Prospects for Growth in SA

Prospects for growth in SA 1 21.9.00

Prospects for Growth in SA

Jim Harris

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A Happy Future?

(Markinor biannual survey, reported 30.8.00)

Three-quarters of South Africans say YES

Less than 50% of whites & indians agree

your confidence and positive feelingsabout race relations, discrimination,

safety, economics, politics?


Optimists can be wrong… or at least premature!

JH “imminent” list to TW on 14.10.97

1 Review may reinstate capital punishment2 Tariffs on imported chicken may go3 Clothing and textile protection may go4 Satra may stop Telkom killing Internet … y(15.10.97)

5 Interns may win conscription challenge to Zuma

6 Megacity may be prevented


The Yoke of Pessimism(BOE’s Rian le Roux)

“Unless issues such as

poor economic growth,

slow privatisation,

limited labour market reform,

controversy on the HIV/AIDS crisis, and even

speculation over the possible reintroduction of prescribed assets

are tackled with urgency,

foreign investment will be reduced.”


Stuck in No-man’s Land(SG Securities Nico Czypionka)

“Despite the new-look but vague privatisation plan,

investors perceive SA to be outright boring

and underperforming from a growth point of view,

an unexciting prospect for equities and direct investment.

SA’s solid fundamentals only limit the risks.

Government policies are gradualist and full of compromises.

A reduced deficit (2.5% of GDP) still does not balance the budget.

The economy urgently needs a kicker.”


SADC countries

0

2

4

6

8

10

0

1

2

3

4

5

6

7

8

0500

1000150020002500300035004000

0

20

40

60

80

100

120

140

160

EFW2000’s 1997economic freedom rating*

GDP growth ‘90-’98 %pa

Ranking of Heritage Index of Economic Freedom 2000

1998 GDP percapita (US$)

MauritiusBotswana

South AfricaNamibia

Swaziland*ZimbabweLesotho*Zambia

TanzaniaMalawi

Mozambique*

* freedom not rated


Regional GDP pc

World $5021G7EUAsiaLatin AmericaE EuropeMiddle EastAfrica $451

$30 000

|SA$2880


Regional Growth (1990-97)

-10 -5 0 5 10

World 3.3%G7EUAsiaLatin AmericaE EuropeMiddle EastAfrica 2.5%

0% 10%

|SA2%


Growth and Wealth

0

5000

10000

15000

20000

25000

30000

35000

-30 -20 -10 0 10 20 30

GDP growth rate %(World Bank 1999)

$ G

DP

per

cap

ita

(Wo

rld

Ban

k 19

99)

Growth brings wealth, but wealth does not guarantee growth


Freedom and Wealth

0

5000

10000

15000

20000

25000

30000

35000

0 20 40 60 80 100 120 140

EFW 2000 (1997) ranking

$ G

DP

per

cap

ita

(Wo

rld

Ban

k 19

99)

In time, economic freedom increases wealth

FreeMostly Free

Mostly Unfree

Repressed


OETSAlbert J Nock

Samuel R Konkin IIINew Libertarian Manifesto, 1983

Our Enemy The StatePew Research Centre, 1997

American/European views about government

distrusted 56%/45% inefficient & wasteful 64%/54%

has too much control of our lives 64%/61%


SA Economic Freedom

0

2

4

6

8

10

1970 1975 1980 1985 1990 1995 1997-


SA Govt as % GDP

0

10

20

30

40

50

1970 1975 1980 1985 1990 1995 1997-


Spending and borrowing less


Govt (% GDP) and Freedom

10

20

30

40

50

5 6 7 8 9 10

19701980

1995 27.3 33.1 31.2 36 35 34.9 31.61985 199019971975

2005?


Freest Countries’ Growth (1990-96)Hong Kong 9.4

Singapore

New Zealand

United States

United Kingdom

Ireland

Australia 8.6

Canada

Luxembourg

Netherlands

Switzerland

Argentina

Denmark

Belgium 8.3

El Salvador

Japan

Panama

Chile

Finland

Spain 8.2

3.7

6.3

1.1

1.0

1.1

5.4

1.3

-0.3

?

1.6

-0.4

3.5

1.8

1.5

4.0

1.8

3.1

5.2

-0.6

1.6

SA 7.3 - 1.3Avg. 8.6 - 2.2


Freedom Makes You Rich

20 freest countries

South Africa

Freedom rating 8.6 7.3

Growth rate % 2.2 1.3

GDP pc $ 19296 7830

Govt consump % 20 25

Govt expend % 39 32


Growing Countries’ Freedom (1997)China 11.2

Malaysia

Vietnam

Chile

Singapore

Indonesia

Lesotho 7.2

Sudan

South Korea

Uganda

Ireland

Thailand

Laos

Syria 6.2

Argentina

Peru

Chad

Jordan

Israel

India 5.5

6.2

7.5

?

8.2

9.4

7.2

?

?

7.3

6.1

8.7

8.2

?

4.4

8.4

7.9

4.5

6.1

6.5

5.8SA 1.3 7.3Avg. 7.1 7.0


Government stifles Growth20 fastest growing countries

South Africa

Growth rate % 7.1 1.3

Freedom rating 7.0 7.3

GDP pc $ 7346 7830

Govt consump % 18 25

Govt expend % 29 32


Size of government

Total Gov't Exp./GDP Ratio %

0

5

10

15

20

25

30

35

40

45

'88 '89 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01

• SA govt spending fell from peak 38.1% of GDP in 1996 to 36.1% in 1998

• Finance Dept projects more falls to 33.8% in 2001.

..projected..


