‘Dismal science’ misled efforts to fix economy

23 Apr 2013 | Tony Leon  | Original Publication:  BDlive
Our policy makers can’t do much about the debunking of academic economic debates but they can fix risk sovereign factors, writes Tony Leon

THE old joke about economists having called nine of the past five recessions wrong seemed especially true of the "dismal science" and even its most illustrious practitioners in recent days.

Two of the wisest owls in the Harvard aviary were recently proved wrong on a central assumption. Kenneth Rogoff and Carmen Reinhart were apparently checkmated by a doctoral student at the University of Massachusetts, Amherst. According to reports, Thomas Herndon, 28, said of his exposé of the basic flaws in the influential Rogoff-Reinhart 2010 study: "I couldn’t believe my eyes when I saw the basic spreadsheet error."

The paper in question is not of mere academic interest only. It has been at the heart of the recent debate on how to repair the world economy and revive it everywhere: in essence, do we spend and reflate our way out of recession or do we pull in our horns and cut public expenditure, repair national balance sheets and escape "the black hole of debt"?

Rogoff and Reinhart gave comfort and apparent empirical cover for rapid fiscal austerity, the path preferred by so-called deficit hawks, such as the US Republicans and the UK coalition government. Now, it appears that contra the central finding of the Rogoff-Reinhart study, economic growth does not fall sharply when national debt reaches 90% of gross domestic product, the percentage they had cited as the tipping point at which the walls of a national economy collapse. In other words, countries do not need necessarily to don the austerity hair shirt to boost growth on the basis (in the words of another economist, Adam Posen) that "not all debt accumulation is bad for growth". And very often, low growth heightens indebtedness rather than the reverse.

All this seems ancient and obvious history to those of the Keynesian persuasion locally and abroad. But before its local adherents from the Congress of South African Trade Unions and others in the left field apply even more pressure for looser fiscal and monetary policies, another global economic event last week, which received muted attention here, compels attention. This time it wasn’t a dispute among economists, but a message from the markets, which an aeon ago Trevor Manuel moaned were "amorphous". Formless or not, the markets decided to end the decade-long gold bull run, dropping the price of our key metal export so violently that early last week it sustained its sharpest two-day fall since 1983. If not quite amorphous, then markets crystallise, in the words of Financial Times maven John Authers, "in sharp and violent moves" as shareholders know only too well. Low Chinese growth, Japanese quantitative easing, and the Cyprus gold sell-off and less fear of inflation all played their part. Overall, the markets have taken a gloomy view of the prospects of global growth doing anything remarkable soon and have discounted the price of commodities accordingly.

Where does that leave South Africa? With skittish post-Marikana investors and a mineral regulatory regime "struggling with international best practice principles", to quote mining lawyer Peter Leon, our space in the fight for diminished investor enthusiasm was very tight. Now with a plunging gold price, it has just tightened even further.

There is a fascinating article by William Finnegan in the March 25 edition of The New Yorker about Australia’s richest, and probably most unpleasant, person, mining magnate Gina Rinehart. Buried in the account of her rise to further riches, as a result of her father Lang Hancock’s iron-ore empire, is a compelling insight into how Australia has enjoyed, despite the great recession, 21 straight years of sustained economic growth and running up big national debts to sustain its generous welfare provisions. It is also a high-wage country, whose minimum wage in US dollars is twice the federal minimum wage in the US. Yet its export growth and prosperity is significantly dependent on its mineral resources. In a word, it offers three basic factors that are glaringly absent here and in neighbouring jurisdictions: high efficiency, low sovereign risk and excellent infrastructure. Addressing the relative attractiveness and disadvantages of a developed versus frontier places of doing business, Finnegan offers this comparison: "The idea, a threat really, much repeated — that the mining multinationals will soon pick up and leave (Australia) for Africa in search of cheaper labour — ignores basic factors such as efficiency, infrastructure and sovereign risk."

He reminds readers and investors, that in January, Rio Tinto was forced to write off a $3bn investment in coal in Mozambique, largely because of infrastructure problems. It also cost the CEO his job.

Our policy makers and regulators can’t do much about the rise and later debunking of academic economic debates. But they sure can, and must, fix the risk sovereign factors which attach to our country.

• Leon is the author of The Accidental Ambassador (Pan Macmillan). Follow him on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA
 

 

 

Seat at top table confers a status beyond money

26 Mar 2013 | Tony Leon | Original Publication:  BDlive

South Africa joining Brics despite its modest economic size is a bit like getting a good seat at a top table in a fashionable elite restaurant, writes Tony Leon

THE five developing world leaders gathering in Durban on Tuesday for the fifth Brics summit are politicians with divergent agendas and different domestic challenges to address.

