the expense of South Africa’s poor –  triggering grassroots disaffection worsened by local and national ANC leader corruption. Simply co-opting a black elite into the same unequal, white controlled economy is not sustainable. But can necessary economic reform to give all a much greater stake be achieved without jeopardising competitive realities and global investor confidence?

Many of South Africa’s fundamentals are still strong: a constitutional democracy, an independent judiciary and above all a strong and vocal civil society. It has a wealthy economy, with a transparent, well regulated legal and financial structure, accounting for fully a fifth of total GDP for Africa – with a population of 50 million in a continent of 1 billion. Now a member of the Brazil-Russia-India-China Brics nations, it is ideally placed to be the gateway for fast rising African economic growth.

The ANC has brought electricity, housing, water and sanitation to millions. Nevertheless a growing population, swelled by some three million immigrants from Mali to Zimbabwe, means the demand for basic services seems insatiable. There are horrendous levels of black unemployment, worsened by apartheid’s deliberate policy of ensuring blacks had no skills. Despite the ANC doubling the numbers at school, teachers who take great pride in high standards then despair when their bright, well qualified pupils cannot get either appropriate, or any, jobs.

Carefully thought-out ANC pro-poor economic policies, with a lot of money spent on development plans, are intended to make a difference, but there is a chronic lack of government capacity and delivery – further hindered by political and administrative corruption.

The economy has hardly changed from its old role: to deliver for just 9% of the population – except that this now includes a new black element. There seem to be only two options: the one is to develop a new social compact where privilege and reward is renegotiated in favour of a more equal dispensation. The other is to face a revolution of rising expectations and frustration where South Africa could once again become as ungovernable as it was during the dog years of apartheid.

These are stark choices – but some within the ANC are seriously rethinking the model they inherited. Charismatic national trade union leader Zwelinzima Vavi has talked about the country’s “Lula” moment. There is plenty of evidence, not only that Brazil has done a great deal to narrow the gap between rich and poor nations, but also that South Africa’s economic thinkers are preparing to use some of the same strategies.

The ANC’s Strategic Intervention in the Minerals Sector (Sims) report, adopted at its December policy conference, looks at some of Brazil’s financial planning, like borrowing from the insurance/pensions sector and using state-owned enterprises to promote social development – which the private sector does not automatically do .

The ANC is trying out something crucial to those who want an alternative to the predominant global neoliberal economic model. But simultaneously maintaining essential international investor confidence and promoting social justice is difficult enough in a society like Britain, let alone South Africa with an apartheid legacy which remains a gigantic millstone around the country’s neck.

http://www.guardian.co.uk/commentisfree/2013/apr/22/south-africa-crisis-business

Labour must not sign up to stagnation

Guardian

Some – sadly including anonymous Labour frontbenchers – suggest that the only way for Labour to win back economic trust lost in the global banking crisis is to sign up to Tory-Lib Dem post-2015 election spending plans due to be announced in the Budget next week.
In fact the reverse is true. More cuts and austerity will continue Britain’s economic inertia – and destroy Labour’s claims to offer a serious alternative to the scorched earth economics being pursued in Britain and across Europe.
When Labour signed up pre-1997 to the then Tory spending plans, the economy was growing, not slowing. Our pledge was designed to reassure voters that we could be trusted to be prudent with the benefits of that growth.
But today the economy is stagnating. Economic credibility will not come from talking tough about ever-tightening the squeeze when what the economy desperately needs is a growth stimulus.
The way to cut borrowing and bring down Britain’s debt burden is to get the economy growing again. Most of the deficit will disappear once the economy returns to full capacity working. Any remaining shortfall can be tackled over the next Parliament, when a growing economy will make any unavoidable tax rises or spending cuts more bearable.
We are now living through the longest lasting slump since the 19th century. Output is some 14 per cent below where its trend pre-2008 banking crisis would have put it. Recession is costing us over £200 billion in lost annual income.
Government budget plans assume that the gap between actual and potential output is small, about 3 per cent. This is important because it means that most of today’s budget deficit would persist even after the economy eventually returns to full capacity working.
But this assumption is false, according to authoritative bodies like the National Institute for Economic and Social Research, the International Monetary Fund and the Institute for Fiscal Studies. They argue that the output gap is much bigger, meaning that the economy could grow quickly by taking up the slack. The deficit would shrink because economic growth would boost jobs and tax revenues and reduce welfare bills. The fiscal squeeze needed to end any ongoing budget deficit can be far less tight than that being planned by the Chancellor, and Labour should not touch it with a barge pole.
The CBI has called for an extra £10 billion in infrastructure investment, the  institute for Fiscal Studies for an extra £20 billion of public investment. My own preference is former chief economist at the Cabinet Office Jonathan Portes’ proposal for a £30 billion programme of infrastructure investment, because the scale of the problem is so large that vigorous action is required.
We should follow the example set by Alistair Darling in the 2009 recession when he brought forward £30 billion of public investment plans originally scheduled for later years. A big programme of social housing would be a good start.
The folly of George Osborne’s strategy is that in the year just ending his target deficit is twice what he said it would be in June 2010 and next year the Office for Budget Responsibility expects it to be three times what he planned in 2010. Is this really what the Prime Minister meant by going ‘further and faster on the deficit’?

