South Africa is in a recession with rising levels of unemployment. Our sovereign credit rating is in junk status. Public debt stands at 50.9 percent of gross domestic product compared with 26 percent in 2008-2009, when Jacob Zuma took over from Thabo Mbeki as president. National revenues are dwindling, as are our normal lines of credit. Finance Minister Malusi Gigaba has said it is becoming inevitable that South Africa will go cap in hand to the International Monetary Fund to apply for a loan, for the first time in the democratic dispensation.
Then suddenly the government announces that it will syphon R2.3 billion of public money to save a badly managed government airline known as South African Airways because it is unable to meet its debt obligations.
The ANC is doing an exceptional job in ruining this economy, just like Nicolas Maduro has done in Venezuela. But why is the ANC government so eager to rob poor people of much-needed investment with limited public resources to save this zombie airline that is ever on life support? Who benefits from all the money thrown into this company? Surely not the 9 million unemployed people who have never seen the inside of an SAA jet.
Upon hearing this maddening piece of news, I dusted off Milton Friedman's essay, "Why Government Is the Problem", in which he tries to explain travesties like the scandalous SAA bailout. The first reason is dispersed costs and concentrated benefits. Out of the 55 million of us, only a few people who happen to be wealthy and powerful stand to benefit from keeping this ailing zombie airline going at taxpayer expense.
These are mostly middle-class people, government employees and the crooked such as the Guptas, who might have lucrative contracts with SAA. But the costs are borne by an infinite majority of citizens in the form of lost investment from the money diverted to save SAA, reduced government benefits or services for the poor owing to lost revenue and possibly rising costs.
The second reason is the different incentives in running SAA on the one hand and running a private airline such as Comair on the other. The motive for profit is stronger than the one for public service. If a private airline fails, the owners must dig into their own pockets to keep it going while the individuals responsible for the failure of SAA pay nothing out of their own pockets for running it into the ground. Instead, more government money is thrown into it as though they are rewarding it for its failure.
Why can't SAA be part-privatised, perhaps by auctioning off its domestic airline business and using the proceeds to settle its debt?
Friedman has a general rule: "If a private enterprise is a failure, it closes down – unless it can get a government subsidy to keep it going; if a government enterprise fails, it is expanded." Try to prove him wrong if you can. In a country begrimed with insurmountable challenges like ours, the SAA bailout, like many other things, is unconscionable. It is a generous, no-strings-attached reward for failure. The so-called turnaround strategy will turn out to be nothing but a farce and gimmick like many other things in this Zuma government.
Why has it not occurred to this government to attempt to raise the bailout money, or at least a greater part of it, from savings by cutting all the profligacy that is so synonymous with this government? Why can't SAA be part-privatised, perhaps by auctioning off its domestic airline business and using the proceeds to settle its debt? Why can't we reduce the size of our Cabinet, which costs us more than R1 billion a year? And why can't we cut the size of government bureaucracy to avoid spending roughly half of our national income on 2 million people in a nation of 55 million?
SAA will always be a zombie airline and a failure because it is run for the wrong reasons. Gigaba seems to lack the necessary strength and focus to make unpopular but the right decisions. SAA's bottom line seems to be that of a "flag carrier", by which it is meant that while the company is a failure, it connects us to every part of the globe, including unprofitable routes. But why is this preposterous tale an excuse to rob poor South Africans of billions of rands every so often to feed this zombie when we have pressing challenges of unemployment, poverty, inequality and a dilapidated public infrastructure?
Is the time ever going to come for the individuals responsible for the failure of public entities to pay out of their own pockets for running them into the ground and saddling the public with mountainous debt? Only time will tell. In the meantime, we will watch as Dudu Myeni and Co. escape unscathed with bulging pockets while passing the rest of us a bequest of debt upon debt.Suggest a correction