For more information go to www.ipsinvest.com

PS Scott is completing a full investment report and this will be available in the next few weeks.

Property and business is all about creating wealth. Tony Robbins says that success in business, and property is a business, is 80% psychology and 20% implementation. To be successful you need to model the best globally, you need to know what they are doing, implement it and then you will get the same results. You also need to be able to recognise patterns, so that you can gauge world events and make educated and informed decisions for your future.

For this reason, I will be joining Roger James Hamilton, Global Thought Leader and creator of Wealth Dynamics, in presenting with other Thought Leaders to discuss a few critical steps that could determine whether your business or the business you are creating, will succeed or fail in the near future, and that includes your property business?

I truly believe that one of the greatest trends worldwide is Glocalisation – ‘thinking globally, acting locally’. This workshop provides you with the opportunity to learn from the best globally and not something I would recommend missing if you want to be part of the future.

I look forward to you joining me there and please find the details below about the full day workshop event, especially the piece in bold. Click here to secure your tickets now

I will be one of the guests on stage that Roger will be interviewing as part of the Changemakers forum. Being part of the Changemakers forum also makes it possible for me to make a special offer to my network – I have negotiated a special deal!

In other words you will get:

• 2 x tickets for the full day event,
• 2 x Wealth Dynamics Profiles,
• 2 x Wealth Spectrum profiles
• for only R497
• (or R1 697 if you choose the VIP tickets – only 10 still available)
• Amazing value

Fast Forward Your Business Events:

• Johannesburg, Grayston Drive Southern Sun, Sandton, 12 September 2011
• Cape Town, Seapoint Ritz Hotel, 15 September 2011

Bonus Value over R2000 includes:-

• 2 x FREE Wealth Dynamics Profile – value R725,
• 2 x FREE Wealth Dynamics Spectrum Profile – value R280
• plus the a FREE copy of Your Life Your Legacy e-book – value R75
• Click here to secure you tickets now

Limited amount of VIP Tickets at R1697 – including all the above PLUS VIP registration and “front row” seating for the event as well as a Cocktail Lunch with Roger James Hamilton- number of VIP ticket available are LIMITED

Click here to secure your tickets now

The Fast Forward program does that … and more.

What will our economy, technologies and customer’s habits look like in the next 5 years. They are changing rapidly and you need to be ready to profit from these and global changes taking place?

In the coming years, your customers will:

• buy differently,
• pay differently,
• be served differently and
• have entirely different expectations on what they want and how they want it.

And you’ll learn about what this means to your business or the business you work in, that almost no-one else knows about right now!

Find out how, if you don’t start taking action, your competitors will accelerate their businesses ahead by building their teams and harnessing resources differently, promote and partner differently and transform the way they make money.

Click here to secure your tickets now

During this event you will learn:

• How to take charge of your business and financial destiny.
• The Top 10 trends are that will make or break your business in the next 5 years.
• Discover where you are today and the specific steps YOU need to take to profit from the changes taking place – accelerate your business income and wealth.
• How Million and Billion Dollar companies use and create teams to propel their business and wealth (and why you never have to go at it alone again).
• Understand the cycles and patterns of business, property, the share market and your life no matter what industry, location or position you are in.
• How the wealthy solve the exact same problems you may be hitting your head against every day…effectively and instantly…and how you too can focus on the most important tasks that will lead

So What’s Stopping You From Achieving REAL ‘Business Success’, and Enjoying a HEALTHY 6 or 7 Figure Income?

Click here to secure your tickets now

To helping you create wealth through property and business.

Thanks

Scott Picken

IPS CEO

www.ipsinvest.com

For this reason the next Let’s Talk Property will be me interviewing Richard Dunn. Richard is one of the most experienced property investors in Australia and I want to get to the bottom of this concern and really understand what is going on in the market.

We will be exploring:

1. Risks in the economy?
2. Risks in the market?
3. Chances of a bubble scenario?
4. Fundamentals of the market?
5. What are the projections for the market?
6. What to avoid?
7. If I should invest? Where and in what?
8. Timing – should I take advantage of opportunities or wait?
9. Anything else I need to know about Australian property…

Basically if Australia and Offshore Property is something you are interested in, then this is not a webinar to miss. There is uncertainty, but we want to give you the facts so you can make educated and informed decisions about your future!