They do, however, conform to the more-or-less universal laws of political leadership — when you face pressing problems at home, do one of three things: blame someone else, or change the subject, or go travelling/hold a summit. In the case of the Brics jamboree, all three boxes can be ticked simultaneously.

President Jacob Zuma’s recent interview in the Financial Times provided a master class in blame-avoidance. He blamed the apartheid legacy and the eurozone crisis for South Africa’s low-performing economy and deflected interviewer Alec Russell’s diagnosis of "four troubled years in office and a disastrous six months for South Africa’s image" by awarding his government 70% for its achievements to date.

Still, spare a thought for summit host Zuma. Insiders have criticised his foreign policy achievements as being a case of "care and maintenance" for the grandiose African Renaissance project nurtured by his predecessor, Thabo Mbeki. Yet, it was on Zuma’s watch that South Africa joined the Bric quartet of developing world leaders, despite our modest economic size, around one-fifth of the next-smallest member, Russia. It’s a bit like going to a fashionable elite restaurant: getting a good seat at a top table confers the sort of status that goes beyond money. Undoubtedly this thought has also struck other economic leaders of the developing world, who have yet to be invited and each of whom has a characteristic not represented: Mexico (Spanish and second-largest Latin American economy); Turkey (pivotal state at the bridge between Middle East and Europe); and Indonesia (high-growth Muslim Asian state).

Part of South Africa’s attractiveness to the Bric founders, who owe their provenance to the pen and acronymic ability of the very western-centric Jim O’Neill of Goldman Sachs, is as proxy for the rest of Africa.

However, Nigeria is, on some estimates, on the cusp of overtaking South Africa as the continent’s largest economy. Its central bank governor, Lamido Sanusi, recently offered his thoughts in the same forum as Zuma, the Financial Times. Both men commented on the role of China in Africa, hardly surprising since, over the past decade, African trade with China has risen from $11bn to $166bn.

Whatever Zuma’s private doubts, as host to new Chinese leader Xi Jinping, for whom the Durban summit will be one of his first foreign outings since his installation as president of China earlier this month, Zuma offered this comfort: he told western companies to stop warning against China’s embrace of Africa, advising: "We think we can see the benefits." Nigeria’s Sanusi took a far different tone. He wrote that: "China takes our primary goods and sells us manufactured ones. This was also the essence of colonialism." Actually, this was not very different from the recent remarks of another absent guest at the Durban shindig, Mbeki.

But where Sanusi struck a very different and refreshing chord from African leaders past and present was in this dose of candour: "We cannot blame the Chinese, or any other foreign power, for our country’s problems. We must blame ourselves for our fuel subsidy scams, for oil theft in the Niger Delta and for our limitless tolerance of incompetence."

There is, of course, a link between the "limitless tolerance of incompetence" and the faith that all five leaders place in the virtues of the "development state". Although, to be perfectly fair, given the European Central Bank’s cack-handed response to the latest financial crisis on one of its islands, Cyprus, the alternative and more traditional Anglo-American model is creaking at the seams.

But it is from the other Asian giant at the summit, India,that a warning voice of the limits of the state-centric approach recently emerged. While none of the summit participants could be accused of being liberal, each of them faces metastasising corruption across their body politics.

Indian author and former corporate CEO Gurcharan Das, whose latest work is splendidly entitled India Grows At Night, believes the answer to blighted governance in the world’s biggest democracy lies in the "liberal case for a strong state". He derived the book title from the fact that "India grows at night while the government sleeps". In other words, a story of private success and public failure.

But even more striking is the distinction he draws between governments that are "pro-business" and those "pro-market". The rising income disparities and embedded corruption in all five Brics countries can be partly explained by the phenomenon. Pro-business attitudes lead to crony capitalism. In contrast, a pro-market approach would meet this need: "Where the state is needed — to provide law and order, education, health and water — it performs poorly. Where it is not needed, it is hyperactive, tying people up in red tape."

Don’t expect such lashings of candour in Brics leaders’ final summit communiqué.

• Follow Tony Leon on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA    

 

Lessons on change from a past we dare not forget

05 Feb 2013 | Tony Leon  | Original Publication: Bdlive

Our history contains lessons on how leaders change and the extremity of circumstances that forces change upon them, writes Tony Leon

A FATUOUS local academic apparently announced to a colleague that any history before 1994 was of "no interest" to him.

Doubtless then, the occurrence of two anniversaries last week would have passed him by. But for the rest of us, they are hugely consequential. And both of them contain lessons on how leaders change and the extremity of circumstance that forces it upon them. This might salt a clue or two for our national renewal and the prospects for a self-proclaimed "agent of change" soon, apparently, to enter our political arena.

