If you were university educated in South Africa, you are likely to be in the market at various times in your life for a large LED backlit LCD panel with a high refresh rate and more HDMI inputs than you will ever need. You will also quite likely have a market-oriented, Anglo-Saxon view of government’s role in industrial policy and international trade. Thus you would probably say “yes, import cheap TVs from China so I can buy a cheap TV and not pay for inefficient local firms to manufacturer expensive, inferior TVs.”

If you are a TV snob, you will still want free imports of Chinese TVs to keep the prices down of competing, but fancier Sony and LG models from Japan and Korea.

If you are a little cynical, you might say South Africa could never have the manufacturing capability and scale to produce all the components and assemble them into a modern LCD TV. That’s not actually the debate I ant to pursue now, so in that case let’s say the alternative would be to locally assemble sets made with significant local components, even if the LCD panel itself were imported. Of course, the reason South Africa doesn’t have the scale to produce the panels themselves at the moment is a function of industrial policy decisions decades go. There is no absolute reason we couldn’t have that capability. But, that debate is related but separate post.

If you never completed Grade 8 (that I still think of s Standard 6) then you probably would rather have a job than a Chinese TV and even a single HDMI input or output is one too many. Also, you don’t care about free international trade leading to optimal allocation of economic resources or the World Trade Association for that matter.

But you wouldn’t necessarily be wrong.

Reason #1
A large-screen LCD TV is not a factor of production of any industry that I’m aware of. Restricting cheap imports won’t increase the costs of a domestic industry an therefore won’t reduce the competitiveness of a local company or industry.

So far so good.

Reason #2
The Chinese will still buy or raw natural resources even if we don’t buy their TVs. We aren’t a sufficiently big market for them in the first place. We don’t reduce our exports but we do reduce our imports. This grows the local economy.

This does assume that over time, the higher prices of Imported TVs will discourage their purchase for other goods or encourage purchase of South African made TVs. It also assumes,NAND this is where things get more complex quickly, that our currency won’t strengthen to reflect the reduced imports. A strengthened currency would make all our exports less competitive and imports more competitive, leading to higher imports and lower exports across all industries and consumption.

Reason #3
Te burden if higher prices will fall on the wealthy, whereas the boom of greater employment will fall on the less wealthy, even increasing total demand for labour.

A critical question is what sort of labour.

If it is skilled labour, then our right skilled labour market will have wage pressure without increased employment and there will be a transfer of wealth from television set consumers to skilled labour and an increase in the cost of production of many other industries. All in all not a great outcome. We’ve damaged several industries and are reliant on the relative consumption habits of skilled labour versus television set consumers to see what this means for domestic versus import consumption.

If the demand is for unskilled labour, or separate but well-timed government education and training policies provide unskilled labour with the necessary skills, the result is far more appealing. Wages won’t increase as unemployed resources are put to work. So, no damage to other industries. The productive capacity of unemployed persons is put to work in an economically productive way. The country is producing more things domestically so all the additional money spent on more expensive TVs is employed back into the economy. The recently newly employed are likely to focus their purchases on domestically produced items (especially since TVs are now made locally)

Assuming the caloric requirements of these newly employed persons are not much different from during their unemployed years, the opportunity cost for the economy as a whole of paying them to make TVs less efficiently than the Chinese is zero. There is noting better they could have done with their time.

The arguments of comparative advantage totally break down when there is significant unemployment in one country. Free trade is centred on the idea that countries should focus on producing goods where they have a comparative advantage. Quotas and tariffs distort the true comparative advantage leading to suboptimal solutions.

There are other ways of achieving a similar result. Taxing TV set consumption to pay for skills training and subsidised public transport might lower some of the restrictions on supply and demand imbalances in the labour force, but without the focus on growing a particular industrial sector that will give rise to a cluster of related industries, developed scale to lower costs, eventually gain efficiencies and export to African markets with lower cost than the Chinese.

Why should the Chinese target attractive industries for growth through strong industrial policy and South Africa doesn’t? Why are the Chinese so uniquely well placed to target LG and Samsung?

There are a hundred problems with this scenario, including possibly the choice of TV as the product, but there is more to this discussion than the Washington Consensus would have you believe. Disagree, please comment below!

Pick n Pay had to spend a fortune on the Smart Shopper system and has ongoing expenses in terms of rewards and analysis. The curious thing for me is how many loyalty cards incur the system and reward costs for retailers, but without gaining the full benefit of analysis and thus insight into customers.

I don’t get tailored book suggestions from Exclusive Books. They also haven’t tried to entice me back to their stores since I started buying first from Bookfinder.com and then almost exclusively ebooks from Amazon. They’ve basically lost a customer and haven’t done anything about it.

Even my friend’s St Elmos offers sweet deals to customers who haven’t ordered in a while to entice them back. Pick n Pay turned sub R100 pm customers into R350 pm customers (at least while the special was one) by specifically targeting customers that are familiar with Pick n Pay but need a push to become regular, high-spending customers.

I haven’t had a movie card with Ster Kinekor in a while, but I always use the same email address and credit when I purchase tickets online (which I do almost universally). There have been periods of several months where I haven’t gone to the movies, but no attempt from Ster Kinekor to woo me back with free popcorn or a careful movie recommendation.

Retailers are missing a trick to get an edge over their competitors.

