For whom the roads are tolled.

Why the user-pays argument for e-tolls is invalid.

There was more than a touch of unintended satire in Agriculture Minister Dipuo Peters’ comparison between paying a toll for the use of roads and depositing a coin in a facility where you want to deposit something else.

Many jesters have had a field day with that postulate, which no doubt must have attracted a snigger or two from the august gathering of the country’s top business practitioners that she was addressing. It revived a vague memory of some graffiti I saw on the door of such a facility many decades ago that read: “Here I sit, sick and dishearted (sic); I paid a penny, and I only farted.”

Another dating to the same era when pennies still had value, I adopted as a childish chant: “If you want a wet surprise, pull the chain before you rise.” That only makes sense if you can remember the days when you were forced to sit under the threatening weight of a huge cast-iron cistern, from which a long chain was suspended to perform a very loud thumping flush. In those days they were mostly consigned to outhouses as a step-up from long drops. The reason was simple: if you had one in your home and someone in the household was having a metabolic nightmare, the entire extended family would have a sleepless night.

I’ve always studiously avoided taking issue with many of the ludicrous utterances on matters economic of our politicians from all persuasions. There are just too many of them and mostly their dripping irony and risibility needs no highlighting. It’s only when they are uttered in defence of official policy and represent a terrible twisting of basic economic logic, that it becomes much more than some fertile material for a verbal cartoon.

For one thing, and this purely as an aside, it does not take an accounting genius to know that the coins used for relief in a public loo can never cover the cost of building and maintaining those facilities. The charges were intended purely to keep layabouts from misusing the cubicles for other purposes such as a night of peaceful repose. It’s a bit surprising that someone has not taken this issue up with the Constitutional Court after not being able to hold it in any longer following a desperate but fruitless search for an appropriate coin.

Perhaps it is time that someone rescues the e-toll debate from heading for the toilet and the quagmire of complexities covering its accounting, fiscal and legal parameters. They have all been well-documented and debated in the public domain. What has not been challenged sufficiently and is the cornerstone of its defence such as Minister Peters has again done is the validity of the user-pays principle itself and its relevance to toll roads.

It’s a very seductive argument, seemingly paying homage to free market principles; holding people to account only for those services they directly use; avoiding inefficient cross-subsidisation of government costs; allowing price to dictate allocation of resources, and avoiding the dirty word “tax”.

That’s the first sleight of hand that must be unmasked. A toll is a tax. It is not a price. In principle it is not very different from VAT, where you are forced to pay if you purchase. A road toll is just more specific, confining that tax to a more specific purpose. But it is still coerced, unilaterally and bureaucratically set and not free-moving according to supply and demand. I suspect the whole hullabaloo around e-tolling would have assumed a very different colour had the toll simply been called a “road tax”.

In theory, there’s not much wrong with that. A tax applied for a very specific purpose is arguably much better than where its costs are covered from a massive central account that can hide all kinds of corruption, misappropriation, and inefficiencies. Already our fiscal affairs, controls, allocations and accountabilities are in a mess. The government’s inability to be prudent with general expenditure naturally questions its ability to be so with targeted revenue and expenditure. That’s one of the key issues of the current debate and needs no repeating here.

The principle of user-pays means that the cost of those facilities is covered by the user of those facilities. Investec strategist, Professor Brian Kantor pointed out in Business Report this week that Sanral’s toll structure is not based on cost recovery, but on traffic volumes, implying cross subsidisation of low volume roads by those with higher volumes. He accuses Sanral of blundering by seeing commuters as cash cows.

The deliberate paralleling of the road toll with a legitimate price is highly disingenuous if not deliberating misleading. Pricing is one of the most important principles in economics. It stands on an unassailable and self-evident logic that we all instinctively learn from the day we start swopping marbles. Its primary and vital purpose is to balance supply and demand and move resources to where they are most needed. It underscores the need to keep resource allocation as much as possible in a free environment and out of bureaucratic controls. This does not imply the unbridled reliance on market forces. Markets do not fail; behaviour fails markets, driven by a flawed construct of the role of business, profits, motives, incentives and others, and in turn inviting interventions and social dictates.