Seventy years ago, on January 31 1943, Field Marshal Friedrich Paulus surrendered the remnants of the Wehrmacht’s 6th Army to the Soviets at Stalingrad. This epic siege is well revealed in Max Hastings’s riveting account of the Second World War, All Hell Let Loose. The title referred to Stalingrad, where the "butcher’s bill" amounted to about a million lives lost in its wasteland. But this battle was the beginning of the end of Adolf Hitler’s dreams of world domination.

However, just seven months before, the military terms of trade were starkly different. As Hastings reminds us, after the fall of Sevastapol, Kharkov and the Crimea, "Russia seemed at its last gasp". The key to the subsequent reversal of fortunes was, in Hastings’s estimation, Soviet leader Joseph Stalin’s ability to "profit from experience as Hitler would not". Aside from his monstrous ruthlessness, he learnt some vital lessons from his early defeats and implemented changes that were unimaginable until they were forced on him by dire necessity.

In Hastings’s account, Stalin "recognised the need to subordinate ideology to military necessity, the prohibited word ‘officer’ was restored … and unit commanders were liberated from their subordination to commissars; henceforward promotion would be determined by competence".

I was wondering why books about epic events of more than 70 years ago still enthrall. One answer was provided by writer Geoffrey Wheatcroft, who suggests we "crave for a heroic age and for leaders of giant stature", in contrast to the "unheroic age in which we now live, and our diminished rulers".

South Africa today is at peace with the world and our circumstances hardly equate to the furnace of the most terrible event in world history. Still, in the acknowledgment of the government, we are not at peace with ourselves as we confront the triple evils of "poverty, inequality and unemployment".

As we attempt to confront some mini-Stalingrads in our own country, from a failing education system to corrupt public services, might we not apply some lessons from battlefields past? Ditching ideology, which impairs growth and job creation, and removing political commissars from frontline delivery agencies and state-owned enterprises would be good places to start. Or do we have to edge closer to the abyss until we start to change?

One leader who peered into the pit of national destruction and decided to reverse course, or hoist the flag of ideological surrender, depending on your take on history, also commemorated an anniversary last week. Twenty-three years ago, on February 2 1990, then president FW de Klerk used his speech at the opening of Parliament to turn his back on the convictions of a lifetime and inaugurate the constitutional processes that led to the creation of a democratic South Africa.

I sat riveted in Parliament (and it was very far back in those days for a lowly backbencher on his first parliamentary day) as the conservative leader of the National Party essentially implemented, from his podium of power, the manifesto of the electorally unsuccessful white liberal opposition.

What impelled this prince of the National Party to systematically dismantle the house of authoritarian power and racial privilege he was bequeathed, which was the result, even if not the intention, of that speech of thermonuclear intensity?

On his account, there were many in his security establishment who felt he should hold fast to the prevailing order and tough it out in the mould of his predecessors. But, he said, as he peered into the future, "I ultimately only saw disaster if we had dug in our heels." Many will contest this self-assessment, and state that he simply read the proverbial writing, etched in the blood of struggle and protest, on the wall.

Still, at least he had the intelligence and courage to read it, even if his grand design for the subsequent negotiations foundered.

Whatever the motives and background circumstances of De Klerk’s epiphany, he was an unlikely, but essential, agent of change. Now, nearly two decades later, a self-styled "agent of change", Mamphela Ramphele, will, on some accounts, soon pitch her tent on the stony soil of South African politics.

Next week, we will hear further on this. Meanwhile, it was Stalin, again, who asked the essential question: "How many divisions has the Pope?"

• Follow Tony Leon on Twitter: @TonyLeonSA

Chaskalson transcended his bias and loyalties

04 Dec 2012 | Tony Leon | Original Publication: BDlive

Many obituarists of Arthur Chaskalson have diminished his legacy by ignoring his ability to reconcile party loyalty and judicial independence, writes Tony Leon



Arthur Chaskalson

JAMES Baldwin once described the US as "the most desperately schizophrenic of republics". I wonder what he would have made of the presence of so many of the good and the great (and the not so great) of our political elite at yesterday’s funeral of former chief justice Arthur Chaskalson? Prominent among the mourners were those who have spent the past few years digging tunnels under the constitutional foundations of our own republic, whose creation stands as a monument to Chaskalson’s legal creativity and political fealty.

The fall of giants this past week (Chaskalson’s death came within days of Jakes Gerwel’s) has led to an outpouring of praise and nostalgic sentiment. With the rule of law under stress, it is comforting to look back at a seeming golden era of constitution-building and its architects, and lament the absence of such figures today.

But the many obituarists of Chaskalson, while correctly underlining his legal pre-eminence, his innate modesty and his abiding commitment to social justice, have diminished his legacy by ignoring his ability to reconcile two seeming irreconcilable things: party loyalty and judicial independence.

