October 10, 2012

A COUNTRY ON THE SKIDS: Striking Miners, Plummeting Currency: Few Good Options for South Africa.

For political economists, Africa wonks, and geopoliticians, this is bad news. Just as the fabulous mineral wealth in South Africa’s mines serves as an engine for the whole economy, labor relations between miners and the mining companies reflect many of the forces that threaten to rip South Africa’s precious democratic experiment to bits.

We’ve written about these problems before. For now at least, the government doesn’t seem to have an answer. The government desperately needs to keep mine profits high so that it can cream off a lot of tax revenue while keeping investors happy.

That basically means squeezing the mine workers in order to transfer some of the wealth they produce to programs that would ostensibly benefit the majority of South Africans who still live mostly outside the formal sector and the modern economy. (We say “ostensibly” because a certain amount of corruption and inefficiency plagues the South African government machine.)

But the miners are well organized and have a history of militancy dating back to the struggle against apartheid and beyond. The miners want the government to squeeze the foreigners and investors more and the workers less—even nationalizing the mines outright.

There are three problems with that politically attractive course. The first problem is that, if the government really did nationalize the mines, it would have to either expropriate them without giving their owners fair compensation, or it would have to pony up and pay a hefty price. The first alternative would thoroughly mess up South Africa’s relationship to the global economy and expose its nationalized companies to all kinds of legal actions around the world. The second would saddle the country with immense debt that would take years to pay off and consume all or even more than all of the hoped-for new revenue.

I’m not optimistic about South Africa’s future. It has a political class so bad that it makes ours look good.

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