1. Date: Monday, 29th August 2011
2. Time: 7 – 8:30pm (SA time)
3. Click here to register for FREE webinar

Finally we want to make this as interactive as possible. If you have any questions please send them to me, so that we can prepare and cover them thoroughly in the webinar. scott@ipsinvest.com

To helping you achieve wealth preservation, a plan b and peace of mind for you and your family.

Thanks

Scott Picken

PS If you are interested in Sydney, then please contact Kristen, we have some great opportunities at the moment! Kristen@ipsinvest.com

1. I love South Africa, but I am concerned about the future of South Africa with what Malema keeps saying?
2. Saying that, I am not sure where to invest as there is allot of uncertainty in the global markets?
3. Where is better to invest, South Africa, USA, the UK or Australia?
4. I would like to have a plan B, but I am not sure what to do?
5. I am concerned about the long term value of the Rand and preservation of my wealth?
6. I have heard investing offshore is very difficult and more than 80% of people lose money? How do I trust who to listen to?
7. I don’t know the markets and so don’t know where to start?
8. I think I can get better returns in South Africa at the moment, but I know it is wise to not have all my eggs in one basket.
9. How am I going to manage a property so far away?
10. All I know is that to give me and my family peace of mind, I must do something!

If any of these are pertinent to you, then you should be attending our breakfast.

We continue to live in interesting times, as was seen by the Debt Deal yesterday. We had such positive feedback from our webinar, “Clem Sunter; the Global Economic Outlook, including the USA, Australia and the UK reviews and South Africa’s future prospects”, we will be repeating it live in JHB next week.

Scott Picken will be presenting, and he has a special guest, Richard Dunn, who is one of the leading experts in Australian Property. Richard will also be bringing some exciting investment opportunities from Sydney, Melbourne and Brisbane, including affordable opportunities from less than $300 000. We will also compare these to USA and the UK opportunities.

Join us for our live breakfast.

• Date: 11th August 2011
• Time: 7am (presentation starts at 7:30am) – 8:30am
• Venue: Bryanston Country Club
• Cost: R200 (breakfast inclu) and money back guarantee if event not of value
• Click here to Book

To helping you achieve wealth preservation, a plan B and peace of mind.

Thanks

Scott Picken
IPS CEO

Property Observer

In one corner we have journalists at The Economist newspaper, who in a recent survey made the extraordinary claim that Australian house prices are overvalued by 55 per cent using their preferred benchmark. In the other corner we have a crowd of the most respected economic minds in Australia, including the Reserve Bank of Australia, the Commonwealth Treasury, almost all market economists, and leading house price index providers, such as RP Data and Rismark.

This latter cohort essentially contends that The Economist does not know what it is talking about. They argue that Australian house prices are not materially overvalued, and there is no reason to believe that they must suffer precipitous price falls in order to obtain some more desirable valuation benchmark.

This group has also produced vast reams of analysis showing that robust demand and supply-side fundamentals underpin Australian housing valuations while dwelling-price-to-income ratios remain unexceptional by international standards. In fact, recent research by Rismark has demonstrated that house price growth in Australia’s capital cities and our regional areas has not kept pace with disposable household income growth since the end of the last cycle in 2003.

It was only a few months ago in The Economist’s backyard, the city of London, that RBA governor Glenn Stevens was tossed a question about whether he was worried about Australian housing valuations. In the past – most notably in 2002 and 2003 – the central bank has not hesitated to express reservations. Yet Stevens responded:

“Well, let’s establish a few facts… For the past year or two, house prices haven’t done anything much at all… We continue to see arrears rates on mortgages very low by global standards …We don’t have a gearing up going on now… I don’t think we have huge rises going on… that’s probably not top of my list of worries…

“The other thing I’ll say is that it’s quite often quoted very high ratios of price to income for Australia, but if you get the broadest measures, a country-wide price and a country-wide measure of income, the ratio it about 4 ½ and it hasn’t moved much either way for 10 years. And that is higher than it used to be, but it’s actually not exceptional by a global standard as far as I can see.”

While the typically conservative RBA thinks Australia’s housing market is sitting pretty, The Economist’s survey suggests it is massively overvalued. In order to decipher who is right or wrong here, one has to dive into the detail.

The Economist arrives at its 56 per cent estimate by taking the ratio of median house prices to median rents, and then comparing current levels with their “long-run average”. There are many technical problems with this approach. One obvious issue is that we do not observe rents for more than two-thirds of the entire housing stock, which is ‘owner-occupied’. So The Economist is actually comparing the yields on rental properties with the prices of owner-occupied homes. Imputed owner-occupied rents are likely to be different to those deriving from investment properties given the far greater control rights associated with the former.