Despite the many calamitous economic lessons of the past and present, free moving prices are the one principle that societies flout the most, not only through misguided controls and a contamination of money as a denominator of value, but also through distortions caused by protected monopolies, collusion and other forms of misbehaviour.

Free moving prices are at the heart of legitimate transaction and transactional fairness, of which other pillars are maximum choice and optimum number of alternative suppliers, as well as broad consumer awareness.

At various levels, toll roads simply do not meet the conditions of legitimate transaction.

The casino next door.

Have we created a dual economy of gamblers and others?

One does have some lighter moments even in the weighty world of economic journalism. At a pre-budget briefing long before many of my readers were out of high school, a battery of the country’s top fiscal and monetary policy makers spent some arduous hours with the financial journalist elite going into the finer details of the upcoming budget.

At question time, one of our colleagues got to his feet and asked: “Mr Minister, what does all this mean?” What followed was a stunned silence, until the school masterly Reserve Bank Governor, Dr Gerard de Kock, was instructed to take the confused fellow aside and brief him privately on fiscal affairs. It turned out that he was a junior sports reporter who had been assigned to cover “some meeting” at parliament.

Sometimes the simplest questions are the most difficult to answer, taxing not only your understanding of the subject, but the basic and self-evident logic that should underpin it. Which may explain why many “experts” are not only a bit at sea when it comes to explaining the complexities of our modern financial state, but often disagree about its detail and where it is headed.

Such as: what will happen when the deadline for raising the U.S. debt ceiling runs out? Can the world sustain mushrooming debt without avoiding a massive global depression? Or: with constantly increasing government debt and historically low interest rates why is there no rampant inflation? Related, but just as important questions ask why have low interest rates and government spending not encouraged stronger economic growth and job creation? Why are income disparities at socially unsustainable levels? How can the global economy sustain an exchange system based on increasingly worthless paper?

Try answering those questions at a family braai, and like that posed by a junior sports reporter, you revert to stunned silence. But I take some solace in the fact that even some of the world’s economic elite are not confident of their analyses and predictions. They range from the world heading for a depression; heading for hyperinflation; or both depression and inflation implying unprecedented stagflation; or – as the mainstream guru’s seem to believe – modern monetary management possesses the tools and instruments to keep the ship on a course that will gradually extricate it out of current turbulence onto a growth path where budget balances will be restored, debt repaid, and surpluses and prosperity created once more.

Frankly, despite lofty titles, I don’t think anyone really knows. The conflicting views themselves reflect a global economy that is in unchartered waters. Growing unease can reach a point where faith is lost in those instruments and the ability of those using them -- to ignite a spontaneous reaction from the broad masses that have always marked great economic calamities.

The cracks are severe and it may take little more than the jitters surrounding the running out of time for the U.S. Federal government to raise the debt ceiling on the 17^th to trigger a run on the world’s biggest reserve currency and spontaneous de-combustion.

That uncertainty is based on a break with logic and wisdom that has informed our economic lives since Adam Smith. In effect we have created two economies: a money economy and a real one: a casino next door to a productive economy.

Analogies contain a huge risk of oversimplification, but it is an appropriate way of illustrating the human story in the midst of the complexities of the money mischiefs that have become the predominant driver of our socio-economic destiny.

The main casino is in the United States, with “satellite” operations in many other parts of the world. The owners of the house consist of the American Treasury, the Federal Reserve Board, and the operators, croupiers, card dealers and gamblers themselves made up of banks, stock markets, investment houses, and many others. They issue their own chips on players’ markers from a seemingly endless supply and in an incestuous exchange environment. For the most part, those chips stay in the casino, making a select few winners extraordinarily wealthy.

