by Cees Bruggemans Ā
No two business cycles are the same, particularly in today’s revolutionary times, with our turbulent social, political and economic climate.Ā One should come prepared for the unexpected.
The old dispensation, as much as the new, has had a wild business upswing that has ended in speculative debt excesses and tears.
The Old Masters had the high growth decade of the 1960s, with its origin in the depths of the 1960 Sharpeville Panic and its end with the 1969 JSE stock exchange crash.
The New Masters had something similar in the millennium decade, with the long upswing starting in the depths of the Asian Contagion Crisis currency ambush of 1998 (prime to 25% …). It continued through the World Cup hype, which set in motion a mighty property speculation and other leveraged excesses, until it was caught offside by the 2008 Eskom blackout fiasco and global crises.
The Old Masters had the old-fashioned gold boom of 1978-1982, which abruptly imploded when Federal chairman Volcker changed tack to tackle US inflation by switching to controlling money supply and allowing interest rates to find their own way, thereby detonating Third World debt (and gold) along the way.
The New Masters had the commodity super-cycle of the millennium decade ending in 2011, which was already hamstrung by Western existential crises. Ā A while after, the Chinese also started to beat a strategic retreat, as they finally started to address seriously their Middle Income Trap.
The Old Masters had their so-called lost decade, which started in the early 1980s with the cold turkey realisation that gold would not stay high permanently. This was followed by their foreign debt being called, which inaugurated a decade of accelerated debt servicing & economic underperformance.
The New Masters started their lost decade with the Great Crises overseas coinciding with Eskomās abrupt output capping, a growing cycle of industrial labour unrest, the reversal of the global commodity super-cycle and government policy not getting it. All this contributed to arresting business confidence at dismal levels as succor was sought by many companies in more stable, predictable business environments elsewhere.
Today, all these dimensions keep getting worse or stay stuck in gear, ensuring that the lost decade, which started in 2008, steadily continues with no end in sight in any of the contributing dimensions.
What will end these revolutionary cycles? What would deepen them?
A new fortuitous external windfall would only give temporary relief and false comfort if it weren’t sustainable. Any new excesses, such as debt cycles, would be likewise non-sustainable. Only fundamental reform aimed at SA escaping its Middle Income Trap of decades would offer permanent relief.
This would mean letting go of the old post-WW2 Latino development model of relying centrally on natural resource exploitation and beneficiation, industrial import substitution through subsidies and heavy protection, and labour market meddling. Instead, far more attention needs to focus on education and reforming restrictive labour market practices, aiming to achieve real trade competitiveness and overcoming the insider stranglehold.
So far, we can only contemplate such a breakout rather than seeing its evidence.
Revolutionary times could still deepen if external windfalls remain in abeyance, government policy sticks with old tired remedies and prescriptions yielding too few results, and populist ideologues succeed in capturing political high ground, with the population welcoming more extreme policy options.
It would seem our revolutionary drift isn’t yet at an end. Thus it may be that our business cycles will remain in the mould of the past fifty years, ones that can accommodate wild windfall booms and lost decades without achieving breakout-to-sustainable high performance and structural change.
Thus we may keep postponing exiting from our own Middle Income Trap, failing to achieve higher average incomes better spread through society and keeping the old insider/outsider divide in place where only 1-in-2 is in luck and 1-in-2 is seriously out of luck.
The ongoing presence, ever deepening, of this destructive divide in a time of rising expectations will keep inviting political populists to try their luck.
We will keep telling ourselves about the Promised Land, even while staying put in our special structural stagnation grove that our forebears created – one we have worked hard to keep in being, intentionally or otherwise.
