Manuel shoots down arguments for higher wages as short-termism
ARGUMENTS in favour of higher wages to stimulate domestic demand came under fire yesterday from National Planning Minister Trevor Manuel. At a conference in Midrand, organised by the University of Stellenbosch’s Bureau for Economic Research (BER), he described this approach as “short-termism”.
In the keynote speech, he said: “Already locally produced goods are far less competitive than the goods we import.” In other words, consumers often pay less for goods manufactured abroad than they do for those produced at home because unit labour costs are lower in most other countries.
He spoke of the need to balance the demands of the present and the future. And warned: “Short-termism is likely to increase inequality and increase the risk of political uprising”.
Manuel argues that what is needed is lower costs, as opposed to higher wages. “For instance the working poor spend too much on transport because public transport hasn’t been properly developed.”
Speaking of infrastructure, Manuel highlighted the need to identify institutions that could deliver infrastructure effectively. “This is where we frequently come a cropper,” the minister said, and urged the government to “learn to construct successful partnerships with the private sector”.
He said large sums allocated by the government for infrastructure each year were routinely rolled over because of a lack of capacity to get projects off the ground.
Identifying vital infrastructure needs, he cited “rail links to get iron ore and manganese to the ports”. “And we need to ensure port capacity is capable of exporting. We need to understand that mining requires water and electricity and how we utilise scarce resources like those will become a very important challenge.”
Manuel came out strongly in favour of user fees for public infrastructure. And he referred to successful electronic tolling projects in China. The principle of user fees is in the spotlight because of the opposition to e-tolling on Gauteng highways.
In the opening speech, Hugo Pienaar, BER’s senior economist responsible for forecasting, outlined the economic outlook globally and locally.
He said uncertainty about domestic growth could prompt the Reserve Bank to cut its repo rate again, before starting its hiking cycle.
He said he had previously expected the bank to leave the repo rate unchanged at 5.5 percent until the end of this year and start raising rates early next year. But, after the developments in Europe last month, he is now forecasting a hike only in the second half of 2013.
The bank cut the rate from 12.5 percent in December 2008 to its current level in December 2010. Despite inflation breaching the ceiling of the bank’s 3 percent to 6 percent target range in October last year, it kept the rate at its historic low because of the poor outlook for growth.
Economic prospects took a turn for the worse last month, due to rising anxieties about the euro zone. The region was moving into recession, the US was making only a slow recovery and growth in China and India was slowing, Pienaar said.