But there are two major problems: those chips are not little round plastic discs, but are indistinguishable from ‘real” money; and eventually they have to be covered from incomes earned in the real economy. The same way that a casino mesmerises its patrons into believing that wealth can be created at the press of a button on a slot machine or being dealt a good hand of cards, the world has placed that casino at the centre of fiscal and monetary policies and has made the destiny of the real economy dependent upon it.

It should, of course, be the other way around. Real and tangible wealth can only be created in the production of goods and services exchanged with fellow human beings. Real money, if not anchored in something of tangible value like gold or silver, and even if it is based on government backed I.O.U.’s, has to be balanced by the equivalent value of those exchanges. In time, that debt has to be paid for, either by income earners or taxpayers. Postponing that repayment simply by rolling it over, raising a debt ceiling, or borrowing money to pay due debt is nothing more than a giant Ponzi scheme.

The casino analogy explains many of the imbalances and disconnects that have developed over the past few decades.

As long as the chips stay in the casino and are not allowed to inordinately contaminate “real money” in the real economy, inflation can be contained. It’s become part of monetary policy to “manage” that contamination either through interest rate manipulation or releasing chips -- to encourage economic growth or maintain price stability. Its ability to do so over an extended period is, however, being seriously questioned. One statistic that puts this in perspective is that the value of trading in casino chips is now about 18 times more than the value of goods and services traded in the real economy in a year.

It explains widening income disparities, jobless economic growth and the absence of a tangible “trickle down” effect, where the demand for goods and services by the rich should be passed on to others in the form of wages and salaries – what’s happening in Wall Street, it is said, is not happening in Main street.

Low employment financial services form a major part of GDP in many developed countries. It is 25% in the United States, compared with 15% in high employment manufacturing. There are just too few who benefit from these activities to have a tangible effect on demand for goods and services – that’s if they are willing to part with their chips elsewhere but in the casino.

It explains too the disproportionate growth in profit relative to the wage and salary share of wealth. Shares are part of the casino, pushing many share prices to inordinate levels unwarranted by the subdued economic environment. In turn this inflates shareholder expectations of earnings to beyond reasonable price/earnings ratios with the inevitable outcome of containment, including labour’s share of wealth.

There are many more. It may not be the most suitable analogy and avoids the complexities of how the casino itself operates. But then, what else do you tell your friends at a braai?

Their guess at the outcome is as good as mine – indeed as good as those who profess to know.

The chicken run

Does Minister Davies know something many small poultry producers don’t?

Not more than 20 meters from my idyllic rented farm house nestled between the slopes of the Langeberg Mountains and the Breede River is a forlorn abandoned chicken run.

It’s a nostalgic shrine to fruitless attempts at self-sufficiency -- that deep and irrational urge that tugs at one’s conscience in troubled times – when politicking can stymy one of the world’s biggest national budgets; when a debt laden populace loses faith in its means of exchange; when poo is thrown in protest and when violent political springs are sprung.

That chicken run played no small measure in my decision to become an urban refugee. I had comforting visions of roosters heralding the dawn and copious feasts of eggs and drumsticks harvested from scores of fowls running freely in the considerable expanse around the renovated “opstal”. The potential abundance could be shared with friends and neighbours in exchange for cabbages and corn, offsetting potential protein overload.

What followed was a long and sorry struggle. First we discovered that our locally acquired motley clutch refused to seek refuge in the badly fenced run, let alone the decades old zinc chicken house. Attempts to get them to lay eggs in nests fashioned from plastic crates were fruitless. They chose rather to hide their passion fruit under thorn bushes and stinging nettles in the surrounding hectares and sleep in trees to show us that contrary to popular belief they can be quite accomplished fliers. Catching them for the table was beyond any geriatric capability.

Then came the day that one of our pet Jack-Russells proudly dragged in a headless carcase, followed soon by another, and then another. Disbelieving that nature could be so wasteful, we concluded that it was our two spoilt Jackies who had lost the art of hunting for food, emulating humans in killing for sport. Our decision to let them go was supported by their over-zealous appreciation of freedom to disappear for days and form packs with other dogs in terrorising everything that moved in the area.