But this is a trivial error in the scheme of things. There is a much deeper problem with The Economist’s logic, which both the RBA and we here at Rismark have repeatedly highlighted. Let me explain.

Anyone can compare the current observed values of a range of economic indicators, such as interest rates or inflation, with their ‘long-term’ averages. But we need to ask ourselves whether this is an informative exercise, or potentially misleading.

For example, applying The Economist’s way of thinking to Australian interest rates would lead one to conclude that current rates are much too low. Indeed, the analysis implies that Australian government bonds are massively overvalued since today’s 10-year yields of 5.5 per cent are more than a third lower than the 30-year average of 9 per cent.

Yet the body that sets interest rates – the RBA – has repeatedly told us that present-day lending rates are, in fact, “a little higher” than their long-term averages. So what is going on?

As an alternative, let’s examine inflation. Today the RBA believes that the acceptable rate of consumer price inflation is around 2.5 per cent per annum. Yet the 30-year average rate is 4.2 per cent per annum. Does this mean that the RBA should substantially revise up its inflation target? Of course not.

These variables were not selected by chance. The truth is that the crux of this debate hinges on how inflation, interest rates, household debt, and house prices have varied over the last three decades.

In its survey, The Economist takes median house prices and median rents over the last circa 30 years – which is the longest horizon over which these data are publicly available – and calculates a long-term ‘average’ ratio, which it assumes to be the ‘correct’ benchmark. It then compares current house prices and rents to this 30-year benchmark. If current ratios are above (below) this 30-year average, The Economist claims they are over- (under-) valued.

The Economist does not question whether the old housing ratios might be nonsensical to today’s home owners as a result of: (a) fundamental changes in the structure of the economy wrought by the fact that interest rates over the past 15 years have, on average, been 43 per cent lower than interest rates in the 15 years that preceded that period (see first chart below); (b) the fact that average inflation since the middle of the 1990s has been 55 per cent lower than inflation in the 15 years prior (see second chart); or (c) the fact that the rise of two-income households and the female participation rate in concert with a near halving in the nominal cost of debt might have triggered a once-off upward increase in household purchasing power, and hence housing valuations.

http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/28.47AA!OpenElement&FieldElemFormat=gif click the image to enlarge

http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/60.2EBE!OpenElement&FieldElemFormat=gif click the image to enlarge

Now we have tried to replicate The Economist’s analysis using the longest publicly available time-series of median houses prices and median rents in Australia, which one can purchase from the Real Estate Institute of Australia. This covers the period June 1982 through to December 2010.

If we adopt The Economist’s method, we conclude that the current ratio of median Australian house prices to median rents is about 38.7 per cent above its 28-year average. We do not know how The Economist gets its 56 per cent estimate, but ours is in the same general ballpark.

Interestingly, we can get a 56 per cent number if we look at inflation over this exact same period. Australia’s current inflation rate of 2.7 per cent would have to rise by 56 per cent to agree with its long-term average of 4.2 per cent since June 1982. But, of course, nobody in their right mind would claim that this makes any sense. It is just that The Economist uses this logic when it analyses housing.

One can undertake a similar exercise with interest rates. The headline mortgage rate today is 7.8 per cent. The average headline rate since June 1982 is 9.9 per cent. Does this then mean that Australian mortgage rates are currently way too low? Applying The Economist’s method, Aussie home loan rates should rise by 27 per cent in order to correspond with this historical benchmark.

As we mentioned earlier, imposing that logic on the Australian government bond market would imply that it is in the throes of an enormous bubble since yields are more than a third lower than their 30-year average.

To really understand what is going on here one needs to examine the time path of three economic variables: inflation; interest rates; and rental yields.

As you can see from the chart above, Australian inflation has steadily declined from its high and volatile double digit levels in the 1980s to sit within the RBA’s 2 to 3 per cent per annum target band during most of the past two decades. This has allowed the central bank to in turn reduce interest rates.

In the RBA’s view, the long-term reduction in inflation has mainly been a function of the early 1990s recession and its adoption of what is known as an ‘inflation target’. The RBA’s 2 to 3 per cent target was first taken up in about 1993, and more formally enshrined in an agreement between the RBA and the Treasurer in 1996.

