south africa

Should South Africa lock down?

The lockdown will lead to 29 times more lives lost than the harm it seeks to prevent from Covid-19 in SA, according to a conservative estimate contained in a new model developed by local actuaries.

The model, which will be made public today for debate, was developed by a consortium calling itself Panda (Pandemic ~ Data Analysis), which includes four actuaries, an economist and a doctor, while the work was checked by lawyers and mathematicians. The process was led by two fellows at the Actuarial Society of SA, Peter Castleden and Nick Hudson.

They have sent a letter, explaining its model, to President Cyril Ramaphosa. In the letter, headed “Lockdown is a humanitarian disaster to dwarf Covid-19”, they call for an end to the lockdown, a focus on isolating the elderly and allowing children to go back to school, while ensuring the economy restarts so that lives can be saved.

The paper also is at the link, and it is perhaps more of a rough and ready calculation than a formal model per se.  Nonetheless South Africa has a relatively young population and the core points are well taken:

In SA, they estimate that 5.4 years of life have been lost per Covid-19 death. They then multiply this by the range of deaths which they predict – 20,000 – as well as the actuarial society’s prediction of 88,000 fatalities. They factor in that the lockdown will have reduced some deaths, but not all. In the end, their model translated into a minimum of 26,800 “years of lives lost” due to Covid-19, and a maximum of 473,500 years. (This, critically, shouldn’t be confused with the actual number of fatalities expected from Covid-19.)

The actuaries then used the figures predicted by the National Treasury to model the impact on poverty. On Friday, the Treasury estimated that between 3-million and 7-million jobs will be lost due to the measures taken to combat the virus. The actuaries then work out that, conservatively, 10% of South Africans will become poorer, and as a result, will lose a few months of their lives.

It is a good question how many of the models used for the West have taken into account the “demonstration effect,” namely that poorer (and much younger) countries will be tempted to follow the same policies.  I’ve yet to see a good discussion of this.

Are all humans South Africans?

Africa was the birth-place of Homo sapiens and has the earliest evidence for symbolic behaviour and complex technologies. The best-attested early flowering of these distinctive features was in a glacial refuge zone on the southern coast 100–70 ka, with fewer indications in eastern Africa until after 70 ka. Yet it was eastern Africa, not the south, that witnessed the first major demographic expansion, ~70–60 ka, which led to the peopling of the rest of the world. One possible explanation is that important cultural traits were transmitted from south to east at this time. Here we identify a mitochondrial signal of such a dispersal soon after ~70 ka – the only time in the last 200,000 years that humid climate conditions encompassed southern and tropical Africa. This dispersal immediately preceded the out-of-Africa expansions, potentially providing the trigger for these expansions by transmitting significant cultural elements from the southern African refuge.

That is from Teresa Rito, et.al., in Nature, vis Charles Klingman.

From the comments, on South Africa

I think the chances of a populist land grab in South Africa (never very high) have actually gone down over the past few months. Look at the ANC’s actions during its 24 years in power, not its rhetoric. Many bad policies for sure, but never anything close to radically populist, of the sort that would seriously scare the financial markets. Destruction of the (well entrenched and sophisticated) property rights system would certainly do that. So it’s unlikely to happen.

The only time there seemed to be a risk of edging in that direction was when Zuma and his faction started seriously losing support (2016-17). They responded by ratcheting up the populist and racist rhetoric (“white monopoly capital” etc), but ultimately it didn’t work. They lost, and power in the ANC has shifted back to the more market friendly centrists, typified by Ramaphosa.

That’s why I think the risks have gone down (since Zuma was ousted), despite the recent parliamentary vote to “expropriate without compensation”. The sound bite plays well to a certain audience, as other commenters have noted, but I agree it’s mostly just signaling. When you look at the details it’s not as scary as it sounds.

