Had the Norman kings of England in the 11th and 12th centuries a better grasp of economics than that displayed this week by Rob Davies, Minister of Trade and Industry?
In briefing Members of Parliament about Government strategy to support local industry now that Government is facing a fiscal cliff, Davies said it was unlikely to receive extra cash to support industrialisation (As the Budget bites the focus shifts to buying local… ) Government would therefore be “more vigorous” in getting value for money out by procurement of local inputs, rather than imported ones.
The strategy Davies proposed was (you guessed it!) more state control and prescriptions: Rather than pursuing growth through the tradeable sector, stimulation is sought through consumer spending with Government as the main consumer…
According to Davies Government can boost state purchases of local products by designating sectors in which state enterprises and departments will be forced to buy local. “We will be rolling-out more designations, and will support better implementation.” Davies’ argument is the following: Government’s purse is under pressure. The largesse distributed through a range of public sector initiatives will end. We will keep local jobs by introducing prescriptive procurement rules that will limit imports.
Patriotic and proudly South African? Tick those boxes. But tick also the one indicating bad economics. Davies (again) displayed the inability of Government to grasp what is required to turn the economy around. His proposal is to keep local industry going by a consumer (Government) that has run almost out of cash.
William the Conqueror and his successors recognised the difference between a market and a fair. Markets were for local consumption. Typical of the age, these markets were regulated by stall fees, turnover taxes and even toll. The fairs were far fewer and aimed at export from the locality as well as procurement of foreign or elsewhere produced goods. Fairs in St Giles, St Ives and Stourbridge drew merchants from Flanders with their linen and draperies, merchants from Gascony with wine, Venetian traders with spice and silks.
The fairs also provided foreign merchants and agents from the then known world (and the rest of England) to obtain lead from Derbyshire, tin from Cornwall and iron from the Sussex forgeries. Fairs provided the opportunity to import that which could not be produced locally at the same quality and price. It also provided marketing outlets to penetrate foreign markets. For that same reason, English merchants were regular visitors to the fairs of Bruges and Lyon.
So important were these early opportunities for international trade that special arrangements applied to the fairs. The Court of Husting (in the City of London) and responsible for administration and jurisprudence, suspended its sittings during the fairs of St Giles. Special judicial tribunals – known as the Courts of Dusty Feet – were established since the merchants who visited fair after fair could not await the delayed jurisprudence of the normal courts.
The Magna Carta of 1215 made it clear that trade ought to be free: “All merchants may enter or leave England unharmed and without fear, and may stay or travel within it, by land or water, for purposes of trade, free from all illegal exactions, in accordance with ancient and lawful customs.“
This basic grasp of economic freedom is fundamentally absent in most of Government plans, policies and strategies. Davies clearly rejects it, so does Cyril Ramaphosa in his recently announced New Deal and Nkosasana Dhlamini Zuma remains a firm believer in the developmental state.
Cyril’s New Deal, Dhlamini Zuma’s developmental state and Davies’ idea that a cash-strapped Government can promote industrial development by buying local, are far removed from proposals for growth: they are closer to attempts to recycle poverty.
The route out of poverty, is to ensure South African firms are competitive on the global fair. That would imply at least:
- Get criminality down (the recent slippage by 14 positions on the WEF’s Global Competitiveness Index was caused largely by Government inefficiency: SA was the 5th worst country regarding the cost of crime to business…);
- Retain skilled people (recommendations by Ricardo Hausman and the International Panel on Accelerated and Shared Growth ASGISA were just ignored since these did not fit ANC ideologically inspired strategies);
- End wasteful State-owned Enterprises (high electricity tariffs, high import tariffs)
- SA is far removed from markets, efficiency in our ports is essential (that can only be achieved by privatising them);
- Free our large enterprises from restrictive leg-irons that make them less competitive (Mining Charter, BEE capital demolition, inflexible labour regimes – the latter stifle especially small and medium sized businesses).
The age-old distinction between market and fair remains relevant: EOSA’s research based on analyzing more than 82 000 enterprises in 415 SA cities and towns, revealed that SA has no shortage of “market”-entrepreneurs for the market (aimed at local consumption). That entrepreneurial space is almost automatically occupied. What SA desperately needs is more “fair”-entrepreneurs: those that understand how to compete internationally both in terms of quality and price.
The latter do not need prescribed procurement from Government: they need only a government that can push criminality back, that would maintain efficient infrastructure, and that would not through inefficient monopolies in energy and ports and through a business-unfriendly policy mix curtail their competitiveness.
Lipson in his The Economic History of England Vol 1 had observed that the significance of the fairs was even at more fundamental level. “It was a cosmopolitan gathering and the association with men from distant parts must have broadened the horizon and widened the outlook of those that frequented it. As the common hearth of the nation it must have fostered mental progress and active interest in the world that lay beyond.”
The ANC still hasn’t made peace with the “market-economics…” Averting a final downgrade by Moody’s requires a love affair with “fair-economics”: that seems to be a bridge too far…