Between 1982 and 1995, mortgage rates in Australia averaged 12.8 per cent. Since the start of 1996, they have averaged 7.3 per cent (or 43 per cent less). The RBA considers today’s mortgage rate of 7.8 per cent to be slightly “above” its historical average because the RBA believes that the history that is relevant to today starts with the application of the inflation targeting approach to monetary policy in the early 1990s. Yet we don’t hear The Economist claiming that Australian mortgage rates are too low. (In fact, Australian mortgage rates are today amongst the highest in the developed world.)

The RBA has regularly argued that the structural decline in inflation, and the resultant downward shift in nominal interest rates, in turn drove a once-off upward shift in household’s borrowing (and purchasing) power. This has been reflected in the once-off jump in household debt levels, which basically occurred between 1996 and 2003. This marked rise in household borrowing power also boosted their purchasing power and hence the value of readily leveraged assets, such as houses.

In the following chart, we track the change in Australian mortgage rates and rental yields since 1982. The message is clear: the secular decline in nominal interest rates has propagated a corresponding fall in yields.

http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/92.4DBA!OpenElement&FieldElemFormat=gif click the image to enlarge

Our final chart tells the same story by comparing Australia’s dwelling price-to-disposable household income ratio (bottom line) with Australia’s rent-to-dwelling price ratio (top line) over the last two decades. Observe how these ratios look like mirror images of each other. The common driver has been inflation and interest rates.

The RBA believes that as interest rates started to stabilise at their new, much lower levels in the late 1990s, and households got comfortable with the idea that both rates and inflation were unlikely to jump back to the double digit levels of the 1980s, there was a consequential upward increase in the valuation ‘level’ of housing assets. This had been fully priced by the early 2000s, which is why the two ratios track sideways thereafter.

To be clear, the RBA’s ability to get inflation under control (and thus cut the long-term level of nominal interest rates) caused increases in the household debt-to-income, household debt-to-GDP, house price-to-income, and house price-to-rent ratios. In the jargon, these were ‘level effects’ rather than ‘growth effects’. This means that the very rapid double digit credit growth of the 1990s and early 2000s will not be repeated anytime soon.

http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/126.2A62!OpenElement&FieldElemFormat=gif click the image to enlarge

Unless you believe that we are going to get double digit inflation and 17 per cent mortgage rates, which most observers think are near impossibilities, the housing market benchmarks of the 1980s are irrelevant to home owners in the second decade of the 2000s. The same principle applies to The Economist’s analysis.

It would, of course, be wonderful if our ever-changing, multi-dimensional world could be judged by crude long-term ratios that blissfully ignore all sorts of key facts. Unfortunately, that’s just a recipe for confusing further an issue that already has many confused.

Looking ahead, it is highly likely that Australian house prices will track household earnings in what PIMCO’s Bill Gross has aptly described as the ‘New Normal’.

This article first appeared Property Observer on July 5, 2011. Republished with permission.

For more information contact Scott at scott@ipsinvest.com for the latest market reports.

If you don’t understand social media and get involved you will go out of business. Agreed it is not vital at the moment, but it is impossible to ignore the trends and by the time it comes it will be too late. Robert Kiyosaki (Rich Dad Poor Dad) in his latest book Conspiracy of the Rich, said the best way to build wealth was to follow long term trends and this is certainly one you need to know about!

The beauty with social media is that you can’t spend your way to the top. The only way to build a credible reputation is through time and consistency of you application. This is known as social proofing where you build a following (like your account in Ebay and the way you perform). One day we will all have a social proof, which will be like you ID for both yourself and your company. Your track record will follow you. This is awesome as those that are experts and deliver a valuable service or product will be able to charge more and those that don’t perform will go out of business or have to seriously discount their prices. No more developers selling properties and then building rubbish or dodgy estate agents getting away with murder. You will only be as valuable as your track record and with the transparency of the internet; everyone will be able to see your performance. As Steven Covey says, the 21st Century is the Trust Economy and everything is going to be determined by trust and your social proof will be your indicator or the factor it is based on.

The best way to be successful is to model the best, learn what they are doing and then follow them. It is no coincidence that the best in the world are putting a huge focus into their social media strategies.

Anyone think it is only for kids? By the summer of 2009, over one-third of US Facebook users were over the age of 35 and about half that group was over 45. Early in 2009, InsideFacebook.com reported that the fastest growing demographic on Facebook was women over 55.

The sooner you start the sooner you start to build that track record and most importantly your social proof. You need to be on Facebook, YouTube, Twitter and Linked In at a minimum and you have to start to learn about video as this is the future.