Firstly, they didn’t vote to do it, they voted to set up a committee to investigate doing it, subject to various caveats and constraints, e.g. must increase agricultural production and improve food security; there must be public and expert consultation; appropriate mechanisms, etc. It seems extremely unlikely that the ANC’s intention is to summarily expropriate all land without compensation, nor does it say that in the parliamentary motion or in any ANC policy statement (that is indeed the EFF’s position, but they have less than 10% electoral support). Far more likely is we’ll end up with some sort of watered down constitutional amendment that allows expropriation without compensation in certain defined and limited circumstances, but overall system of property rights remains intact for vast majority of land and other assets.

By the way, I suspect the most outsiders seriously underestimate the strength of South Africa’s constitution and supporting institutions. They have stood remarkably firm over the past few years in the face of concerted attempts by Zuma and his cronies to undermine them. Compared, for example, to a country like Turkey, whose constitution, judiciary, media and civil society have been crushed in the space of a few years by a similarly venal and power-deluded single politician.

That is from Greg.

South Africa update

The National Assembly on Tuesday set in motion a process to amend the Constitution so as to allow for the expropriation of land without compensation.

The motion, brought by the EFF leader Julius Malema, was adopted with a vote of 241 in support, and 83 against.

The only parties who did not support the motion were the DA, Freedom Front Plus, Cope and the ACDP.

The matter will now be referred to the Constitutional Review Committee which must report back to Parliament by August 30.

That is from a South African website, and the story really does seem to be true.  Yet reputable Western outlets do not seem to have much interest in reporting on this, except for this piece on Quartz.

There has been more coverage of Cape Town possibly running out of water.  I do understand that foreign troubles often look worse from a distance, but still in an era when emerging economies have been booming, including in most of Africa, it is hard not to be put off by these developments.  I am not sure how to interpret the data quality issues, but it is not obvious that the median wage has increased since the fall of apartheid.

My short essay on opportunity concepts for South Africa

Here is the piece (pdf), here is the broader symposium, with other notable contributors, including Bill Easterly, Charles Kenny, and Brandon Fuller.  Here is one excerpt from my essay:

…we should keep in mind the strictures of Dani Rodrik that every country, or sometimes every region, is different. Nonetheless this reorientation of measures of progress would have some implications for policy analysis. In particular, high levels of inequality, inequality of opportunity, and relative income mobility would not be seen as problems per se.

Furthermore, the frequent appearance of those concepts in political and also scholarly rhetoric would be seen as misleading and a distraction. The focus instead would be on expanding the absolute size of opportunities for the poor. To make this more concrete, consider a policy change which benefitted both the rich and the poor. Many of the equality metrics would have to struggle with such a policy, which might increase inequality in some manner, whereas the approach recommended in this paper could endorse it wholeheartedly.

It is interesting to note the recent visit of Thomas Piketty to South Africa. He called for a national minimum wage, greater worker participation in company boards, and land reform. Those are all attempts to provide equalizing measures across one dimension or another. Although some parts of those ideas may have merit, they do not seem overall focused on incentivizing wealth creation and opportunity. Piketty even stated: “I think it’s fair to say that black economic empowerment strategies, which were mostly based on voluntary market transactions […] were not that successful in spreading wealth.” It perhaps would have been more appropriate to note South Africa remains a highly regulated, highly legally privileged, and indeed mercantilist economy; the country ranked only number 72 on the 2015 Heritage Foundation Index of Economic Freedom. So perhaps empowerment based on voluntary market transactions has not yet really been tried.

The absolute opportunities approach also suggests a different emphasis for a topic such as land reform. Many arguments for land reform focus on the difference in the land holdings between the rich and the poor, yet perhaps those are not the relevant numbers. A better focus would be the following question: “by how much would receiving more land elevate the opportunities of the poor?” If indeed the answer to that question is optimistic, the case for land reform will be stronger.

Do read the whole thing.

