A more in-depth look at the wording suggests maybe the move is rather smaller than I first thought, although it is still a move.

What Schussler doesn’t look at, which would be telling, is whether there are differences in the costs incurred by workers in SA and, to use an example that he does, India.  Comparing price levels is one thing, but if a typical Indian worker lives 500m from his or her place of work and a typical South African worker lives 15km from his or her place of work, then that is an infrastructure problem that must also be solved before we can be internationally competitive.

This post by Paul Krugman talks exactly to “Piet’s views” – the deep-seated emotional views and ideologies that “must” make sense without the careful thought, analysis and model-building required. The same views that have proved almost completely ineffective at predicting anything so far.

Lots of people declared that they “just couldn’t believe” that huge budget deficits wouldn’t drive up interest rates, that “printing” lots of money wouldn’t cause runaway inflation, that slashing government spending wouldn’t have a positive effect on confidence. We know how that has turned out.

Paul doesn’t talk in this post about those who then start changing the facts that don’t agree with their views. “Inflation must be high because the Fed is printing money, but inflation isn’t high, therefore the measure of inflation must be wrong.” – even though multiple independent measures suggest the same level of inflation.

Of course, the regulations in some form or other are coming and are likely to stay. The Actuary magazine has an article on some of the lessons for insurers and regulators about how to actually get some control and understanding of macro and systematic risks within the new regulatory models.

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!

Gallup poll on US unemployment