This was a friendly reminder to the property industry to start communicating, or seriously consider the consequences.

If you have any questions please contact me on scott@doubleyoursales.co.za. I would love to know your thoughts.

What will be covered:

i. What is happening in global markets?
ii. 5 fundamental risks facing all South Africans
iii. Why invest offshore?
iv. Where? USA, UK, Aus, other markets?
v. Risks and Growth
vi. Analysis the investment?

Over 80% of people who invest overseas actually loose money for a number of reasons. Learn what you have to know to ensure you don’t join them and you achieve your goals of Wealth Preservation, a Plan B and most importantly Peace of Mind for your family and you.

We won’t leave until all the questions are answered and you have the knowledge and your plan!

• Date: 24th May 2011
• Time: 7pm – 8:30pm (SA time)
• Price: R250 (first 100 are free)
• Click here to book – https://www2.gotomeeting.com/register/998941203

If you dont have time – click here to take immediate action for Free Report. Cost me R50 000 to put together, but it is a gift from me to you for 1 week.

As a friend of mine, I wanted to share some valuable information with you. How weird is the world at the moment? And then you have South Africa? Are things good or bad?

I went to Robbin Island on Monday and the guide was an ex political prisoner and he said they spent 30 years discussing the future of South Africa and how they would like the country to be. I took the opportunity to ask 3 things; the Land question, Malema and whether I had a future in South Africa? He was extremely interesting, but I am sure these questions are on all South African’s minds at the moment.

I am passionate about South Africa and hope to stay for many generations, but having Zimbabwean heritage, I also have a plan B. Having invested extensively internationally, both personally and over R1.6 billion for clients, I think the last 3 years have been fascinating and truly brought the truth to the surface.

At the moment there are 3 very NB questions for all South Africans:

1. The Future of South Africa?

* I have no idea, and it is why I ask anyone I can to try and understand the future. Read the email below which I found interesting.
* Bottom line is there is no way I am putting all my financial eggs in one basket and I have a global investment plan, but at the moment I am focusing on Australia personally, mainly because the fundamentals are strong and also because that is where I will go if I have to leave. See below, this is why I went there again to thoroughly investigate.

2. The Future of the Rand?

* Once again I have no idea and certainly not going to try and predict the short term future. However Robert Kiyosaki (Rich Dad Poor Dad) said in his latest book, Conspiracy of the Rich, “If you want to create real wealth you have to follow long term trends.” I think we can safely say the Rand will continue to weaken as a long term trend against first world currencies (possibly except the US Dollar).
* I was speaking to two friends recently, one an independent currency broker in London and the other currency manager for Macquarie Bank and they both said they are expecting the Rand to sharpen weakly in the short term, because of sentiment about South Africa and Global conditions.

3. The Future of Global Markets?

* Once again predicting is a very difficult game, but having plenty of experience with property cycles, understanding fundamentals and believing there is more long term risk in South Africa, I need to understand where I can invest Offshore.
* Based on this I am always asked whether to invest in USA, the UK or Australia (along with many other countries) and where I am investing?
* There is a lot of concern about where markets are going, especially Australia and whether there are problems of bubbles, etc.
* For this reason, in a constant endeavour to thoroughly understand the property markets, I went again on my bi monthly trip to Australia, but on this trip I wanted to answer two questions:

1. Firstly to understand and analysis the risks to the property market – short, medium and long term.
2. Secondly to understand where the market was going.

* IPS spent over R50 000 putting together the most thorough market report ever compiled, seen through the eyes of a South African looking to invest offshore.
* The report reviews the Australian, USA and UK property and other emerging markets.

I am selling this report for R195 on our website, but for one week, till the 13th of May at 5pm, I am prepared to give it to you for FREE. I am interested in what you are interested in and therefore if you fill in my quick survey (less than 2 min) and help me, then I will send you my report. Click here to take action for your future.

As a valued friend, I want to make sure you achieve your objectives. Over 80% of people who invest overseas actually lose money and I want to make sure you are in the 20% who achieve Wealth Preservation, a Plan B and most importantly Peace of Mind for your family and you.

To investing with confidence and with the right information.

Scott Picken

PS Have you signed up to twitter for the latest Australian Information http://twitter.com/Aus_Property

PPS This is an interesting and open address by head of SA Institute of Race Relations about the future of South Africa.