 

He is missing his public sector debt target too. It was meant to be falling to 67 per cent of GDP in 2015-16, but now the OBR has it ‘falling’ to 79 per cent in 2016-17. Borrowing – another of his targets – is over £200 billion higher than he planned in 2010. And Britain has lost his cherished AAA credit status.
Why not learn from America instead of blaming the eurozone for Britain’s return to recession? The USA economy has been growing because President Obama gave it a boost in 2009 of the kind Britain urgently needs today.
Labour set out on the same path after the banking crisis but the Tory-Lib Dems have managed to turn Labour’s road to recovery into the road to ruin – a dismal, reactionary consequence of failed policies which Labour must not think of emulating, even for a few post-2015 years. To do so would destroy trust, not earn it.

http://www.guardian.co.uk/commentisfree/2013/mar/14/labour-plausible-budget-plan

 

Labour must not give into stagnation

Guardian

Some – sadly including anonymous Labour frontbenchers – suggest that the only way for Labour to win back economic trust lost in the global banking crisis is to sign up to Tory-Lib Dem post-2015 election spending plans due to be announced in the Budget next week.

In fact the reverse is true. More cuts and austerity will continue Britain’s economic inertia – and destroy Labour’s claims to offer a serious alternative to the scorched earth economics being pursued in Britain and across Europe.

When Labour signed up pre-1997 to the then Tory spending plans, the economy was growing, not slowing. Our pledge was designed to reassure voters that we could be trusted to be prudent with the benefits of that growth.

But today the economy is stagnating. Economic credibility will not come from talking tough about ever-tightening the squeeze when what the economy desperately needs is a growth stimulus.

The way to cut borrowing and bring down Britain’s debt burden is to get the economy growing again. Most of the deficit will disappear once the economy returns to full capacity working. Any remaining shortfall can be tackled over the next Parliament, when a growing economy will make any unavoidable tax rises or spending cuts more bearable.

We are now living through the longest lasting slump since the 19th century. Output is some 14 per cent below where its trend pre-2008 banking crisis would have put it. Recession is costing us over £200 billion in lost annual income.

Government budget plans assume that the gap between actual and potential output is small, about 3 per cent. This is important because it means that most of today’s budget deficit would persist even after the economy eventually returns to full capacity working.

But this assumption is false, according to authoritative bodies like the National Institute for Economic and Social Research, the International Monetary Fund and the Institute for Fiscal Studies. They argue that the output gap is much bigger, meaning that the economy could grow quickly by taking up the slack. The deficit would shrink because economic growth would boost jobs and tax revenues and reduce welfare bills. The fiscal squeeze needed to end any ongoing budget deficit can be far less tight than that being planned by the Chancellor, and Labour should not touch it with a barge pole.

The CBI has called for an extra £10 billion in infrastructure investment, the institute for Fiscal Studies for an extra £20 billion of public investment. My own preference is former chief economist at the Cabinet Office Jonathan Portes’ proposal for a £30 billion programme of infrastructure investment, because the scale of the problem is so large that vigorous action is required.

We should follow the example set by Alistair Darling in the 2009 recession when he brought forward £30 billion of public investment plans originally scheduled for later years. A big programme of social housing would be a good start.

