Goodbye welfare state

[Vox Populi Vox Dei]

http://www.moneyweb.co.za/moneyweb-soapbox/goodbye-welfare-state

This week the President opens Parliament with his State of the Nation address. He will give direction, make promises and set targets. Big names will comment and the press will scramble to print context.

Outside, the insiders in the form of unionised workers will protest that not much is done for them. The rand will scratch its head and head back to where it was before.

But the real truth will remain dead silent. The truth is that with only four out of ten adults working, only a quarter of adults working in the formal sector and less than one out of nine paying income tax, the poverty trap is sprung.

Our country has become a welfare state, similar to Europe. But Europeans have found that it cannot compete as it only has 7% of the world population and half its welfare expenditure.

South Africa has more people on welfare than those who are working, but still the pseudo intellectual hearts tell them that the solution is more welfare.

There is no money for roads, dams or sewerage. It is needed for welfare, education and health. Current expenditure fills the ‘now’ but infrastructure helps reduce future needs and produces returns.

Consumers also need to pay extra for everything they need, from electricity to roads. The result is that employees demand more money from their employers, who also need to pay more for transport and electricity.

This leads to more closures or mergers and the loss of even more jobs. This in turn, leads to more inequality. And I will wager a bet that inequality will also be the theme of the president’s speech next year, and that he may deliver it with an angrier voice.

Risk aversion

More than 60% of JSE-listed companies’ revenue comes from outside our country’s borders. These companies will also continue to expand internationally, rather than in the local market. It is not only private sector companies - several state-owned companies are also expanding into other markets to reduce risk.

The message from business is that they are not fleeing; they are only expanding to build a different risk profile.

The reality is that the risks of doing business in other African countries are falling quickly, while the rewards are still very attractive. Unfortunately, the risks in South Africa are on the rise, and the state taxes rewards.

Blinded by the light

Some solutions are blindingly obvious, but only a few see it. At the recent Nersa (National Energy Regulator of South Africa) hearings on Eskom, it was clear that government needs to sell equity to finance overpriced power stations. If not, electricity tariffs will become so high that not even the employed could afford it.

There’s no money for big roads, rail or dams, unless we pay upfront. South Africa has gone from post-paid infrastructure to pay-as-you go infrastructure. The harsh light is blinding us. It is clear that South Africa (like Greece and Spain) must sell its airline, airports, ports and other so called jewels. It is become an expensive farce to - much like unemployed aristocrats - keep these assets.

A struggling airline competes with many welfare cheques. Ironically, it is welfare cheques that attract votes, while unaffordable electricity loses votes. Tolls even help the opposition to attract votes.

The big European social democratic experiment with an African flavour is a walking disaster. Within a decade, Europe would have ditched its cradle-to-grave welfare state policies. It will rather focus on education and affordable people-care to remain competitive. I will bet that in a decade or two there will be very few remaining economic socialist states, unless of course, there is very little economic activity left.

I bet that in the end, the light for economic activity will be switched on. It will only be people with career limiting notions who will call themselves socialists. They will be as scarce as supporters of the old National Party.

It will take time to unlearn the propaganda we have been fed over the years. South Africa was always a country with a socialist flavour and while some social things will remain, they will become less important for our future. Even the blind can see the bells are ringing for socialist policy.

*Schüssler is the CEO and chief economist at economists.co.za

 

[ponder]

Why you posting things we already know?

 

[Vox Populi Vox Dei]

Why you posting things we already know?

Because people like ghoti still advocate the welfare state. Ghoti says the model would work in SA if there were more competent leaders because it is so complex to pull off successfully. However, it is interesting to note that Europe (at least in the opinion of Schussler) will ditch their cradle-to-the-grave policies within the next decade because it is becoming unaffordable.

 

[ponder]

I was being sarcastic

 

[zippy]

Europe/UK is evaluating the welfare state.
They will never get rid of it. Only adjust it to take into account existing economic conditions. Which makes sense.

The difference between the EU/UK and SA is that there is more political flexibility.

The problem for SA is that there is good reason for welfare, probably more so than in the EU/UK. But its not affordable. In addition unless SA doesnt get more people out of poverty, crime will be a problem. More reason for welfare. But again. No money. No institutions that can handle it. And no trust.

So, poverty gets worse. Education gets worse. Crime gets worse. This makes the political situation more volatile and makes it less likely that the ANC can be voted out, because they are able to rely on the "blame apartheid and beware the whites" song-and-dance.

 

[Garson007]

Funny that a guy that talks about unlearning propaganda is feeding it. He's also terribly wrong about socialism dying - neo-liberalism is dying.

 

[Nerfherder]

So why is the title "Goodbye welfare state" ?

 

[Alan]

Funny that a guy that talks about unlearning propaganda is feeding it. He's also terribly wrong about socialism dying - neo-liberalism is dying.

Explains the wave of austerity hitting the EU :erm:

 

[Garson007]

Explains the wave of austerity hitting the EU :erm:

That's just the conservative Germans (CDU) in power in Germany. Since the austerity measures hit many countries have veered towards the far-left or far-right, as politics do when people struggle (Greece being a very good example).

Besides that, the monetary union is causing a lot more problems than spending did.

 

[Vox Populi Vox Dei]

So why is the title "Goodbye welfare state" ?

Um, because he is predicting the end of welfare state as we know it? As Zippy pointed out, there'll always be some sort of state support, but most likely not at the current levels.

 

[Garson007]

there'll always be some sort of state support, but most likely not at the current levels.

Nonsense. Unless you of course believe that we (as the world) are in a permanent economic slump, which you are free to do - but I'll be disagreeing. There is still much room left to grow and as the expansion happens the countries of the world will have more to afford, and as such will increase welfare.