The South African rate hike isn’t working

South Africa’s central bank lifted its benchmark interest rate by 0.5 percentage point to 5.5 per cent as concerns over the wilting currency outweighed the weakness of the local economy, but it proved insufficient to impress currency markets.

The South African rand jumped around during the presentation of the rate announcement, but eventually slumped to 11.339 against the US dollar, down 2.7 per cent in the day as investors were unimpressed by the tentative nature of the increase.

The decline was mirrored in other currencies, with the Turkish lira slumping 1.6 per cent after an early day gain of as much as 3 per cent.

There is more from the FT here, more in general here, where you also will see reports that the positive impact of the Turkish rate hike is falling fast.

Why is unemployment so high in South Africa?

Ryan Cooper writes to me:

Hey Tyler, possible blog post topic: I’m wondering how you would explain the situation in South Africa (or other similar countries) with stupendous persistent unemployment–SA has been above 20% since 2000:  http://www.tradingeconomics.com/south-africa/unemployment-rate

A few factors I imagine are important:

1) The education system is totally broken in a lot of places. As in, 12th graders can neither read nor write in any language nor figure out 3×3 in their heads.
2) Unions are crazy strong, and have been driving up wages like gangbusters, particularly in the public sector.
3) Minimum wage laws are stringent and have actually led to worker protests: http://www.nytimes.com/2010/09/27/world/africa/27safrica.html?pagewanted=all
4) Inflation hasn’t been TOO bad recently (~6%), but has seen spikes to almost 14 percent not long ago: http://www.tradingeconomics.com/south-africa/inflation-cpi
5) There’s a highly developed sector. On average, whites are far richer than blacks.

6) Crime and inequality are incredibly bad.
7) The ANC has won every election in a landslide and is strongly allied with the unions.

So how does it tie together? Lots of poorly-educated ZMP layabouts? Wages too high to start sweatshop-style development? Razor wire + electric fence + security guard costs deterring investment? The results of generations of systematic oppression and denial of education? All of the above, plus some?

Just trying to iron out a coherent story. I was a Peace Corps volunteer for two years there and I’m slowly building up my economics knowledge; this question has always fascinated me.

Here is one additional account.  Here is an IMF analysis.  Here are some World Bank powerpoints.  I told him I would try to answer the question, but after a bit of research I don’t find myself getting much further than his suggestions.

South Africa’s gloomy economic present and future?

During the 2001-08 commodities boom, the world’s top 20 mining countries achieved an average mining growth rate of 5 per cent a year, but South Africa’s sector shrank by 1 per cent a year, according to the country’s Chamber of Mines. Only Venezuela, where leftwing president Hugo Chávez is nationalising large swatches of the mining industry, came close to matching that poor result.

…The reasons for the frustrated mood are numerous and vary according to the country’s rich basket of commodities. The decline is partly the result of the maturing nature of South Africa’s gold mines, which are getting deeper and more expensive to mine. Over the past 10 years annual production has halved to 192 tons. In 2008, the country was eclipsed by China as the world’s biggest gold producer, ending more than a century of South African dominance of the industry. Since then it has slipped to fifth place as Australia, the US and Russia have also overtaken South Africa.

Beyond gold, other factors are stymying the potential of the rest of the commodities sector. These include rising production costs, particularly labour and electricity, and infrastructure bottlenecks such as railway capacity for bulk commodities.

But…The most conspicuous cloud hanging over the industry has been an increasingly feisty debate about the nationalisation of mines, prompted by ever louder calls by Julius Malema, the radical leader of the ruling African National Congress’s Youth League, for the state to take control of the sector.

The story is here.  Here is Dani Rodrik, circa 2006, on the economic problems of South Africa (pdf), which seems to be deindustrializing.

My favorite things South Africa

Torr writes to me:

Please will you consider doing a “favorite things South Africa” on Marginal Revolution. I’m also curious: have you ever visited South Africa?

