Stock market rallies, economy tanks

2013-09-26 19:06

So, surprisingly, the talk of tapering off the flood of cheap money in Bernanke’s speech last Wednesday was equivocally postponed, giving the JSE a boost.

Wish that would be the same for the real economy.

The effects of U.S. quantitative easing and a global glut in cheap money have been evident in stock markets around the world. Financial returns are booming. While there’s a bull in the local bourse, employment and real growth remains bearish. Inflation had breached the 6% upper threshold and unemployment is at its peak. The private sector has not been a net creator of jobs since the abysmal collapse in 2008, the public sector is the only real creator of jobs and strikes have become all the more frequent.

Nothing seems real any more. Agriculture, mining and manufacturing no longer make significant contributions to the South African economy. With our abundance in low skilled labour and relatively less capital intensity, one would guess that would be our comparative advantage. But no, the services industry plays a bigger role, not real primary and secondary production. Not mining. Not manufacturing. But business services, financial services, call centres, and social services (i.e. the public sector).

According to the IMF 2012/13 Global Competitiveness Report, South Africa ranks 3rd out of 144 countries in financial market development, 2nd in the soundness of its banks and 2nd in the availability of financial services. It is strange to see a country that is highly competitive in these developments, especially if that country is the most unequal country in the world, the rape capital of the world, with an education and public health system that is in a mess (132nd out of 144 countries in health and primary education, 143rd in the quality of math and science education), and a rigid labour market and its efficiencies among the worst in the world (140th for a lack of flexibility in wage determination by companies, 143rd in rigid hiring and firing practices, and 144th out of 144 countries for significant tensions in labour-employer relations).

Everywhere around you hear of economists forecasting growth rates – months upon months upon months of consecutive growth. Well, it certainly doesn’t feel like it. We hear of consecutive months of positive growth and a manufacturing sector, for example that experiences positive growth. But why do we neglect to see the ramifications of minimum wages and industrial actions? Unsecured loans are another great way to boost consumption spending and economic growth. Let’s ignore the persistent indebtedness of individuals and rather see the growth of public sector employment and loan advances as a great thing for economic growth. I mean, that whole top down approach, a real growth rate of 2.5% is so misleading that we seem to ignore the underlying structural problems in the economy. Problems like living wages, low productivity and consumer indebtedness.

I’m not a proponent of this thriving service economy, an economy that needs to rely on stimulating consumption and government spending to achieve economic growth and external capital inflows to support our continuous need to live beyond our means.

Call me unorthodox but we need a solid primary and secondary sector, sectors that build things. A solid education and health system, not world-class sophisticated financial market development. A solid agriculture and manufacturing base, not a tertiary sector dominated by business and financial services.

We need to get real.

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