 

[Alan]

That's just the conservative Germans (CDU) in power in Germany. Since the austerity measures hit many countries have veered towards the far-left or far-right, as politics do when people struggle (Greece being a very good example).

Besides that, the monetary union is causing a lot more problems than spending did.

16/11/12- Health spending fell across the European Union in 2010, as cash-strapped governments curbed outlays to help cut
budgetary deficits, according to Health at a Glance: Europe 2012, a new joint report by the OECD and the European Commission. This drop in spending per person and as a percentage of GDP reverses increases seen in the years before the economic crisis, when
health spending per person grew two or three times faster than incomes in many countries. From an annual average growth rate of
4.6% between 2000 and 2009, health spending per capita fell to -0.6% in 2010. This is the first time health spending has fallen in
Europe since 1975. In Ireland, health spending fell 7.9% in 2010, compared with an average annual growth rate of 6.5% between 2000 and 2009. In Estonia, health expenditure per person dropped by 7.3% in 2010, following growth of over 7% per year from 2000 to 2009, with reductions in both public and private spending. In Greece, estimates suggest that health spending per person fell 6.7% in 2010, reversing annual growth of 5.7% between 2000 and 2009. The report cautions that the reduction or slowdown in spending in nearly all EU countries may have a long-term impact on health care
outcomes.

www.oecd.org/newsroom/healthspendingineuropefallsforthefirsttimeindecades.htm

on the contrary those south European states would never have been able to afford their welfare states had they not joined the Euro. Not that could with the EU and Euro anyway....

But spending is the problem and has always been the primary problem. The moneys is not there then the money is not there. Reality is a tough nemesis to crack

 

[Vox Populi Vox Dei]

Nonsense. Unless you of course believe that we (as the world) are in a permanent economic slump, which you are free to do - but I'll be disagreeing. There is still much room left to grow and as the expansion happens the countries of the world will have more to afford, and as such will increase welfare.

Lol.

You do realise that almost every major country is borrowing money in order to pay for their extensive welfare system? Even the UK with its "austerity" measures has been forced to borrow. Some time or another, this debt will become unsustainable. I even read that the Scandinavian countries are cutting back on their freebies...

 

[Garson007]

on the contrary those south European states would never have been able to afford their welfare states had they not joined the Euro. Not that could with the EU and Euro anyway....

But spending is the problem and has always been the primary problem. The moneys is not there then the money is not there. Reality is a tough nemesis to crack

The reason why the PIIGS cannot afford their welfare states is because they are restricted by the monetary union; yes they did overspend but any measures that a normal country can make to try and push away the debt isn't possible in the established monetary and economic union. Greece is ****ed and they are ****ed because of the Euro.

Creating a monetary union without creating a fiscal union was down-right retarded. A massive push is now being made for the EU to form a fiscal union and that's a good thing. It would mean that the PIIGS could afford their welfare, just like some states in the USA can afford their policies (or even just the federal policies) by the profits of other states.

 

[Garson007]

Lol.

You do realise that almost every major country is borrowing money in order to pay for their extensive welfare system? Even the UK with its "austerity" measures has been forced to borrow. Some time or another, this debt will become unsustainable. I even read that the Scandinavian countries are cutting back on their freebies...

You don't agree that a growth in GDP will see more Tax revenue? Funny.

 

[Alan]

. Creating a monetary union without creating a fiscal union was down-right retarded. A massive push is now being made for the EU to form a fiscal union and that's a good thing. It would mean that the PIIGS could afford their welfare, just like some states in the USA can afford their policies (or even just the federal policies) by the profits of other states.

Sure. Good luck convincing the Germans to cut their benifits to pay for Spaniards to have siestas in sun....

 

[marine1]

Welfare states should be done away with all it does is encourage people to drain the country's resources.
Bloody liberal left wing idiots always wanting stuff for free.

 

[OrbitalDawn]

Welfare states should be done away with all it does is encourage people to drain the country's resources.
Bloody liberal left wing idiots always wanting stuff for free.

Then why are the red states in the USA the biggest welfare states?

 

[zippy]

You don't agree that a growth in GDP will see more Tax revenue? Funny.

With the right lawyers, bankers and accountants a growth in GDP could mean the tax revenues actually go down.

 

[w1z4rd]

Because people like ghoti still advocate the welfare state. Ghoti says the model would work in SA if there were more competent leaders because it is so complex to pull off successfully. However, it is interesting to note that Europe (at least in the opinion of Schussler) will ditch their cradle-to-the-grave policies within the next decade because it is becoming unaffordable.

Ill believe it when I see it. I wanna see how countries do without development and social security

PS, this is an opinion piece and many such articles have been written in the past and theyve all been wrong. But hey. maybe this time this South African will be right and present us with a better model instead of just an opinion

Welfare needs to be balanced, sometimes they spend too much, sometimes too little. I think our author of this article is confusing balancing for "doing away with". Also, the author presents no substitute model.... so. Great. We stop the welfare model and now? What next? How do we look after our old? How do we look after our young? How do maintain our roads and build new bridges? The hypothetical "free-market" utopia? Paaalease.

France went Welfare at its worst moments. When it had its worst ever unemployment rates. So if it was affordable then how all of a sudden when their economy is doing better and when there are less unemployed people can they not afford it? I think someone needs to give the author of this story a history book.

But its written on Moneyweb (as an unsubstantiated opinion piece) and its written by someone who owns economics.co.za therefore it just has to be true. What were the majority of world economists thinking. Pfff.

The facts are that the EU has mixed market economies and will continue to have such. Right now they will continue to readjust the levels of "mix" depending on the current economic climate and politics.

One thing I am loving about learning economics at the moment, is the book I am reading keeps highlighting how silly market fundamentalism is. It explains why it fails in much detail. I highly recommend it to Nico