Only a statement by the South African Communist Party (SACP) drew attention to the fact that, in the 1960s and 1970s, Chaskalson was "an underground member of the SACP" and, according to it, also served as the party emissary at the constitutional negotiations in the 1990s. In fact, Chaskalson’s official role at the negotiations was as chairman of the "technical committee" rather than as a party negotiator, although his nomination was at the behest of the African National Congress and the SACP.

Indeed, at the multiparty negotiations in Kempton Park, I recall a rather tense moment when he presented a draft that said the draft bill of rights would be interpreted in a manner consistent with a democracy "governed by the principle of equality". When I pointed out that without further qualification, this would simply flatten out future individual claims based on liberty and could lead to many totalitarian temptations in future, Chaskalson was none too pleased. But, after some wrangling, the point was conceded and we managed to insert "freedom" alongside "equality" into the limitations’ clause.

But how was this formidable partisan able to rise to the challenge of interpreting the bill of rights, in his role as founding president of the Constitutional Court, in a way that "defended the constitution, protected human rights … gained the respect of all sections of the community", which was how Chaskalson described his task after his appointment in 1994? I suppose the answer lay not in denying bias and old loyalties but, to an extent, in transcending them.

Other fine legal minds have juggled these roles: US Chief Justice John Roberts, for example had loyally served in the White Houses of Republican presidents Ronald Reagan and the elder George Bush. Despite this background and bias, this year he upheld the bulk of the most progressive Democratic health legislation in a generation, "Obamacare", as it is nicknamed.

During his tenure, Chaskalson displayed considerable deference toward the ruling party when some of its key political interests were at stake (green-lighting floor-crossing, disallowing old ID books for the 1999 general election and refusing to implement proportionality in the allocation of seats for the executive mayoral committee of Johannesburg are three examples). Yet, when it came to protecting citizens’ rights broadly, Chaskalson had no problem finding against the government, on issues as wide-ranging as the provision of emergency housing for the homeless to the hugely consequential Treatment Action Campaign case of 2002, which arrested the madness which then passed for state HIV-AIDS policy.

On the subject of conflict of constitutional roles, spare a thought for Helen Zille. As the national opposition leader, she is at the forefront of defending our constitution as a sort of mighty oak tree that needs to be nurtured on the rather stony soil in which it was planted nearly two decades ago.

Yet, in her other role, as premier of the Western Cape, she must find its protection about as useful as a modest bonsai tree.

With the Congress of the South African Trade Unions threatening to unleash mayhem on the province’s farms, she is reduced to writing letters to the national police commissioner and requesting the president to send in the army. Unlike even a small-town mayor in the US, our constitution provides no original policing powers to the provinces and their leadership.

Our constitution is flawed and reflects the sum, and strength, of the political forces present at its creation. But it certainly beats the alternatives — of not having one at all or hollowing out its rights and entitlements. But it needs constant nurturing by fine minds and independent intellects.

• Follow Leon on Twitter: @TonyLeonSA.

 

JSC has introduced novel criterion for bench

13 Nov 2012 | Tony Leon | Original Publication: BDlive

I can attest to remarkable jurists who profoundly lacked humility, this apparently now essential quality, writes Tony Leon

INVERTING Groucho Marx’s aphorism "I don’t want to belong to any club that will have me as a member", Jeremy Gauntlett is about to launch a fifth application for membership of the South African bench, having been spurned by the Judicial Service Commission (JSC) on four previous attempts.

Perseverance is a judicial quality. Likewise consistency; something possessed in spades by Gauntlett’s nominator for the looming Constitutional Court vacancy, Sir Sydney Kentridge QC, arguably the most distinguished living advocate in both the UK and South Africa. Back in September 1987, in a speech reflecting on decades of judicial gerrymandering by the National Party (NP) government, Kentridge stated "the fact is that when judges are selected on any grounds other than ability, judicial standards must fall".

Thus the more things change, the more they stay the same. On the subject of which, there is one crumb of comfort provided for those dismayed at some of the nominations approved by the JSC. Back in the 1930s, South Africa’s Nazi-admiring justice minister Oswald Pirow noted with disgust: "The problem with political appointees to the bench is that six months after their appointment, they assume they were appointed on merit!"

Still, we must thank the JSC for introducing a novel criterion for the bench. In advancing a reason for Gauntlett’s latest rejection, it cites his lack of "humility". Having grown up in a judicial household, I can attest to some remarkable jurists who profoundly lacked this apparently now essential quality. Two of the great judges of the Natal Provincial Division, John Didcott and Anton Mostert, whose judgments and actions did much to upend the apartheid legal order, were, to put it at its politest, possessed of volcanic tempers and degrees of irascibility. The same is certainly true, both in terms of his personality and legal ability, of the first chief justice selected by the JSC in 1996, Ismail Mahomed, whose mercurial personal constitution was matched only by his respect for the national one. Apparently back then, the JSC did not consider "modesty" an essential attribute for the highest judicial office.