Morecambe, 1968

� Enoch Powell - the virus that kills socialism

� Parkinson on tax and disaster� Colin Clark and John Maynard Keynes on a 25% limit� income tax at 4/3 (21%) in the £ - from 8/3 (41%)

� denationalise, sell public housing

� abolish investment grants, farm price supports

� end development assistance, foreign aid, production grants

� reduce the number of civil servants

� stop spending on wrong and harmful policies


6.6

4.73.8

2.82.0

1.6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

<25 25-29 30-39 40-49 50-59 >60

Total Gov't Exp. as % of GDP

GD

P g

row

th r

ate

% . Gwartney, Lawson and Holcombe (1998)

Grouped 1960-1996 data for 23 long-standing OECD member countries.

Bigger government, slower growth


-20

-15

-10

-5

0

5

10

15

20

Gov't Expenditure as % of GDP

Rea

l G

DP

gro

wth

% p

.a.

SA

7% “natural growth” with no government,plus possible effect of (Lal) Platonic Guardian

state or predatory government

0 10 20 30 40 50 60 70 80 90 100

enhancement

no harm

little harm

much harm


-20

-15

-10

-5

0

5

10

15

20


Rea

l G

DP

gro

wth

% p

.a.

SA

0 10 20 30 40 50 60 70 80 90 100

NZIreland

TaiwanChina

Spai

n’60

Thaila

nd

Cameroon

ZaireEstonia

Lithuania Russia

Chile, S Korea, Singapore

1995’s fastest-growing countries (& a few 1960s OECD countries), had <20% government. Few big-government countries (like SA) grow fast.

Fast growth seems easier (not easy) by reducing government size than by improving its performance (reducing the harm).

The way to go


-20

-15

-10

-5

0

5

10

15

20


Rea

l G

DP

gro

wth

% p

.a.

SA

0 10 20 30 40 50 60 70 80 90 100

NZIreland

TaiwanChina

Spai

n’60

Thaila

nd

Cameroon

ZaireEstonia

Lithuania Russia

Chile, S Korea, Singapore

Ethnic Chinese?

European?

Slav?

African?

- inescapable differences between countries - different “natural growth rates” - dooming SA etc never to achieve fast “Asian” growth

A commonly-held alternative assumption

OECD

OECD

unconstructive & racially offensive


Fast African Growth (1990-97)

0 2 4 6 8

Lesotho 7.2%SudanUgandaChadBotswanaMozambiqueMauritiusBeninTunisiaGhanaMalawiAfrica 2.5%World 3.3%

0% 8%

|SA


But still inequality grows

2.8 billion people live on <$2/day

GDP of $30000pc is ca. $82 or R580/day

1.2 billion people live on <$1day

20 richest / 20 poorest countries

x 19 (1960) x 37 (2000)


Poor forever?

� 200 years of rapid global growth

� widening income gaps between rich and poor countries� some once-poor countries are making progress� but overall income inequality has failed to diminish

� the rich get richer, and so do the poor …….

� ……. but the poor never catch up

WRONG ANSWER!says Chicago U’s Robert Lucas


Incomes per head$30000

$6001800 20001900

Bigger gap - faster catch-up

… once you start!


World income per head

1800 20001900 2100

Annual growth rate 3%

Inequality(log std dev) 1%

2%

0.5%

much inequality is transitional


Why catch-up is likely

� demonstration effect and technology diffusion

� capital seeking comparative advantage� pressure from citizens eager to benefit

� movement of resources and people as needed

� irrelevance of individuals and IQ, race, etc

� ever fewer local niche constraints

i.e the invisible hand of globalised Darwinian survival

of the fittest memes - liberal democratic capitalism … or better still?


The Demonstration Effect

As the cock said to the hens

when he held up an ostrich egg;

“I am not disparaging,

neither am I criticising;

I am merely bringing to your attention

what is being done elsewhere.”


OETS individualism without limit?

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15% state … to 5% state … to 0% state

More freedom

and more growth … and then?


Coming, ready or not!� government is following religion into decline

� but may linger on in pockets

� consensual, non-coercive solutions may proliferate� we may not have to confront government-believers

� rainbow-anarchy is cheaper than revolution

� it may arrive sooner than you think

5-20% government may be optimal,

but that’s probably not the way to bet.

Human nature is more perfectable than government


After statism and collectivism

The core libertarian ideas

individual rights

order emerging spontaneously from the enjoyment of rights

limited government or market agencies to protect rights and allow order to emerge


Fukuyama’s ‘yes, but …’� industrial economy (1950s) to information society

� for social values, the Great Disruption

� crime, family, trust, moral miniaturisation

� new norms, self-organisation, spontaneity

� the (capitalist) Great Reconstruction?

Market exchange is not, but is not unrelated to,

a moral community’s reciprocal altruism.

And self-interest may promote moral behaviour

� lost social capital (informal norms > cooperation)


Fukuyama’s Universe of Norms

HIERARCHICALLY

GENERATED

SPONTANEOUSLY

GENERATED

RATIONAL - DEBATED & COMPARED IN ADVANCE

ARATIONAL - SOCIALLY INHERITED


Order, Disciplines, Norms

HIE GR EA NR EC RH AI T C EA DLLY

SPO GN ET NA EN RE AO T U ES DLY

RATIONAL

ARATIONAL

Social engineering The market order

Constitutionalism CARS4

Formal law Common law

Historical tradition

Revealed Incest taboosreligion Folk religion

Biologically grounded norms

disciplines

Political science Economics

Sociology Anthropology,biology

Political Self-organised norms

Religious Natural


Prospects for Growth in SA

Harris

Jim

?

?

That’s all,

folks!

$30 000+

Prospects for Growth in SA

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