Chris Hart, chief economist at Investment Solutions. Picture: FINANCIAL MAIL
Chris Hart Picture: FINANCIAL MAIL

ALTHOUGH red tape was a bureaucrat’s salary supplement opportunity and led to corruption, imbalances across the labour, corporate and government sectors were also throwing economic systems out of kilter, an Investment Solutions conference in Johannesburg heard on Tuesday.

The Occupy Wall Street protest against massive pay gaps and inequality started in the US last year when it emerged some corporate leaders were earning up to 500 times more than the lowest-paid workers.

The Marikana mining massacre in South Africa also reflected an imbalance after union members became agitated with their leaders, the conference heard.

"The key elements of an economic system should include Joe Public together with governments, labour and corporates," said Investment Solutions chief investment officer Glenn Silverman.

"When one becomes too powerful, it shades out the others," he said. "The problem with financial repression is that it is not a crisis. When it’s insidious, it’s subtle and you don’t know your freedoms have been taken away."

Investment Solutions chief economist Chris Hart said freer countries tended to be less corrupt as "you don’t need to get past a bureaucrat to earn a living".

But corruption distorted investment patterns as the borrower was politically more powerful than the saver or investor.

"The economy gets sicker and sicker until it can’t cope any more," said Mr Hart. "Greece will recover when the population loses faith and turns away from the government and handouts."

But he added: "You cannot nationalise skills. The moment you try to coerce skill, they (skilled people) move."

It was harder to nationalise in sectors such as information technology, but mining and agriculture were "easy targets" for financial repression, he said.

Further, financial repression tended to lead to negative real interest rates in an economy, the conference heard.

Investment Solutions was also worried about prospects in countries such as France, where high tax rates are potentially debilitating, though managers at the conference talked up emerging markets’ prospects.