The folly of George Osborne’s strategy is that in the year just ending his target deficit is twice what he said it would be in June 2010 and next year the Office for Budget Responsibility expects it to be three times what he planned in 2010. Is this really what the Prime Minister meant by going ‘further and faster on the deficit’?

He is missing his public sector debt target too. It was meant to be falling to 67 per cent of GDP in 2015-16, but now the OBR has it ‘falling’ to 79 per cent in 2016-17. Borrowing – another of his targets – is over £200 billion higher than he planned in 2010. And Britain has lost his cherished AAA credit status.

Why not learn from America instead of blaming the eurozone for Britain’s return to recession? The USA economy has been growing because President Obama gave it a boost in 2009 of the kind Britain urgently needs today.

Labour set out on the same path after the banking crisis but the Tory-Lib Dems have managed to turn Labour’s road to recovery into the road to ruin – a dismal, reactionary consequence of failed policies which Labour must not think of emulating, even for a few post-2015 years. To do so would destroy trust, not earn it.

Why Labour should put the Robin Hood tax centre stage

Great government policy rarely enjoys an easy ride. Challenging the status quo will always ruffle the feathers of vested interests. So 11 European countries should be congratulated for taking on the titans of finance and agreeing to implement a financial transaction tax (popularly known in the UK as a Robin Hood tax).

Today, their proposal for a micro tax of 0.1-0.01% on stocks, bonds and derivatives received the thumbs-up from EU member states at the Economic and Financial Affairs Council meeting in Brussels, meaning they can plough on to implementation, possibly as early as next year. Europe’s largest economies – Germany, France, Italy and Spain – are signed up. IMF chief Christine Lagarde recently gave her blessing. It will help ensure the financial sector plays its part for the damage caused to our economies. Yet there is one notable refusenik: the UK. Our government opted out, choosing instead to dance to the City of London’s tune.

The social justice arguments for an FTT are incontrovertible: the City’s financial elite may have sparked the financial crisis, but it is the rest of society, especially the poor, who are paying the price with the harshest programme of austerity since world war two. Yet amid the 2.5 million unemployed and the threat of a triple dip recession, the financial sector has over the past year enjoyed one of the strongest performances of any sector on the FTSE 100. But it is the economic common sense, the potential to raise billions in additional revenue, that has led the centre-right in Angela Merkel’s Germany, Mariano Rajoy’s Spain and Mario Monti’s Italy to back this tax. It will collectively raise the 11 countries involved £30bn a year – no small beer.

The size of the UK’s financial sector means we have even more to gain. Can the government really afford to turn down an additional estimated £8bn of annual revenue? Imagine what could be achieved: we could fund job creation programmes, spreading investment across our regions, giving the million young unemployed the skills to enter (or re-enter) the workplace. We could fund the British Investment Bank (BIB) that Ed Balls and Chuka Umunna have rightly put much emphasis on. In Wales we already have such an institution, Finance Wales, which was set up by the Labour-led Welsh government in 2000 and manages £300m worth of capital to SMEs. Rolled out across the country, it could bypass the bottleneck of banks refusing to lend to cash-starved SMEs, helping them to be the drivers of growth.

This is not about punishing the banks, but about getting Britain back on a stabler footing. The rate is set so low precisely to avoid hitting either the City or longer-term investments such as people’s savings and pensions. Undoubtedly an FTT would reduce certain areas of City trading – high-frequency computer trading that was memorably referred to by Adair Turner as “socially useless” – and this should be seen as a distinct advantage. The process would help rebalance the economy away from an over-obsession with the City’s short-term rewards towards other, less volatile, less geographically concentrated sectors such as manufacturing.

President Obama may support an FTT in his second term and we should actively encourage him to do so, but even without US support, Europe is right to forge ahead. The UK already has an FTT on share transactions. This doesn’t drive business away – on the contrary, London’s stock exchange is one of the most successful in the world. The exchequer benefits by some £3bn a year from this FTT, something George Osborne often seems to forget. Other financial centres also have unilateral FTTs – Hong Kong’s raises £1.7bn a year, South Korea’s £3.8bn and Brazil’s more than £10bn (pdf).