NP and ANC: The parallels
John Kane Berman, 24 March 2011

John Kane Berman says our new racial engineers will fail, just like the old ones did

http://www.politicsweb.co.za/politicsweb/view/politicsweb/en/page71619?oid=227793&sn=Detail&pid=71616

Keynote address by John Kane Berman, Chief Executive of the South African Institute of Race Relations, at the SwissCham Southern Africa luncheon, Johannesburg, March 10 2011: South Africa: Finding a Way Forward

I will try to answer three questions this afternoon

1. Which way are we going?
2. Why?
3. Can we find a better way forward?

Apart from racial policy, the institute I head has been documenting almost every aspect of South Africa since our foundation in 1929. It was inevitable then that when the ANC came to power in 1994, people asked us why South Africa should not become just another African disaster.

I gave the usual list of advantages: a greater pool of skills, good infrastructure, a resilient private sector, our strong international economic linkages, a tradition of political pluralism, independent trade unions, a free press, and the vigour of our NGO sector. Since then the country has won golden opinions for macroeconomic policy management, reflected most recently in a heavily oversubscribed 30-year government bond.

Despite this, we now learn almost daily of things that prompt the question once again: are we headed for the list of African failures. Recently an outbreak of foot-and-mouth disease occurred because a vital border fence with Mozambique had been neglected.

Such problems are not isolated. We have slipped further down global tables as a destination for mining investment, police behaviour seems to be increasingly lawless, maternal and infant mortality rates are rising, millions of schoolchildren have started another year without textbooks, and the country’s commercial capital is run by people who are out of their depth. We also have much higher rates of youth unemployment than countries to the north that recently chased away their rulers.

Specific problems aside, among the main reasons we are going wrong are the following:

* Affirmative action, which has denuded the State of both skills and institutional memory
* Labour laws which protect unionised workers at the expense of the jobless
* The cadre deployment policy, making loyalty to the party a key criterion for appointment to offices of state, and
* Use of a model of government which makes elected institutions more accountable to party headquarters than to voters.

Apart from policies and practices, the problems confronting us arise in part from assumptions and attitudes that affect the policy environment. These include:

* limited understanding of what entrepreneurship requires
* ideological hostility towards business
* poor appreciation of how markets work or even antipathy towards them the belief that the pockets of our small number of major taxpayers are bottomless, and
* too much faith in the efficacy of the State, leading to more and more regulation

To these harmful factors must be added others:

* corruption said by the deputy president to be “worse than anyone imagines”
* lawlessness on the part of the State
* a love of the grandiose, such as new bullet trains to Durban while we can’t fix commuter rail services
* the callousness towards ordinary people found all too often in service departments, and
* no accountability even for preventable deaths of mothers and babies in public hospitals

Then there are two key problems in the way policy is made.

One is a habit of putting the cart before the horse – for example, embarking on ambitious education or health schemes without first fixing the basics such as training enough teachers and reversing the decline of public hospitals.

The second is failure to apply the lessons of admitted mistakes. To its credit, the Government has admitted the failings of outcomes-based education but the ANC nevertheless plans to forge ahead with a national health system without considering the State’s capacity constraints.
These various aspects of our problems show that we are facing not just a few wrong-headed policies, but a challenge arising from the very nature of the Government and how it runs the State. Most of them have a direct impact on business.

Part of that challenge arises from the fact that the ANC is not a normal political party. When a party with a two-thirds majority in Parliament is still committed to a “national democratic revolution,” we must ask what it is that they wish to stage a revolution against. The economic system? Probably. Democracy? Perhaps. The rule of law? Very likely. The Constitution? Possibly.

The Press pays little attention to the national democratic revolution, but the ANC is committed to it. This is one of the risks we face. Another is that tougher affirmative action requirements lead to a drain from the country of the most skilled segment of the population.

Yet another is that public spending gets out of control as the ANC promises more free things to more people and puts more of them on to the public payroll, including now members of Umkhonto we Sizwe. We might also see a more rigid labour market, destructive interventions in agriculture, attenuation of property rights, damage to private health care, more malfeasance with mining licences, further corruption of the criminal justice system, and more local governments collapsing.

It is ironical that we are expanding our social security commitments at the very moment when rich countries are having to cut back. It is also ironical that we are seeking to extend controls of the labour market while Europeans are trying to make their labour markets more flexible.

A further piece of irony is that we are lengthening the arm of the State at the very time when China and India are continuing to liberalise economically, when parts of Africa are liberalising, and when even Cuba is showing signs of liberalisation.

