Monday, February 15, 2010

Why Nationalisation Will Never Work

There are those that have asked us why nationalisation of private assets is bad. For me, at least, it seems so obvious that I have never bothered to respond. No disrespect intended, just a matter of limited time. Ian Davidson provides an outstanding explanation on why nationalisation will be doomed to fail, and would sink South Africa with it. This should be required reading for everybody.

I would like to start my speech by handing out a bouquet to Mineral Resources Minister Susan Shabangu. Her comment that mines would not be nationalised in her lifetime showed extraordinary leadership. It showed that she understands that international capital markets are fickle, that markets like certainty, failing which investment capital is hesitant or comes with a high risk premium.

For this she gets top marks - by contrast Julius Malema is shown to understand as much about markets as he does about woodwork.

I regret the President did not address this vital debate.

Proponents of nationalisation have not outlined a cogent case as to how such a move will create jobs and reduce poverty - surely this country's highest priority. Yet the proponents of nationalisation continue to trumpet it as the panacea to our country's socioeconomic ills.

These calls appear to be based on the assumption that the state has the ability to run mines profitably and SOEs effectively.

The truth is that State Owned Enterprises over the last 15 years have lurched from one crisis to another. Over the last three years R243 billion has been spent on rescuing parastatals.

They have been a drain on the state's limited resources rather than a net contributor to economic prosperity.

Yet these institutions are supposed to be the vanguard institutions of the ANC's "developmental state".

There are two fundamental problems which stand in the way of SOEs advancing the ANC's "developmental state", namely financial and governance - and incidentally they are interlinked.

Financially, SOEs lack capital and are investment hungry. Eskom's current difficulty in funding its infrastructural expansion has clearly exhibited that neither it, nor government, have the financial capacity to fund it - hence Eskom's endeavour to get private sector investment for the Kusile, and no doubt other power stations. This is to be welcomed. The DA has long argued for the private sector to play a greater roll in infrastructural development.

Secondly, the issue of governance. This speaks directly to the issue of cadre deployment as opposed to fit for purpose, where merit, skill and ability are the determining factors for appointment. It also speaks to the fact of regular interference by political office bearers in the day to day running of SOEs. Boards get turned into lame ducks as politicians meddle in the running of these entities.

This is exemplified by the paralysis we have seen in the long list of parastatals without CEOs. Armscor recently joined the list of Transnet, SAA, Eskom, Denel, SA Tourism - and of course we have all recently been aware of the turmoil at the SABC. Last Thursday the CEO of the Road Traffic Management Corporation took voluntary leave pending investigations into allegations of gross financial mismanagement, procurement irregularities and misappropriation of funds.

In all of these there is a consistent pattern - parastatals being mismanaged into the ground, or brought to their knees by political interference and corruption, only to be bailed out and the management and the board replaced at great cost.

For a country that has yet to find a successful formula for running existing SOEs, the creation of more SOEs in the name of the developmental state is laughable.

Against this backdrop questions have to be raised about the ANC's renewed determination to build a bigger and even more interventionist state.

The state is currently struggling to fulfil some of its most basic functions.

Too many institutions, as well as government departments are already too incapacitated and overwhelmed. Giving them additional responsibilities and power of intervention when they cannot execute even their core functions is likely to cripple them altogether.

The state lacks critical management capacity; it does not have a skilled, efficient and meritocratic bureaucratic elite, prerequisites for a developmental state. On the contrary the ANC's policy of cadre deployment has ravaged the public service, fuelled corruption and stalled service delivery.

No Mr President, instead of government trying to nationalise or control everything we need to open the economy, promote opportunity, create competition and give choice.

Mr Speaker, one of the most critical tasks facing our nation is economic growth and the creation of jobs.

Now I hear the President boasting that Government created 480 000 public works job opportunities. What do "opportunities" mean - work for one day, one week, one month?

The truth is the economy lost 870 000 real jobs.

The truth is government's capacity to create real jobs is limited - either 500 000 last year or 4 million by 2014.

It is the private sector which is the engine room in this regard, yet it is looked upon with suspicion by this government and loose threats of nationalisation are thrown about.

We welcome the President's proposal of a wage subsidy for younger workers. But this is nothing new. Government mooted it in its 2007 Budget - nothing happened.

Indeed we, the DA set out detailed proposals in this regard in 2005. Let me read to you Minister Manual's response (Hansard, 15 March 2005 column 1072):

"What you are saying is: Give a tax incentive to people to employ others at home. What you're looking for is a colonial mindset. You want to be waited on hand and foot by black people who will carry and fetch, and the more you employ the more the state will subsidise that lifestyle. We will not do it for you in our democracy."

Well Minister Manual?

A wage subsidy is an important intervention, but it is at best a palliative.

We need to grow the economy. To do this we need increased investment and higher productivity.

Government is focusing on neither because tripartite unity is the issue of primary importance and giving a strong lead on either of these two key issues would mean confronting the protective trade unions and squashing talk of nationalisation, all of which would threaten tripartite unity.

We need leadership Mr President.

Source: Politicsweb

4 Opinion(s):

Anonymous said...

Look anyone with half a brain will confirm that nationalization will not work, but we are dealing with no brainers here, which means that they do not possess the logical thought processes we take for granted.

The ANCYL has indicated that Susan Shabangu sings another tune when they have private meetings. Assume for a second that this is the truth. It implies that she is playing a game of deceit, telling investors what they want to hear. She almost sounds as sincere as Zuma.

One thng that everyone forgets is that Malema is ANC. He is the tester of the water.

The mines will be nationalized and no amount of logic or reason will deter these people from following this road. This is Africa.

Anonymous said...

I have no doubt that they will take the mines and try to take the banks in one foul swoop. Susan Shabangu in my view is just playing a Zuma and hiding what it is that they are really thinking and doing.

Time will tell. 2-3 more years of ANC misrule I would say post ANC centenary in 2012 will be the final straw.

Anonymous said...

Not sure what the black masses think will happen once they grab the mines? Do they honestly think that all their problems will be solved overnight? Same as the SWC - everyone thought they'd be able to afford to live in Constantia once it was over. Meantime back at the ranch, the country will spiral into chaos once the mines are nationalised, only to be bought out by the Chinese to "save" jobs and strip the country bare. It's called "redistribution" of wealth, communism 101. God, they are so dumb, these stupid K4s. It's like watching your toddler heading for a fall and not being able to do anything about it.

gcohen said...

When some one like Ian Davidson address Zuma he (Zuma) must have a real problem, the intellect flying over his head must sound like a Boeing 747 on take off. No wonder the poor bugger is always sweating and trying hiding his nervousness.