Former President Jacob Zuma’s MK Party was undoubtedly the star performer of this year’s elections.
The previous benchmarks set by new parties like COPE (7.42%), and the EFF (6.35%), were blown away. In the wake of this result (14.58%) and the fact that this startup nearly took a province to boot, analysts have interpreted this performance in numerous ways. Of interest here is how a vote for Zuma reflects one’s attitude to wealth creation.
Throughout Zuma’s career, no amount of money has been enough to satisfy his consumption.
According to a KPMG audit in the early 2000’s, he even had to be bailed out by former President Nelson Mandela and was reliant on the likes of Schabir Shaik to fund his lifestyle, having to ask them to pay for individual purchases. That little detail has always been interesting to me. Instead of being given a lump sum of money, perhaps hidden under a sofa, the man had such weak self-control he had to ask Mr Shaik to pay for individual purchases like shoes.
How humiliating! So, I thought, millions of people read or heard the same stories and could relate to them. After all, we are a country that has exceptionally low savings for an emerging market; only 6% of economically active South Africans are on track to retire comfortably. Meanwhile Standard Bank analysis has shown that this is not an income problem, as the bank’s prestige clients (earning between R25,000 and R58,000) had little in the form of emergency savings.
For an emerging market, our economy is unusually dependent on consumption. It’s clear that the likes of Jacob Zuma are not unique in being bad with money. Most South Africans are. Listening to some of the conversations on social media from celebrities and the like, there is a tendency to see consumption as a sign of wealth. When you’ve ‘made it’ you buy the big house, the German car, the expensive Swiss watch.
Universal things
It is one of the universal things about South African society, especially black people. Recently a sneaker brand that gained popularity during the Covid lockdowns, Drip Shoes, was reported to be facing liquidation. Some of the information that came out is that the owner was living in a house where he was paying around R39,900 per month in rent; something he evidently could no longer afford based on his income, but he felt the need to continue occupying such an expensive property.
Before that, an affidavit by the former VBS mutual bank chairperson was leaked. He claimed that he had turned the bank into a piggy-bank for various politicians (including Jacob Zuma, who received a R7.8 million bond to pay back some of the money spent by the state upgrading his Nkandla homestead). It’s hard to understand why the former chairperson could possibly think handing out money to politicians without risk assessments would lead to anything but a collapse in the bank, and the loss of the savings of millions of elderly people.
These VBS loans were, once again, used to fund consumption expenditure. It was not as if the people receiving the loans were starting businesses. The people involved as well as their supporters see nothing wrong with this. To them consumption is wealth. This is a dangerous state of affairs for South Africa, since the people who believe this also believe in massive state intervention in the economy. The inevitable result of such intervention will be to convert capital into consumption spending, as long as those doing it believe wealth is equivalent to spending a lot of money.
Don’t resonate
I am not the only one saying it. I speak to ordinary MK supporters (some of whom are in my extended family) and they truly believe the rampant consumption under Zuma’s presidency was good because ‘black people were the ones getting the money for once’. Time preference and opportunity cost are concepts that don’t resonate with people who believe that.
They don’t see that this money has to be paid back (with interest) by taxpayers and this will come at the cost of building up the country’s capital stock. The worst mistake the government made – and something which former Minister Pravin Gordhan should get a lot more flak for – is responding to the 2008 financial crisis with massive increases in spending. In most cases this simply aided the transfer of capital into consumption. This can be seen in the collapse of SOE’s after this period: SAA, Eskom, SABC, Post Office, Denel etc.
We cannot afford to engage in stimulus spending when we have such a consumption-based culture. This is especially true because this spending is often allocated according to BEE criteria and, to simply face the truth, black people in South Africa exhibit the worst parts of this culture. This is not everyone of course, so the government should be asking itself how to make sure that funds reach only the black people who are savers and entrepreneurs.
There are a few ways this can be achieved. The one I favour is simply to lower or eliminate taxes for individuals and businesses in the townships and informal settlements, as well as reducing the regulatory burden for such businesses. This will have to be accompanied by cuts in government expenditure at first, but in a few years, the growth in economic prosperity should more than make up for it.
The advantage of this approach is that markets do the capital allocation. The more efficient users of capital in the townships will tend to attract more of it. It encourages the rest of South Africa to invest in townships and informal settlements without any government coercion to compel this investment. It solves perennial issues, such as the exorbitant transport costs with which workers must contend.
Capital into consumption
The government approach to developing the townships is more of the same big government stimulus spending that has only served to transform capital into consumption.
The so-called ‘township economy’ policy of the Gauteng government is reliant, yet again, on government spending money on “entrepreneurs” chosen by the government. Experience shows that this money will simply be transferred to the politicians’ friends, who will spend it on increasing their consumption.
After all, birds of a feather flock together; we can’t expect the friends of politicians to be frugal savers and investors when the politicians themselves are not like that.
[Image: 3D Animation Production Company from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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