I have painted some dark clouds and the challenge now is to find the silver linings. Like a contrarian investor, we must look for signs of change that may not be obvious. One of these is the very fact that the Europeans, the Chinese, the Indians, and the Cubans have been here before and are having to reverse thrust.

The international context in which we make policy has changed. Africa is also having to pay more attention to good governance than in the past. Already, some African countries are more attractive as mining destinations than we are. If we don’t look out, we may find that our lead as the most important economy in Africa is shrinking.

Despite the ANC’s close historical ties with the Communist Party of the Soviet Union, it was unable in 1994 to follow a communist path because the USSR had in the meantime imploded. As welfare and dirigiste states elsewhere come under pressure, so will the ANC have to recognise that those role models are also unworkable.

Despite this country’s achievements since the advent of democracy in 1994, we are pursuing an unworkable political model. This model will have to be abandoned just as communism and apartheid had to be abandoned. How long this will take I do not know. The evolution of liberal democracy can be a slow and difficult business. But we need to find ways of helping the process along, while also trying to minimise the fearful human and economic damage that may be done in the interim.

Among the reasons why apartheid disintegrated, two are relevant today. One is that its contradictions – notably the belief that you could run a modern economy without exploiting the skills of the whole population and granting them political rights – became unsustainable.

The second reason was that, as the policy crumbled under the weight of critical scrutiny and its own contradictions, the ruling elite began to lose faith in it. Disillusionment spread from the Dutch reformed churches, to the Afrikaans Press, to academia, to business, to the ruling party, to the Cabinet, and not least to the Broederbond. This made Mr FW de Klerk’s bold actions on 2nd February 1990 both necessary and possible.

Parallels between the last 25 years of National Party rule and the first 15 years of ANC rule are becoming quite striking.

The most obvious is on racial policy. The NP thought it could run a successful economy without fully exploiting the skills of the black population. The ANC thinks it can run a successful state without fully exploiting the skills of the white population. The evidence that this cannot be done is apparent all the time at all levels and in all branches of government. And it is beginning to cause instability at local level and hurt the party.

Unfortunately, however, one of the parallels with our past is that failed policies are sometimes intensified rather than abandoned. This happened with the pass laws, for example, before PW Botha finally repealed them in 1986. It may also happen now with the Employment Equity Act, with its provisions for heavier fines to enforce racial quotas upon all employers – when the Government cannot even get Denel, or Eskom, or SAA, or Transnet to meet its racial targets at management or skilled levels.

But there are other parallels. Just as the National Party steadily lost support among the intelligentsia, the same is happening with the ANC. Some black newspaper editors and journalists are at least as critical of the ANC as their white counterparts. In discussions with black business leaders over the past few months, my Institute has been struck how some of them have become very critical of the government – more so than most of their white counterparts. Moeletsi Mbeki probably speaks for more people than we think.

Some of the squabbles in the ruling tripartite alliance are about spoils and patronage, but others are about policy. There are divisions over whether “decent” jobs should be placed above the need to generate more jobs. A growing minority is beginning to question the deployment policy. Others would like to have a professional civil service instead of one subject to ministerial whim. Racial policies are now also becoming a source of division, as we saw last week with Trevor Manuel’s public attack on Jimmy Manyi.

This spat is causing the ANC to tie itself into knots. When my Institute pointed out that forcing employers in the Western Cape to conform to the national racial breakdown would necessitate the (illegal) dismissal of thousands of coloured workers, President Jacob Zuma said companies would have flexibility to conform to national or regional demographics.

This, however, is not what the proposed amendment to the Employment Equity Act says. Now the general secretary of the ANC, Mr Gwede Mantashe, has weighed in to the effect that national companies will have to use national demographics and provincially-based companies provincial demographics. This is the opposite of the flexibility of which Mr Zuma speaks.

In November last year the minister of finance, Mr Pravin Gordhan, told an audience in London that economic empowerment policies designed to improve the standard of living of the black majority after 1994 had not worked. After all the employment equity, labour, and land reform legislation, not to mention hundreds of billions of Rands in BEE deals, this is quite an admission. In the short term it may lead to an intensification of failed policies, but in the long term these policies will have to be abandoned.

The new constitution ushered in democracy in 1994. Ironically, however, the ANC’s model of government – based on the Leninist idea of “democratic centralism” – in terms of which party headquarters dictates to local communities whom they must elect – is causing growing dissatisfaction at local level as the municipal election on 18th May approaches.

