AYABONGA CAWE: SA ignores the metallic elephant in the room

I spent all of my school life before university in a traditional Eastern Cape English boys’ school, being fed the fare of Dickens, Kipling, Golding, Salinger and the other classics. Yet I only recently came across the term “involution”, or nei juan as it is called in China.

It is a rather versatile word, which depending on the context means anything from structural deformation in medical terms to a rather esoteric way of describing something as complicated. It was its use in Chinese policy circles to describe a particular “disease” within particular product markets that recently sparked my interest. Involution is described by the nomenklatura of China as a “self-defeating” form of product market competition.

This came to mind a couple of weeks ago when an editorial opinion in this publication exhorted politicians to treat the disease that is causing ArcelorMittal SA (Amsa) to close decades-old steel plants. In similar vein, DA MP Mlondi Mdluli produced an article that characterised the provisional safeguard measures imposed on corrosion-resistant steel after an application by Amsa as a “reckless and protectionist decision”.

Worryingly, both accounts assume that the remedy for problems at the ailing steel plants or in other areas of product market reform rests solely in better “trust in markets”. Or “market discipline” in network industries, as the editorial suggested. Whether this is the case or not, both analyses ignore the “involution” the Chinese flag as a key source of pricing and supply problems.

In August 2024 the Chinese Communist Party directed exporters to exercise “self-discipline to prevent vicious involutionary competition”. The Beijing authorities warned these firms to shutter “outdated and inefficient” capacity due to concerns that this involution has played out in the form of “disorderly price wars” and oversupply.

Similar price wars are found in electrical machinery, steel, cement, ceramics, solar panels and glass product markets. In fact, the problem of supply rationalisation in conditions of weak market demand has confronted the capitalist world market for steel for the last 100 years, since the first international steel cartel of 1926.

The editorial and Mdluli conveniently sidestep the macro-drivers of weak steel performance — chronic rather than episodic over-capacity, involution, weak demand and narrowing outlets for export of locally made steel. Last time I checked, ports such as Dunkirk in France worked at better efficiency than ours, and the reasons for the closure of some of ArcelorMittal’s French operations have nothing to do with any woes at recently re-nationalised energy utility EDF.

Rather, they arise from a crisis in the world market for steel itself, with a “20% fall in demand over five years and a rise in imports”, as ArcelorMittal France put it. In the face of ever more stringent trade restrictions, involution-produced steel will find it difficult to enter the UK or the US. It will not miraculously evaporate, but will search for outlets with relatively lower trade protection — such as a small, relatively open market economies like SA.

In such a context, much like the island-marooned youngsters in William Golding’s Lord of the Flies, both Business Day and Mdluli — while correctly fretting about our energy, freight and other supply-side challenges — ignore the world market for steel and its rapacious appetite for capacity expansion. 

We are cajoled to eschew policy tools such as the World Trade Organisation Safeguard Agreement or our own regulations and law, and to face unfair economic competition with only a fish knife to protect ourselves. The markets will provide. Inshallah.

As the youngsters in Lord of the Flies eventually realise, the “beast” was an innate part of them. We would do well to recognise that the beasts we confront lie at the heart of what were episodic but are now chronic features of the market, such as overcapacity, rather than retreat into fervent piety about “market discipline” as some cure-all for our economic problems.

• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.