The article does understate the problem that Germany’s success is significantly export driven – not everyone can export for obvious reasons.

Also, the author notes that consumption has grown more slowly than economic growth without understanding that is exactly the source of an export-encouraged boom. Growth in consumption will also grow imports!

I haven’t analysed the details thoroughly so maybe they are correct. I suspect that it’s more dogmatic following of views from those who don’t understand the pros and cons well enough to change their mind.

For example, if higher taxes are bad for employment and investment, surely lower taxes would be good for employment and investment? I doubt that the DA is arguing that the current level of taxes is exactly optimal, so shouldn’t they have been campaigning more loudly for lower taxes?

The reality is that, considered on their own, higher taxes will reduce rates of return to shareholders. This will make marginal operations unecnomical, which could result in job losses. The lower after-tax profit may also push  operations with marginal rates of return to below the required hurdle rate of some investors, reducing total investment in the sector.

This is, of course, true for all taxes. Hopefully there aren’t too many people left who believe that taxes should not exist.

So one real question is whether the tax rate is optimal, given the funds that can be directed towards government revenues in general and to specific employment creation and industrial development programmes specifically.

A second real question is whether the “price” for the permanent removal of natural resources being charged is appropriate (a combination of taxes and royalties) and from a philosophical perspective, who “owns” our country’s natural resources?

This leads to the third question or point that the DA really should be more aware of. Nationalisation, the Freedom Charter, and vast income inequalities are all part of a potent political conversation in South Africa. With nationalisation almost entirely off the table at the moment, being able to demonstrate in some manner that the “riches under the ground” are better being shared with everyone is an important political point to counter the more extreme political views.

The DA, in this instance, is blind to the subtler political benefits of this approach, blind to the definite benefits of increased revenues, blind to the possible benefits of focussed attention on this industry cluster, but completely convinced of the first-year economics free market principle of “tax leads to deadweight loss of consumer and supplier surplus” and thus lower employment and investment.

I always maintained that “nationalisation” isn’t necessarily appropriation of assets without compensation, although the popular views and worst fear-mongering viewed this as the only possibility. It’s refreshing to hear that “nationalisation” was considered on its merits against private operation of firms rather than just as a way to redistribute wealth. (Ok, at least one article wasn’t mad panic.)

The increase in taxes is also basically expected. Although new and changing taxes does add uncertainty, it provides a sense that the rules are being followed.  Tax rates on energy companies in many Middle Eastern countries is high – sometimes near 50%. So the government fiscus does benefit from the energy that belongs to all its citizens.

It’s also a, slightly sneaky, way of re-settting historical land ownership and mineral right royalties and licensing. If “we got it wrong and sold them too cheaply in the past, we can always recoup through higher or new taxes”. Maybe a little cynical but not surprising.

The real free market fanatics will no doubt be in uproar about higher taxes destroying jobs and misallocating resources. There is a debate here, but the free market fanatics all too quickly forget that it’s hard to argue that the value of the minerals under our country have been fairly priced. Those markets can easily be described as “failed markets” with a number of externalities involved.

Even the hardest neoclassical economist will recognise these are very real limitations on Adam Smith’s invisible hand.

I’m continually disappointed that Moneyweb continues to partner with this distraction.

As I’ve done in the past, I’ve analysed very quickly some of the results of the most recent competition. As background to that, the basic rules are:

1. Put up R20,000 of your own money
2. Trade over three months in currencies, commodities single stock futures and some index trackers.
3. Whoever has the most at the end wins a million rand
4. Everyone keeps what is left of their initial “investment”

So let’s be clear, there are no long-term investment learnings here.

The winner did return 165.5% over 3 months, which is not an impressive performance even though it might look like it.  The point is, given the volatility of the investment universe available for the competition and the encouragement towards rampant risk-taking, it’s entirely pedestrian performance.  It’s very likely an individual’s performance will be good given the wide range of possible outcomes.

Let’s look at some other statistics

These are not performance statistics of which to be proud. They are similar to the losses incurred in prior competitions.

So in short, the competition cost the entrants in total just over a million rand. Losing a million rand is a great way to Make a Million.

It’s worth reading the entire article, but the main message is that we cannot use the dream or story or fairy tale of imminent migration into space and other planets as an excuse not to deal with the very real problems we have on Earth right now. The misconceptions, Hollywood induced and otherwise, about the ease of space travel or even the extent of our current capabilities, are massive.

As with so many things, the stories that fill our society can be very different from the harsh reality.

Managing poor performance is tough because it’s so easy and so attractive to shy away from communicating the truth. Avoiding conflict and not addressing problems is far worse for all concerned.

Robert Kiyosaki, author of “Rich Dad, Poor Dad” outlines a similar viewpoint in response to research that shows “nice guys earn less than mean guys”. His take is that it’s not actually “nice” to hide the truth and dance around issues. There’s never a need to make attacks personal, but sometimes the news is not good and it needs corrective action.

As Kiyosaki says, “cowards finish last”.

He clearly doesn’t understand income and expenditure. If government spends more, more tax must be collected. If employees don’t pay the tax, employers must pay the tax. If this is directly related to labour, you’ve just increased the cost of labour without a commensurate increase in productivity. Labour less attractive, fewer jobs.

The only way for NHI to not cost is if it replaces current health expenditure, in which case it’s about using funds more effectively. This is not the message I’m hearing.