When reviewing Hermann Giliomee’s riveting new work, The Last Afrikaner Leaders, I was reminded of my own role, in the dying hours of the 1993 constitutional negotiations at Kempton Park, in cobbling together a compromise we called the JSC. Early on in the negotiations, my party’s suggestion that judges be appointed by a JSC was accepted, except for the most powerful division, the Constitutional Court. This matter was left over for a "bosberaad", as we then called the "lekgotla", to be convened by the NP and the African National Congress (ANC). In the week before the final days of Kempton Park, I received a phone call from then justice minister Kobie Coetsee. He told me he had just signed an agreement with his ANC opposite number, Dullah Omar, which he was faxing to me. He thoughtfully suggested that "you might want to sound the alarm!" Extraordinary, but true: the man who had just agreed to an ANC proposal to assign the power to appoint Constitutional Court judges to the president and the Cabinet, now wanted an opposition politician to blow the whistle on his agreement. I duly obliged, and after a lot of inelegant elbow twisting, literally at five minutes to midnight on the final night of the negotiations, we agreed that all judges would be appointed by the JSC.

In the 19 years since then, the JSC, intended as a bulwark against political meddling in judicial appointments, for the very reason advanced by Kentridge in his 1987 speech, has seen an inflation of politicians as members and the strong suggestion that a majority party caucus operates informally within it. It has also made it plain that racial demographics is the highest premium in its appointments, although it was only one of several criteria the constitution envisaged.

Excluding and sideling talent, however temperamental and whatever its racial origin, is not what winning nations do. Last week in Johannesburg, I had an interesting encounter with Shaun Liebenberg, the man who once turned Denel around before he left South Africa to head a major multinational in Germany for four years. I congratulated him on his decision to return recently to head up the private equity arm of a Johannesburg consulting company. He then told me a riveting statistic: there are, by his estimation, "over 30,000 South African engineers, pilots, doctors, dentists and technicians currently living and working in the United Arab Emirates".

Doubtless, many of them enjoy earning tax-free dollars, or the shopping centres or even the desert air. But doubtless if we acted on the fact that South Africa has produced some of the finest home-grown talent in the world, some of them would return to help build our country anew.

The admirable diagnostic of the National Planning Commission points in this direction. It states that "successful countries have a future orientation". Amen to that.

• Follow Tony Leon on Twitter: @TonyLeonSA

US outspokenness is a virtue worth importing

06 Nov 2012 | Tony Leon | Original Publication: BDlive

The US might be in gradual decline on several fronts, but its political contests remain in the financial stratosphere, writes Tony Leon

DURING the 2008 US presidential election, Barack Obama frequently invoked the observation of 40 years earlier by Martin Luther King, on whose shoulders his campaign stood, that "the arc of the moral universe is long but it bends towards justice".

Four years ago today, I was resident in Washington DC, where we celebrated election night with a party in the attic of our brownstone rental for a group of visiting South Africans and a few locals.

Watching the drama unfold on TV, it seemed less like political spectator sport and rather more like a shimmering event of historical redemption. Fortified by the obligatory takeaway pizzas and beers, we were all glued to the TV at that around-midnight moment when Obama passed the magic number of 270 electoral votes needed to clinch the presidency and the networks proclaimed him the winner.

I turned away, almost choking on the significance of the fact that the next occupant of the White House was part East African and that he would soon inhabit a residence built two centuries before by slaves of West African origin who, in the words of David Remnick, "had no last names or carried the names of their masters". I noticed that there were few dry eyes in our TV den as we observed the conjoining of a moment of American exceptionalism with a reminder of its more shameful past.

Tonight’s result is likely to be much closer and certainly less historic than 2008, assuming that Obama, as polls suggest, does indeed nose ahead of his Republican rival, Mitt Romney. The Washington Post-ABC News tracking poll released last week shows that, barring a last-minute surge, Obama is going to fall well shy of the 52.9% he won in the 2008 election. It might still be good enough to win, but it won’t be resounding.

The key defection among previous Obama supporters has been across the board among white voters. But although whites still constitute three quarters of the electorate, Obama has maintained his narrow lead by his high retention rate of black and Latino voters, the latter being the fastest growing group in the country.

But the standout feature of today’s US election is that it is the most expensive in the history of the planet. The US might be in gradual decline on several fronts, but its political contests remain in the financial stratosphere, and today’s exercise cost about $2bn for the rival presidential candidates and an overall $5bn for the entire cycle, including the primaries and congressional races.

Race-holding or reversion among voters was perhaps to be expected, especially in hard financial times, although even the most jaded South African would have been offended by the T-shirt worn at a Romney rally in the all-important state of Ohio, which proclaimed: "Put the White Back in the White House."

But the deep animosity, often verging on hatred, Obama inspires in the far less crude and doubtless less racist enclave of the US, big business, is one of the more surprising features of this contest.

