This government must rebuild confidence

The willingness of communities in SA to defend the property of others, specifically shopping malls, during recent riots is of deep significance.

At great danger to themselves they established a line that looters and vandals feared to cross. They did so to protect what was of value to them — access to the great variety of goods and services, necessities and luxuries at shopping malls and their retail tenants.

In fact, people were defending the market-based economic system, of which the last step in a supply chain is the well-stocked shop around the corner, from which such people have realised they benefit in practical and important ways. They are unlikely to be able to explain that the market delivers via a highly complicated, well informed supply chain that reaches across the globe, one that is held together through the discipline of required returns on their owner’s capital put to risk in all the different enterprises that link producers and their customers.

Few appreciate that the feedback loops that keep the system going are not designed or directed by any leader issuing orders; that the process evolves continuously in response to the essential knowledge of how it works best, which is highly diffused among many millions of decision makers.

The latter are required to respond to the preferences of their customers, signalled when they make their selections at the malls. It is in large measure a consumer-led system. These are the abstractions used to make the case for free markets and privately held property, abstractions that are not easily grasped and compete with the other, more easily grasped, abstraction of a centrally planned economy, one led by a presumably all-knowing and equality-minded, selfless and highly competent bureaucracy.

The market system delivers the goods in abundance, as SA communities know full well, and they do not need to know more than the practice.

They should be aware that the alternative to the market-consumer led system has failed to deliver wherever it has been tried — other than to powerful elites who maintain their power and unequal living standards through their ability to brutally repress any opposition that might dare to challenge their interests.

While the mob was attacking our system, Cubans were also politely protesting on their streets, demanding more economic freedom, more access to the goods and services and higher incomes they know a market system could provide.

It was a most unusual protest, because in Cuba protest is severely punished. The wellheeled Cuban establishment has a most effective surveillance system to keep citizens in line.

However, the market system does depend critically on the provision of law and order to protect property and wealth. Without it the incentive to save and invest and take risks with savings is stunted, along with economic progress.

The priority for the SA government is therefore not only to restore order but to create confidence that it will be able to provide protection against disorder in future.

This is the essential reform agenda. South Africans and their ability to take full advantage of what the malls could offer them need not so much more law and order, but more order itself. In fact, the economy could do with far less law, fewer rules, regulations and obstruction of freedoms.

The signals from the financial markets indicate that global investors have not changed their view of the SA economy this month, that all is by no means lost. The cost of insuring SA’s dollardenominated debt has increased by just 20 basis points, while the yield on a fiveyear SA dollar bond has barely changed, and nor have longterm interest rates in SA or inflation expectations.

The rand has weakened about 2.4% against the dollar this month, but so have most other emerging market currencies.

And in dollar terms the JSE has outperformed other emerging market exchanges by about 6%, high metal prices having proved extremely helpful to SA.

That said, investor opinion of SA remains one of wait-andsee, and correctly so.