We had little time to mourn their departure, before we found another carcase in the same headless, blood-drained state – and then more until our clutch of fifty or so was reduced by half. The Draculas were none other than fat otters from the Breede River, already overfed on guinea fowl. So like humans, our fowls were imprisoned in the name of freedom. Free range became semi-free behind a fenced 500 square meters of fertile bug and foliage carrying land. The house itself was cleaned and renovated but retained its original reed and bamboo fixtures which clearly had served its previous inhabitants well.

Then they all got sick. We thought they were overwhelmed by the loss of their freedom and were going through the four stages of grief. But then one died and soon all were gone apart from the wily old rooster. It took a local to inform us that they died of anaemia caused by blood sucking lice. The tiny creatures were dormant for years in fixtures we preserved in a misguided salute to bygone days.

At the grave of our dear departed feathered friends, we resolved to “do things properly”. The fence was replaced with costly professionally installed 1.8-m high heavy gauge jackal wire and the “hok” stripped, refitted, debugged and repainted with bitumen that’s the nemesis of any creepy crawly.

Without costly machinery, slaughtering would be a hurdle, so I studied various means of killing, de-feathering, and dressing to prepare them not only for the pot, but perhaps sell to the local mom-and-pop stores. The best, clean and bloodless method, Google informed me, was to stick a steel knitting needle in the beak and shove it into the miniscule brain. But one clearly mellows with age, to the point where one is repulsed by the killing even of sworn enemies such as spiders and snakes. The decision on slaughtering was postponed – indefinitely it turned out.

Our run was restocked with a mixture of 3 month old layers and broilers purchased and transported from Malmesbury and each costing as much as a dressed fowl in the supermarket.

Then we again found a headless carcase, and the carnage resumed. Those fences may have kept out otters, but not local musk cats and mongooses that burrowed under the fence and found other forms of entry. The run was fortified with below surface chicken wire.

And then came the hawks. They would swoop in and claw at our precious poultry before realising that not even their splendid wings could lift their prey, leaving a dead bird behind. We planted a long pole in the centre and suspended nylon cord from it to the fence, attaching blank cd’s at various intervals to blind their superlative vision. It did not deter their entry, only their exit, leaving us with a terrible conundrum of dead fowls and trapped predators. We covered the larger gaps with fish net and the hawks gave up. So did the otters: mongooses, musk-cats, ferret cats, meerkats, stray dogs, and the occasional wine-fortified human.

What finally killed the venture was economic. Having denuded their semi-free range of all goggas, creepy crawlies, and foliage, our expensive clutch had to be fed from locally bought crushed mealies, the price of which doubled to R60 for 10kg in less than a year. The ROI simply did not warrant the venture, including its rustic value of outside moving wall-paper and a nostalgic crowing at dawn.

So when Trade Minister Davies asks “If we can’t produce chickens in South Africa then what can we produce?” I am deeply mortified and have to hang my head in shame. My attempts were clearly unsustainably amateur. Perhaps I should try again after giving him a call. Perhaps too, he can pass on that something he clearly knows that many small, cottage producers might not, adding advice on combatting infectious diseases such as bird flu; quick, clean, inexpensive and precision slaughtering and dressing; avoiding health risks and coping with rising feed costs.

But one part of his question I can answer -- what we can produce.

Those things that we are good at; that we can competitively excel at. Those things where we can create more productive jobs; that will earn us the income to afford cheaper imported poultry that is the primary source of protein for the vast majority of South Africans and that do not burden beleaguered consumers with tariffs that only fill government coffers and protect domestic inefficiencies.

If we cannot compete in a race, we should not run in it but rather enter those where we can, and not handicap runners in the former. Of course it is not that simple in the dog-eats-dog world of international trade, rife with tit-for-tat protectionism. But the underlying principle is sound. We have to learn that we should always act in the interests first of the customer not the producer; the buyer, not the seller.

The world has had enough of commercial xenophobia and protecting the interests of a relatively small group at the expense of the consumer.