Chrystia Freeland noted in a recent New Yorker article that Obama has served the rich "quite well".

His administration supported a $700bn bail-out of Wall Street and resisted the siren calls from the left (such as Nobel prize winners Paul Krugman and Joseph Stiglitz) to nationalise the banks. At the end of September, the stock exchange rebounded to just a few percentages below its prefinancial-crisis high. And Obama is hardly the first Democrat to inflict slightly higher taxes and more oversight of the group we now dub "the 1%". Franklin Roosevelt, the patrician and immensely wealthy president during and after the Great Depression, was dubbed a "traitor to his class".

But the invective and dollars that have been hurled by the super-elite against Obama have been astounding. One of the US’s richest men, hedge fund founder Leon Cooperman, drew a parallel between Obama’s election and the rise of the Third Reich. Blackstone’s Stephen Schwarzman compared Obama’s effort to eliminate tax preferences for private equity firms to Hitler’s invasion of Poland. In the pantheon of the mega rich, Warren Buffett stands virtually alone in holding that no millionaire should pay less than 30% of his income in taxes.

Of course all this sounds very quaint, if not somewhat amazing, to the hard-pressed business sector here at home.

They would love to pay the high-end taxes Obama proposes and doubtless wished they could sound off, in doubtless more decorous terms, like their US counterparts have railed against their president. For every boardroom exile such as Russell Loubser who speaks out, dozens retain their seats at the table, nod in silent agreement and keep their heads down and hope for the best. For all its costs and imperfections, the confidence to speak out remains an American virtue we should consider importing.

• Follow Leon on Twitter: @TonyLeonSA

Local leaders at risk of failing Berlusconi test

30 Oct 2012 | Tony Leon | Original Publication: BDlive

We have advanced down the road where know-who rather than know-how is the price of admission to corporate riches, writes Tony Leon

ON FRIDAY, Silvio Berlusconi, Italy’s former prime minister, was sentenced to four years’ imprisonment for tax fraud. The more sensational of his trials — allegedly paying "Ruby the heart-stealer", an underage dancer, for sex and then abusing his position to secure her release — still lies ahead.

South Africans will be familiar with this trope: the lurid intersection of public office, abuse of position and problems with the taxman. Earlier this year, Berlusconi opined that "political credibility is like virginity — easy to lose, difficult to maintain and impossible to regain if lost".

A number of South African politicians — serving and aspiring — are currently in the dock of public opinion on issues of credibility. In the recessionary world, reputation management and how to repair damaged credibility is a growth industry, and in South Africa there is no shortage of clients.

First in the line-up is Cyril Ramaphosa, Lonmin director and a favoured deputy presidential candidate, according to some in the camp of President Jacob Zuma. The Prince Hamlet of the African National Congress is accused, based on e-mails he wrote to fellow Lonmin executives on the eve of the Marikana mine massacre, of being "complicit in mass murder". Sunday Times editor Ray Hartley did a suitable demolition job on the accusation and on advocate Dali Mpofu, who advanced it. He described this characterisation as "an absurd and slanderous lie". But it was a less sensational communication from Ramaphosa that compels attention and invites unease, even if in the tangled web of political influence-peddling by impeccably connected businessmen it causes little surprise.

In an e-mail to Lonmin chairman Roger Phillimore about the conduct and lack of action by Mineral Resources Minister Susan Shabangu, Ramaphosa advises "we should have a discussion (with her) to see what she needs to do". The idea that a company director can tell a minister "what to do" underlines how far we have advanced down the road where "know-who" rather than "know-how" is the price of admission to corporate advancement and riches.

South Africa is perhaps an extreme example of this tendency but it hardly stands alone. Even in the US, where generally (see Mitt Romney) success in business is the prologue to political office and not the reverse, we have the case of Dick Cheney, the veritable Darth Vader of modern politics. Before he crossed to the "dark side" of approving waterboarding and other torture exotica as state policy when vice-president, he was CEO and chairman of energy giant Halliburton. But his appointment to corporate office was based entirely on his impeccable political connectivity, having served in the administrations of presidents Gerald Ford and George Bush and then for 20 years in Congress.

Next in the field of evolving local reputations is Mamphela Ramphele. An avatar of good governance, harsh critic of government corruption, apostle of transparency and, on some accounts, an aspiring political leader, she is also chairwoman of Gold Fields. The company is currently in the frame with a controversial black economic empowerment deal concerning one of South Africa’s richest mines, South Deep. Some dodgy characters and powerful politicians were included in this bonanza. Her somewhat lame response to a Financial Mail inquiry — "I was not part of the decision-making at the time" — might be technically true, but hardly inspires confidence about shouldering responsibility or sweeping out the Augean stables of the political influence-peddling of which, in other contexts, she loudly complains.