I have yet to go, but here is what I admire so far:

1. Visual artist (you can’t quite call him a painter): William Kentridge.  He is one of the contemporary artists who is both a realist and has a lot of the emotional power of the classics.  His extraordinary body of work spans film, drawings, prints, and mixed media.  Here are some images.

2. Home design: I am an admirer of the Ndebele, some photos of their colorful homes are here.  They are better represented in picture books than on the web.

3. Movies: I don’t know many.  I enjoyed The Gods Must be Crazy, even though some might find it slightly offensive.  Nonetheless I hand the prize to District 9 for its interesting take on ethnic politics, its deconstruction and mock of Afrikaaner settler myths, and its commentary on how South Africans view Zimbabwean immigrants to their country.

4. Movie, set in: Zulu, 1964 with Michael Caine.

5. Novels: My favorite Coetzee is Disgrace, though I like most of them very much, including the early Life and Times of Michael K and Waiting for the Barbarians and the later semi-autobiographical works.  Nadine Gordimer I find unreadable, call the fault mine.  Same with Alan Paton.  A dark horse pick is TrionfAgaat sits in my pile, waiting for the trip of the right length.

6. Music: Where to start?  Malanthini, for one.  As for mbqanga collections, The Indestructible Beat of Soweto series is consistently excellent.  Singing in an Open Space, Zulu Rhythm and Harmony 1962-1982 is a favorite.  Random gospel and jazz collections often repay the purchase price and in general random CD purchases in these areas bring high expected returns.

7. Economists: Ludwig Lachmann was an early teacher of mine and I owe him my interest in post Keynesianism and also financial fragility hypotheses.  G.F Thirlby remains underrated.  W.H. Hutt was one of the most perceptive critics of Keynes and his insights still are not absorbed into the Keynesian mainstream.  His book on the economics of the colour bar remains a liberal classic.  Who am I forgetting?

The bottom line: There’s a lot here.  Here are previous MR posts about South Africa.

Structural Unemployment in South Africa

Unemployment in South Africa is now running at 24% overall with significantly higher rates for blacks.  A shift away from low-skill labor combined with minimum wages and strong trade unions, however, has meant that it is very difficult to lower wages and reduce unemployment.  From a very good piece in the NYTimes:

The sheriff arrived at the factory here to shut it down, part of a national enforcement drive against clothing manufacturers who violate the minimum wage. But women working on the factory floor – the supposed beneficiaries of the crackdown – clambered atop cutting tables and ironing boards to raise anguished cries against it…

Further complicating matters, just as poorly educated blacks surged into the labor force, the economy was shifting to more skills-intensive sectors like retail and financial services, while agriculture and mining, which had historically offered opportunities for common laborers, were in decline.

The country’s leaders invested heavily in schools, hoping the next generation would overcome the country’s racist legacy, but the failures of the post-apartheid education system have left many poor blacks unable to compete in an economy where accountants, engineers and managers are in high demand….

Last year, as South Africa’s economy contracted amid the global
financial crisis, unions negotiated wage increases that averaged 9.3
percent [inflation is 5.1%, AT]….

Eight months ago, Mr. Zuma proposed a wage subsidy
to encourage the hiring of young, inexperienced workers. But it ran
into vociferous opposition from Cosatu, the two-million-member trade
union federation that is part of the governing alliance [insiders v. outsiders, AT], which
contended that it would displace established workers.

Hat tip: Brandon Fuller.

What do we know about South African fiscal stimulus?

Stuart Torr writes to me:

I've been reading many economics blogs since the start of the crisis (and well before) and I've listened to all the Econtalk podcasts on the crisis. Some of the skepticism comes from the projects not being "shovel ready" and taking too long to have a real stimulative impact. South Africa didn't have a banking crisis but we had a dramatic housing bubble (by far the most dramatic in the world in % terms from checking the back of "the Economist") and we did enter recession after the crisis hit. We also have massive investment in infrastructure because of the World Cup and those projects were only really getting going when the crisis hit. I'm sure there are technical reasons why this isn't relevant to the stimulus debate, but I've barely even seen it mentioned anywhere. Is it really that irrelevant?