Though many officials are hostile to white farmers, others recognise that no one else has the expertise to reverse the failures of land reform. Despite antipathy to the private sector, some of the ruling elite see a growing role for it in getting our ports working more efficiently, in electricity generation, in the rescue of local government, in AIDS testing, and in sorting out the problems of further education and training colleges.

Indeed, as the failings of the State become more and more apparent, thanks in part to a critical media, more and more people in government will turn to the private sector for help. Even Cosatu wants private sector involvement to be mobilised when Postbank gets a banking licence.

These inconsistencies will multiply as the ANC continues to pursue mutually contradictory policies. Promises of creating millions of new jobs are incompatible with key components of official policy, among them affirmative action, the deployment strategy, restrictions on immigration, tightening up the labour market, and adding to the regulatory burden on business. Eventually the contradictions will become unsustainable. Either some of these key policies will have to be jettisoned, or the quest for millions more jobs will fall by the wayside.

In the meantime, what do we do? The first thing is to keep exposing the contradictions, so providing arguments for those in the ruling alliance who wish to see more realistic policies. Arguments for the liberalisation of our damaging labour laws need to be refined and intensified. The climate to do this is now more favourable than at any time since 1994.

I suspect that affirmative action and cadre deployment policies have also done more damage to this country than most people care to admit. Can you really run a modern industrial state if you would rather leave posts in the public sector vacant than appoint whites to them? The major victims of this folly have been blacks rather than whites.

The connection between these policies and lost growth and investment, high unemployment, shoddy RDP houses, inability to obtain social grants or medicines, preventable maternal and infant deaths, high crime rates, perilous roads, poisonous rivers, mismanagement of flooded dams, fraudulent passports and IDs, and a great many other problems needs to be repeatedly pointed out.
The ANC’s economic objectives simply cannot be achieved while everything is subordinate to racial ideology and the imperatives of the “national democratic revolution”. This message needs to be hammered home without reservation or apology until a critical mass of opinion within the ruling alliance comes to recognise it.

Secondly, it is necessary to stand firm in the defence of vital practices and institutions as they come under increasing threat, not only the rule of law but also academic freedom, independent civil society, a free Press, an independent legal profession and prosecution service, and independent courts. It is also necessary that organisations other than business come to the public defence of the free market system, private enterprise, and entrepreneurship.

Not for a second should anyone in the ruling alliance be allowed to forget that the money the Government spends on education, health, housing, child support grants, and everything else – including its lengthening list of promises to its constituents – arises from taxes extracted from the private sector and private individuals.
This is a point that needs much more emphasis than it gets. Business might wish to think of ways of getting the point across more strongly in public as well as to parliamentarians, civil servants, and other members of the ruling alliance.

Thirdly, keep proposing alternatives to present policies. Business may not necessarily see a direct role for itself here, but it is nevertheless essential that alternatives be put forward. Here is my list of a dozen:
1. Cut back on the size of the State
2. Put inspectors back into schools
3. Systematically extend private education
4. Radically redesign land reform
5. Democratise Parliament
6. Liberalise the labour market
7. Make economic growth rather than redistribution the topmost priority
8. Change our welfare state into one that promotes entrepreneurship
9. Direct all state interventions at helping the poorest of the poor regardless of race
10. Replace the deployment system with a professional civil service
11. Increase our global competitiveness as a destination for foreign direct investment
12. Repeal all racially discriminatory laws

Some of these may seem fanciful right now. However, given growing contradictions, policy failures, and paralysis in government, the climate is in fact auspicious. Detailed policy work on alternatives will of course be necessary. But the main point at this stage is to undertake a tenacious campaign to change ideas, preparing the soil, as it were, for new policies to be planted. This will be a long haul and a hard slog, so the sooner it is stepped up the better. The ruling party must be a prime target, both direct and indirect.

Don’t forget that ideas predate policies and that their power, for good or ill, should never be underestimated. It was after all, that great incendiary journalist and armchair revolutionary, Karl Marx, who produced some of the most powerful ideas in history. Despite their murderous consequences some of these ideas still have an iron grip in South Africa.

They need constantly to be countered by the ideas that underpin liberal democracy. In particular, we need to keep on propagating the idea that the real alternative to apartheid is not another form of social engineering designed to promote an impossible equality of outcomes but an open society committed to equality before the law, political and economic freedom, corruption-free and proper democratic government, and rising living standards for all.

Social and racial engineers failed in South Africa last time around, and they will fail this time too. That is cause not for despair but for eager anticipation.

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