Finally we have Finance Minister Pravin Gordhan. Of a dozen or so Cabinet ministers I shepherded around Argentina during my diplomatic stint there, he probably did most to advance South Africa’s international image. This was not because some of his colleagues underperformed during their visits. Rather, it was due to his credibility as a thoughtful steward of public finances. This proved to be sweet breath on the local air of Buenos Aires, weighed down by runaway government spending and high inflation.

In Parliament last week to present his medium-term budget policy statement, he promised to rein in government expenditure by, among other things, looking closely at the number of employees in the public sector, suggesting billions of rand could be saved by identifying "ghost and surplus workers".

His credibility test lies in making good on this promise. He needs to prove he doesn’t just sign the cheques but has the will and the power to obtain quos for the quids he dispenses. A good place for him to start would be South African Airways, for which he recently provided a further R5bn bail-out. He would do well to look up the website Avcom.co.za. It reports that SAA operates with about double the world average of employees per aircraft (957 per plane). If Gordhan does not start to make the necessary cuts he promised, he too might find he fails the Berlusconi test.

• Follow Tony Leon on Twitter: @TonyLeonSA

Resolve opposition’s dilemma for the good of SA

23 Oct 2012 | Tony Leon | Original Publication: BDlive

When former president Thabo Mbeki decided the destruction of the DA was a political priority, he appointed Mosiuoa Lekota as his hit man, writes Tony Leon

WHEREVER in the world former Sasol and Anglo American CEOs Pieter Cox and Tony Trahar are these days, last week’s speech by erstwhile president Thabo Mbeki must have caused them to smile at the irony of it all.

In 2003, both men were at the receiving end of Mbeki’s invective when they said, respectively, that black economic empowerment was a "risk factor" and that the risk factor for South Africa was "starting to diminish, although I am not saying it has gone".

Mbeki accused Sasol of "bad-mouthing South Africa" and suggested that Trahar’s stance amounted to Anglo suggesting that "democratic South Africa presents the business world … with a higher political risk than apartheid South Africa".

What a difference nine years and loss of office makes. In his African National Congress (ANC) centenary lecture last week, Mbeki joined the doomsday chorus in far more direct and stark terms than these corporate titans ever did. He spoke of South Africa being afloat on a sea of troubles, characterised by "a dangerous and unacceptable situation of directionless and unguided national drift".

Mbeki is hardly alone as a latter-day canary-in-the-coal-mine warning of the noxious gases that threaten to engulf the country. The Economist, which recently upgraded Africa from "hopeless" to "hopeful", decided, also last week and after two sovereign credit downgrades, that South Africa was sliding downward toward "sad country" status. Embedded in the article is a central truth: South Africa — at the most recent general election, the spread between the governing party and the official opposition was more than 40 points — is "a de facto one-party state".

I recently noted that it is difficult to establish a real and competitive democracy (and the first adjective is conditioned by the second) on the back of such a huge deficit, especially since our much admired constitution is noticeably weak in its checks and curbs on a super-majority government. Thus the motivating spirit and finer detail of the constitution can be ignored and bypassed by the government for the simplest of reasons: because they can be.

In this context, the recent call by Democratic Alliance (DA) leader Helen Zille for a realigned and larger opposition is both politically and constitutionally necessary. But as someone who still bears the scars from the last large-scale opposition merger a decade ago, I can attest that it will not be easy.

The only party with which the DA appears to be engaged in serious discussion toward this end is the much diminished Congress of the People, which, because of the 2009 election results and despite its self-destructiveness since then, remains the second-largest opposition force in Parliament, led by Mosiuoa Lekota.

There is deep irony at play here too. Mbeki decided the destruction of the DA was a political priority, he appointed as his hit man the national chairman of the ANC — Lekota. Thus it was that Lekota, with the carrot of floor-crossing and the promise of the Western Cape premiership, tempted Marthinus van Schalkwyk to lead his New National Party rump out of the DA and into the fatal embrace of the ANC.

Four years later, when parliamentary floor-crossing, which probably did more injury to democratic deepening than many other constitutional predations before or since, was at its height, the same Lekota set about personally luring DA members across the parliamentary aisle. In one case, he even offered DA MP Rafeek Shah a "deputy ministry". When I exposed the offer, which Shah informed me of and commendably declined, Lekota telephoned me to tell me "it was only a joke". Presumably, these days Lekota is more seriously engaged in helping to broaden an opposition he once so assiduously attempted to destroy.

From the’s DA perspective, demographics represents political destiny. In last year’s municipal elections, the party’s improved performance in reaching about 24% of the vote was hailed as scaling new electoral heights and proof that the party had, at last, established a small base among black voters. Actually, only the latter but crucially important fact was new. In 2000, shortly after the formation of the DA, the party notched up more than 23% of the national municipal vote. The reason for the standstill in its total over the past decade has not been because of a failure to obtain black votes but because of the rapid decline, demographically, in its core minority — especially its white — base.