Unemployment in South Africa had been 23.5 percent.  Yet, after the collapse and response, the unemployment rate is still rising and see also here for further information.  It's like trying to catch a falling knife, there is more information here

I don't know much about the South African economy, but I would think it is especially difficult to target many of the unemployed resources there.  There is weak infrastructure, many language groups, large distances, and a lack of political unity.

Here is one critique of what they are doing in South Africa with fiscal stimulus.  Here is a more positive treatment.

What do you all know about this case?

Why hasn’t South Africa done well?

Dani Rodrik reports:

South Africa has undergone a remarkable transformation since its
democratic transition in 1994, but economic growth and employment
generation have been disappointing.  Most worryingly, unemployment is
currently among the highest in the world. While the proximate cause of
high unemployment is that prevailing wages levels are too high, the
deeper cause lies elsewhere, and is intimately connected to the
inability of the South African to generate much growth momentum in the
past decade.  High unemployment and low growth are both ultimately the
result of the shrinkage of the non-mineral tradable sector since the
early 1990s.  The weakness in particular of export-oriented
manufacturing has deprived South Africa from growth opportunities as
well as from job creation at the relatively low end of the skill
distribution.  Econometric analysis identifies the decline in the
relative profitability of manufacturing in the 1990s as the most
important contributor to the lack of vitality in that sector.

Here is a non-gated version of the paper.  The bottom line is that South Africa is de-industrializing. 

Unemployment in South Africa

More than 40 percent of the South African workforce is without a job and nearly 60 percent of those who are jobless have never worked. The NYTimes is correct that South Africa faces many problems including poorly educated workers, AIDS, and crime. But it is not true that South Africa is doing poorly “despite [it’s] sound economic policies.” In particular, if you read to the 22nd paragraph you find this buried lede:

In other developing countries, legions of unskilled workers have kept down labor costs. But South Africa’s leaders, vowing not to let their nation become the West’s sweatshop, heeded the demands of politically powerful labor unions for new protections and benefits. According to a study conducted in 2000 for the government’s finance department, South Africa’s wages are five times higher than Indonesia’s, even though its workers are only twice as productive.

To the great detriment of its people, South Africa’s leaders have been successful. South Africa is not the West’s sweatshop.

A Behavioral Interpretation of the Origins of African American Family Structure

That is a new paper by Gerald D. Jaynes, Department of Economics, Yale University.  The abstract is difficult to read, so here is an excerpt from the paper:

The hypothesis underlying my reinterpretation of the origins of contemporary black family structure is, through the late 20th Century, throughout American history, structural differences in the race relations and economic discrimination confronting blacks in rural versus urban locations produced distinct childhood socialization experiences. These distinct socialization experiences exposed urbanized black children (north and south) to large numbers of recusant adults — men and women socially alienated by urban job ceilings and truculently refusing to acquiesce to race relations based in white supremacy. Observation of and interaction with recusant adults and discriminatory economic institutions put urbanized black children at great risk of early projection of a failure to achieve self-verification of an acceptable social identity. The developmental outcome was early adoption of recusant identities and oppositional agencies leading to a polarized choice: either seek self-verification elsewhere by avoiding institutions such as schools, labor markets, and marriage (causing high rates of single parent families), or (attempting to alter one’s reception in such institutions) intensely engage them leading to civil rights activism and a rising black middle class. In contrast, rural black children were more likely exposed to adults seeking self-verification by striving to climb the agricultural tenure ladder a life goal requiring conforming to behavioral norms based in the era’s white supremacist race relations. Failure to self-verify a positive self-image by achieving land ownership or rental tenancy occurred later in life when the adoption of oppositional agencies was greatly mitigated.

Speculative and uneven, but nonetheless of interest.