(This upside-down Bank economist simply cannot concede that the formula
Cosatu suggests - "higher wages, employment creation, lower interest
rates, and a weaker currency" - is indeed an enviable, coherent
strategy, entirely consistent with the national interest. So long as
exchange controls are also rapidly imposed to prevent yet another surge
of capital flight, this would be the most logical short-term Keynesian
strategy. Bank staff again prove to be hard-wired neoliberal, no
different than when two economists coauthored and modeled the failed
1996 GEAR homegrown structural adjustment policy, which failed on all
fronts except fiscal austerity and inflation. That momentary 2008-09
Keynesian turn was half-hearted and is now conclusively reversed. For
Mahajan, the Cosatu demands represent "an unenviable policy circle for
the Government to square" - simply because they would require more
domestic debt, higher taxes, lower profits, a smaller share of surplus
going to financiers, and an outright rejection of WashCon dogma.
Fortunately, Mahajan considers the present situation "alarming". Bravo,
trade unions!... and as for his economic celebration of the World Cup,
here's the latest version of our reality check:
http://www.ukzn.ac.za/ccs/files/Bond%20%20A%20Political%20Economy%20of%20the%20Soccer%20World%20Cup%202010%20ver2.pdf
)
http://blogs.worldbank.org/africacan/after-the-world-cup-policy-dilemmas-tackle-south-african-government
After the World Cup: Policy Dilemmas Tackle South African Government
Submitted by Sandeep Mahajan on Tue, 2010-08-24 13:09
The 2010 FIFA World Cup drew to a close on July 11, 2010, with a Spanish
victory and a thunderous ceremony. South Africa took a bow as the world
applauded its wonderful organization of the high profile tournament.
A record number of people across the globe viewed the tournament, and
the crime rate was the lowest of any World Cup. The direct economic
impact of the event is estimated at around 0.5% of GDP in 2011, and the
tournament did much to burnish South Africa’s image across the world as
an attractive tourist destination.
Sadly, the real drama started after the curtains came down on the World Cup.
In particular, a coalition of unions, representing over one
million-public servants -- including teachers, doctors, nurses, police,
and court and government officials -- has launched an indefinite strike
after the unions’ demand for an 8.6% salary increase (plus 1,000 rand
monthly housing allowance) was rejected by the Government.
The latest counteroffer by the Government was 7% salary increase and
housing allowance of 700 rands, and even that offer it says is barely
affordable, coming as it is on the heels of a two-third increase in its
wage bill in the last three years.
In a country with one of the highest unemployment rates in the world,
made worse by the global crisis, and with inflation running at around
4%, the Government’s offer would seem rather generous. But the unions
wanted more and have pressed ahead with the strike, severely curtailing
delivery of essential government services for the ordinary people.
Earlier, under acute pressure from the unions, Eskom, the public power
utility, had agreed to a 9% wage increase, and Transnet, the transport
utility, to an 11% increase. In the meanwhile, workers in the car
manufacturing industry are demanding under threat of a strike that their
salaries be increased by 15%.
As noted, this is quite alarming set against the unemployment figures.
The official unemployment rate stood at 25.3% in 2010Q2, up from 21.9%
in 2008Q4, reflecting a cumulative loss of close to 1.1 million jobs
(almost 700,000 of them in the formal sector). Disheartened by the bleak
prospects, large numbers of men and women have simply dropped out of the
job market, indicated by a precipitous decline in the labor force
participation rates; from 57.3% in 2008Q4 to 54.3% latest.
The ranks of “discouraged” workers swelled as a result by 739 thousand
over this period, and, including them, the unemployment rate increased
from 26.7% to 32.8%. The impact of the global financial crisis in terms
of job losses has also been disproportionately higher in South Africa
compared with middle income countries in Eastern Europe and East Asia,
underscoring the structural rigidities in the South African labor
markets. Total employment level fell by 7.5% between 2008Q4-2010Q1,
while the real output loss was only 0.5% over this period.
The unions are also calling for further reductions in policy interest
rates, and were visibly miffed at the South African Reserve Bank after
it decided to keep the repo rate at 6.5% in July. With CPI inflation
running at just over 4%, a strong rand, still fragile domestic demand,
and growing global concerns over deflationary prospects, there certainly
was an argument to be made for a rate cut, but, ironically enough, the
above-inflation wage bargains proved to be a big deterrent for SARB. The
unions, in the meanwhile, have also called for a weaker rand to
stimulate the exports sector.
Simultaneously calls for higher wages, employment creation, lower
interest rates, and weaker currency: an unenviable policy circle for the
Government to square.
--
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