Increasing its size remains the vital and unfinished task for opposition leadership. This is a proposition about numbers. But there is another equally compelling dilemma: how to do so and retain ideological and policy coherence and not reduce the clear blue water that separates, or should divide, the opposition and the government.

On squaring this circle, not just the fortunes of the opposition but the constitutional good health of the country depends.

• Follow Leon on Twitter: @TonyLeonSA

A handy guide to staying out of the losers’ circle

16 Oct 2012 | Tony Leon | Original Publication: BDlive

On the basis that misery likes company, it is comforting, although not reassuring, to look around the globe, writes Tony Leon

WARREN Buffett, the famed US investor, noted: "Only when the tide goes out do we see who has been swimming naked." This seems an apt metaphor for diagnosing the ills afflicting South Africa and the world at present.

On Sunday, The New York Times, so often a cheerleader of South African exceptionalism, published a grim piece, as a result of the recent waves of violent strikes, under the headline, Upheaval Grips South Africa as Hopes for its Workers Fade. In similar tenor, Lex, the Financial Times’s anonymous but hugely important arbiter of investor sentiment, recently heralded South Africa’s rainbow’s end. Noting the "volatile cocktail" of flat-lining growth, currency slide, surging protests, inflationary pressure and government paralysis, it suggests a "South African Spring" will soon be upon us. This is, of course, not a reference to the seasons but to the sociopolitical revolution that gripped much of North Africa and the Arab world last year and which continues to hold Syria in its grip.

Since my return to our shores just two weeks ago, after three years away, I have been struck how we seem to be displaying collective signs of a national nervous breakdown. And this is not just the noises from the "usual suspects" in the opposition ranks and the suburban chattering classes. It appears to have afflicted, in equal measure, some significant personalities in and many ordinary, and increasingly disenchanted, supporters of the governing party.

On the basis that misery likes company, it is comforting, although not reassuring, to look around the globe. Last week, the Nobel committee awarded its peace prize to the European Union. It might have helped keep the postwar peace, Yugoslavia excepted, but the grand design of an increasingly close and more inclusive and prosperous union is unravelling, especially in its southern flank.

To return to Buffett: many of the institutions we built to bed down democracy in South Africa and the world and improve its condition do just fine when growth is up and conflict is down. But they sometimes falter when they are stress-tested by adverse currents and rough tides. The paralysis of the United Nations Security Council over Syria, the inability of the eurozone to arrest the fear of debt default in its southern flank and the difficulty of the Group of 20 in turning around the global financial crisis are three instructive examples. Simply put, some of the challenges we face are simply too big for the institutions designed to contain them.

There is much talk, as well, of the decline of the world’s hyperpower, the US, and whether it is temporary or terminal. Another endless debate concerns whether China’s rise is assured and what this means to the Pacific and beyond. The developing world is also "enjoying" a better financial crisis than developed economies, but according to the latest International Monetary Fund forecast, both are severely underperforming.

But however fundamentally these shifts in the tectonic plates of international economics and diplomacy reset the future world order, right now we are somewhat suspended in a leaderless world. Political consultant Ian Bremmer described this new order as the unstable "G Zero World".

South Africa spends much time and effort exporting to the world the example of our constitutional "miracle"; indeed, in my recent work abroad, I found it to be an excellent example of South Africa’s "soft power". However, the other day I felt obliged to ask: "If our constitution is so good, why do things seem so bad?" Perhaps the great Thomas Jefferson gave us the answer more than 200 years ago when he noted that the best constitutions are those that are "most sceptical about the virtues of the powerful". This is something Parliament and the African National Congress should remember as they go about poking into the work of Public Protector Thuli Madonsela, who appears to share this Jeffersonian scepticism.

A recent official visitor of mine in Buenos Aires, one of our Cabinet’s wiser and more distinguished members, was engrossed in reading arguably the most important recent addition to the vast literature on what separates winning nations from the also-rans. Why Nations Fail: The Origins of Power, Prosperity and Poverty, by Daron Acemoglu and James Robinson, reaches an influential conclusion. Good institutions, they argue, separate the winners from the losers. These in turn take root and flourish in countries that are "inclusive states" that give everyone access to economic opportunity. Political power in such places rests with a broad coalition or a plurality of groups. This is a relatively elite set of countries.

Far more crowded is the losers’ circle, the "extractive states" controlled by a narrow ruling elite that tampers with institutions in order "to extract as much wealth as they can from the rest of society".

As our ruling elite goes about selecting its next leader, I hope my recent visitor passes the book around the Cabinet table.

• Follow Tony Leon on Twitter: @TonyLeonSA