As the Bank of England’s executive director of financial stability, Andy Haldane, said recently, there is no “ideological chasm” that needs to be bridged in order to roll this tax out to other areas of the financial markets such as bonds and derivatives. As Labour continues to articulate its vision of a responsible capitalism, it is time to put the FTT centre stage. Between Europe and our own stamp duty, we have the blueprint to make this happen. In times of fiscal difficulty, tax needn’t be a dirty word – the financial transaction tax could be one of the most popular taxes this country has ever seen.

http://www.guardian.co.uk/commentisfree/2013/jan/22/labour-robin-hood-tax-government

Why Labour should put the Robin Hood Tax centre stage

Guardian

Great government policy rarely enjoys an easy ride. Challenging the status quo will always ruffle the feathers of vested interests. So 11 European countries should be congratulated for taking on the titans of finance and agreeing to implement a financial transaction tax (popularly known in the UK as a Robin Hood tax).

Today, their proposal for a micro tax of 0.1-0.01% on stocks, bonds and derivatives received the thumbs-up from EU member states at the Economic and Financial Affairs Council meeting in Brussels, meaning they can plough on to implementation, possibly as early as next year. Europe’s largest economies – Germany, France, Italy and Spain – are signed up. IMF chief Christine Lagarde recently gave her blessing. It will help ensure the financial sector plays its part for the damage caused to our economies. Yet there is one notable refusenik: the UK. Our government opted out, choosing instead to dance to the City of London’s tune.

The social justice arguments for an FTT are incontrovertible: the City’s financial elite may have sparked the financial crisis, but it is the rest of society, especially the poor, who are paying the price with the harshest programme of austerity since world war two. Yet amid the 2.5 million unemployed and the threat of a triple dip recession, the financial sector has over the past year enjoyed one of the strongest performances of any sector on the FTSE 100. But it is the economic common sense, the potential to raise billions in additional revenue, that has led the centre-right in Angela Merkel’s Germany, Mariano Rajoy’s Spain and Mario Monti’s Italy to back this tax. It will collectively raise the 11 countries involved £30bn a year – no small beer.

The size of the UK’s financial sector means we have even more to gain. Can the government really afford to turn down an additional estimated £8bn of annual revenue? Imagine what could be achieved: we could fund job creation programmes, spreading investment across our regions, giving the million young unemployed the skills to enter (or re-enter) the workplace. We could fund the British Investment Bank (BIB) that Ed Balls and Chuka Umunna have rightly put much emphasis on. In Wales we already have such an institution, Finance Wales, which was set up by the Labour-led Welsh government in 2000 and manages £300m worth of capital to SMEs. Rolled out across the country, it could bypass the bottleneck of banks refusing to lend to cash-starved SMEs, helping them to be the drivers of growth.

This is not about punishing the banks, but about getting Britain back on a stabler footing. The rate is set so low precisely to avoid hitting either the City or longer-term investments such as people’s savings and pensions. Undoubtedly an FTT would reduce certain areas of City trading – high-frequency computer trading that was memorably referred to by Adair Turner as “socially useless” – and this should be seen as a distinct advantage. The process would help rebalance the economy away from an over-obsession with the City’s short-term rewards towards other, less volatile, less geographically concentrated sectors such as manufacturing.

President Obama may support an FTT in his second term and we should actively encourage him to do so, but even without US support, Europe is right to forge ahead. The UK already has an FTT on share transactions. This doesn’t drive business away – on the contrary, London’s stock exchange is one of the most successful in the world. The exchequer benefits by some £3bn a year from this FTT, something George Osborne often seems to forget. Other financial centres also have unilateral FTTs – Hong Kong’s raises £1.7bn a year, South Korea’s £3.8bn and Brazil’s more than £10bn (pdf).

As the Bank of England’s executive director of financial stability, Andy Haldane, said recently, there is no “ideological chasm” that needs to be bridged in order to roll this tax out to other areas of the financial markets such as bonds and derivatives. As Labour continues to articulate its vision of a responsible capitalism, it is time to put the FTT centre stage. Between Europe and our own stamp duty, we have the blueprint to make this happen. In times of fiscal difficulty, tax needn’t be a dirty word – the financial transaction tax could be one of the most popular taxes this country has ever seen.