The Democratic Alliance is arguing that Pravin Gordhan should cut government fat to encourage growth. Personally I think cutting government fat would have the opposite effect.
One of the major problems people have in understanding how the world economy is working out, is they are stuck in national economy mindsets and thus focus on localised recessions.
In a localised recession what a government does is cut its spending in order to boost demand for jobs, lowering wages and giving its companies a competitive edge in foreign markets.
The drop in local demand is made up for by taking more global demand and yay, you theoretically get out of the doldrums and back to making money.
We have over 20% unemployment at any given time. When times are good, we get down to 19%. Demand for jobs is not particularly low, which is why we need minimum wages in order to protect our workers.
Also think about it – what happens when the recession is no longer local and you have everybody cutting benefits in order to cut wages?
Suddenly that local drop in demand isn’t being balanced by taking up more global demand. Global demand is itself dropping.
As investment is built on expectations of future demand leading to profits, investment confidence falls because of the very acts being introduced in the name of boosting confidence.
This is part of what the world is seeing in Ireland, which entered the recession in surplus.
Since adopting austerity measures it has ended up with a situation where its economy is not recovering, and so it ends up with the EU pressuring it to introduce more austerity measures.
What we need at the moment is a Keynsian approach – not cutting government spending but expanding it. We need to boost local demand in order to boost local manufacturing.
That means not spending less on the NYDA, but spending more in order to get it working the way it is supposed to. That means spending more on municipalities in order to catch up on the maintanance that our country has fallen behind on, and that means looking for new avenues for public investment.
We don’t need to cut the fat so much as spread it around.
Bruce, unfortunately your argument only works under the premise that government is efficient and corruption-free. In South Africa, what would likely happen is that the increase in govt spending will go to the private coffers of a select few, job creation will equal 80 more employed maids and gardners for those select few.