Shining a light on local content

Last week, the amendments to the Preferential Procurement Policy Framework Act (PPPFA) came into effect. The new amended Act gives the Department of Trade and Industry (DTI) the power to cherry-pick certain sectors and products within the South African economy for special privileges. More specifically, states the Act, “An organ of state must, in the case of designated sectors, where in the award of tenders local production and content is of critical importance, advertise such tenders with a specific tendering condition that only locally produced goods, services or works or locally manufactured goods, with a stipulated minimum threshold for local production and content will be considered”.

The ‘first wave’ of designations apply to power pylons, rolling stock, buses, canned vegetables, clothing, textiles, footwear and leather products and set top boxes. According to the DTI, further designations will follow in 2012. But, let’s overlook how the DTI arrived at the decision to heap these benefits on these particular sectors for the moment and concentrate instead on a bit of history.

There is a certain irony in the government choosing to introduce these measures in 2011 because this year marks the 200th anniversary of Luddism. The Luddites were a group of disgruntled individuals led by Ned Ludd who, when faced with the steam-driven loom back in the early 1800s, took to machine-wrecking in a desperate attempt to protect their jobs from the impending mechanisation of their industry. Unfortunately, the SA government in this modern day and age, has fallen victim to the protectionist mentality that gripped the Luddites and chosen to introduce severe protectionist and retroactive measures.

With the introduction of labour saving technologies, job losses are bound to happen. This affects all sectors of the economy as and when progress and development occurs. This process has been dubbed “creative destruction” and there are thousands of examples of this trend. The ‘destruction’ aspect has caused some people (like the Luddites) to fear innovation and argue that if we continue to innovate there will be fewer and fewer jobs available and eventually virtually no one will have a job and no income because machines will do everything. But the ‘creative’ aspect is an exciting and propelling force because with every innovation, and every spin-off from that innovation, new skills are required and new jobs created, often more far reaching than the task being ‘destroyed’.

The ultimate fear that machines will take over doing everything and men will be left without work cannot ever be true. As it was with the Luddites 200 years ago, greater productivity reduces the cost of satisfying basic needs such as food and clothing and enables us to turn our attention to fulfilling other needs, many of which were unimaginable in our great-grandparents’ or even our parents’ day. Indeed, it’s only because most of the jobs that existed in the past have been destroyed that we today have our modern forms of transport, communication, entertainment, ready-made clothing, foodstuffs, and other items that would have been out of our reach in the past. And because of the affordability of these items, many of us, instead of fretting over basic needs, now have the dubious luxury of worrying about how we will pay for our cell phones, movie tickets, bond repayments and this year’s summer holiday to Durban’s beach front.

Thanks to the redirection of resources and the creative drive of entrepreneurs, there will always be a market opening up requiring labour. There will always be work to be done and money to earn provided people are prepared to face new challenges, learn new skills or even change their working direction completely if business is left to steer itself according to the demands and desires of the masses.

When it comes to trade across borders, it is important to recognise that it not only enhances prosperity but also encourages peace. This is why the operation of the free market is essential. Trade is not only necessary to promote productive efficiency but also to foster harmony and peace amongst the various population groups scattered across the globe because we rely on one another to supply the most effective components for the goods and services that we are best suited to produce and to provide a market in which we can sell the goods we are best able to provide.

It is shameful that the South African government has legislated the spending of taxpayers’ money on locally produced goods, even if they are more expensive or unequal in quality to those produced worldwide in order to prop up inefficient special interest groups within the South African economy. This is a totally inefficient use of scarce taxpayers’ money.

The lesson we all need to learn from the Luddites is that no company is too big to fail and no sector is worth protecting just because it provides jobs to hundreds of people. If the Luddites had succeeded to lobby the British government for protection, we would not be in the privileged position that we find ourselves today where machines carry out tasks that humans once toiled over for hours. The market must be free to operate. A free market is, without a shadow of doubt, superior to government meddling and a planned economy where a government deemed ‘strategic’ sector is promoted at the expense of one not deemed so. Shining a light on one sector to protect its workers, dims the light on the workforce in sectors left to struggle without state assistance, and extinguishes it entirely for those who would have had a chance to find work in new, innovative labour markets.

AUTHOR Jasson Urbach is an economist with the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

FMF Feature Article / 13 December 2011

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