EDITORIAL: IRR’s spat with Sygnia’s Magda Wierzycka just isn’t liberalism
Prescribed assets have been tried — during apartheid — and found wanting
Perhaps the most astonishing part about the row between Sygnia CEO Magda Wierzycka and the Institute of Race Relations (IRR), other than the latter’s illiberal attitude, is that it comes at a time when there is growing consensus about the subject at hand. And that is the possible imposition of prescribed assets as tried during the apartheid era by the National Party government.
Some think this could solve the country’s problems of unsustainable government debt, creaking infrastructure and bankrupt state-owned enterprises.
According to data from the Association for Savings and Investment SA (Asisa), the country’s savings and investment industry is as large as R8.7-trillion, and some people think it would be a good idea for the state to grab a portion of that for its “development goals”.
The economic arguments against such a policy are compelling in their simplicity. The policy pursued by the apartheid government stipulated that pension funds should invest from 33% to 75% of their assets in government-approved assets such as sovereign bonds.
It’s clear to see why this is a bad idea. For one thing, it undermines the bond yield curve’s role as a relatively accurate indicator of future interest rates and investors’ views of the country’s fiscal prospects.
If one wants to know what the people who lend money to SA think about the chances of finance minister Tito Mboweni fixing the country’s fiscal crisis and “closing the mouth of the hippo”, just look at the difference in yields between short- and longer-dated bonds. Forced buying of government debt would distort that.
Prescribed assets hurt investors and pensioners because their money wasn’t put where it could work best for them. The commission that recommended the end of prescribed assets in the late 1980s found that, because of the policy, investors received a real return of about 9% less than they should have got in the 1970s.
There’s also the potential hit to investor confidence at a time when SA can least afford it. Asisa and other industry bodies have made strong presentations against this policy when it found its way into the ANC election manifesto in 2019. It has never been tabled as policy and the governing party’s post-coronavirus economic policy strategy doesn’t develop the idea. If anything, it has moved away from it and talks more now about potential changes to regulation 28 of the Pension Funds Act to make it easier for pension funds to invest in infrastructure.
There are some in union federation Cosatu who are still committed to the idea of using workers’ pensions to cut Eskom’s debt burden or prop up failing companies — let the Edcon collapse be a lesson. But most workers will now know that the world has changed since the days of defined benefit funds — when pensions were assured irrespective of performance.
In those days, one could make the point that it was companies that faced the risk. Not any more. Workers will pay for bad investment decisions via lower pension payouts and longer working lives.
With all that in mind, it would be hard to imagine that Wierzycka, whose company manages and administers more than R200bn, or any other asset manager would be anything but vehemently opposed to prescribed assets.
That said, in a democratic country, the IRR has a right to survey whoever it wants whenever it chooses and on a subject of its choosing. But it doesn’t have the right to demand participation from Wierzycka or any other SA citizen or company.
Not having got a response from Wierzycka, the IRR, which prides itself as custodian of liberal values, told her it would launch a social media campaign in which it would identify entities, such as her company, and provide clarity to members of the public on whether they “are likely or unlikely to act in the best interests of their clients in opposing prescribed assets as possible government policy”.
For her to read that as a threat that the organisation would, unless she co-operated, seek to impugn her company’s reputation, was reasonable. Companies such as Sygnia live and die on public trust and she was right to push back.
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