Written: August, 2007
Because of South Africa’s relatively sophisticated infrastructure, the extent of its mineral resources and related downstream industries, the economy is in no danger of collapse. But nor is it the powerhouse it is so often claimed to be. The mass of contradictions inherited from the past persists and the often confused and inadequate responses by government mean that the economy, with a massive and growing current account deficit, resembles more a balloon that may gradually deflate to a considerable degree.
Thirteen years after transformation to a non-racial and liberal parliamentary democracy, South Africa’s economy remains a mass of contradictions. These are rooted firmly in the country’s past. That they remain in place to the extent that they do, is partially, perhaps largely, a reflection of the manner in which the government and its financial institutions have attempted to deal with them while having to grapple with the realities of the global marketplace to which the domestic economy is linked increasingly.
The primary argument, which predates the Codesa talks that led to the eventual political transformation, is about macro-economic policy; about whether the supply side argument that economic growth would lead to the wider redistribution of wealth or that the demand driven concept of wealth redistribution leading to economic growth should be the way forward. It was an argument that flared briefly in 1991 and continued to simmer through supply side dominance, especially from 1996 to flare again in recent years with the term “developmental state” becoming common currency.
International pressures, such as the rise in the oil price, over which the local polity has little or no control or influence, have come more heavily into play in recent years. Just as have the subsidy regimes employed by major trading partners in the developed world and which have so far stymied the much delayed Doha Round of the World Trade Organisation (WTO). And no governments appear yet to have recognised, let alone come to terms with, arguably one of the most far-reaching and revolutionary technological developments of all time: the development of the semiconductor or micro chip.
Despite these factors, there remains a widespread tendency, especially among the former political and economic elite, to regard the watershed year of 1994 as having established a virtually instant situation of equality. According to this viewpoint, decades, even centuries, of socio-economic deprivation leading up to 40 years of the racially-biased and deliberate economic and academic distortions of apartheid, disappeared by means of a political agreement.
That they did not, is clear by any statistical measurement. South Africa was, and is, one of the most unequal societies in the world in terms of the gap not only between a rich minority and a mass of poor, but also in terms of educational qualifications and skills. Sophisticated, often world class, mining, banking and financial services industries survive and thrive alongside abject poverty and bare subsistence. It is a situation that was inherited from the previous regime and which may have worsened over the past decade.
This gulf in economic wellbeing has led to President Thabo Mbeki and others to refer to the country as having two economies, with the need to “build ladders” between the second, poorer, economy and the first. This is a good metaphor, and should not be taken literally. There is only one economy in which a minority continue to thrive while the majority lives in relative penury.
This growing inequality is also a global phenomenon and one which governments and international institutions, notably within the United Nations orbit and including the Bretton Woods institutions, are at least verbally committed to eradicating. In some instances — and South Africa may be a case in point — the rich may be becoming richer and the poor, poorer. In others, as the economist and Nobel laureate Professor Amartya Sen argued in a University of Cape Town seminar in April 2007, it is more a case of the gap growing wider even as the poor become slightly less poor.
But measurements of poverty or unemployment can seldom, if ever, be precise and it is often futile to argue beyond broad trends. As the aphorism attributed to Benjamin Disraeli states, there are three kinds of lies: lies, damned lies and statistics. The latter, even when relatively accurate, can be distorted or used in a manner that conveys erroneous impressions.
Gross domestic product can, for example, be fairly accurately assessed. For 2006, South Africa’s gdp is estimated, in US dollar terms, at $201.4 billion. This amount is divided by the population number to give an estimated per capita income of $13 300, or nearly R8 000 a month for every member of the population. In the eyes of institutions such as the World Bank and the International Monetary Fund, this qualifies South Africa as a “middle income country”. And such a classification, which totally ignores the reality of gross inequality and the country’s history, has a bearing on potential levels of assistance and concessions in terms of loans.
Wherever possible, therefore, differences in statistical evidence will be highlighted in this chapter and differing interpretations, where they exist, will be given.
The African National Congress, which received an overwhelming popular mandate in April 1994 to become the first post apartheid South African government, possessed no detailed economic policy, let alone blueprint, when Nelson Rolihlahla Mandela travelled to Switzerland in December 1991 to address the World Economic Forum (WEF). This gathering of the rich and powerful was to be given the first explanation by Mandela of the sort of policies an ANC in government would pursue.
In general, political, terms there was no difficulty: commitment to parliamentary democracy and human rights, to freedom of religion and expression. But Mandela, on his release from prison in 1990 had noted that nationalisation remained part of the economic policy of the ANC. Four days after his release, in a television interview with the Johannesburg Television Service (www.anc.org.za/ancdocs/history/mandela), he noted that the policy of nationalisation would affect only “certain sectors of the economy that we regard as being important”. In other words the “commanding heights”.
His statements were fully in tune with the vague outlines proposed by the Freedom Charter adopted by the ANC in 1955 (www.anc.org.za/ancdocs/history). The Charter called for free and equal education and health care, for full employment and adequate housing for all. It also noted: “The national wealth of our country, the heritage of all South Africans, shall be restored to the people.” This, the document stated, would involve the nationalisation of “the mineral wealth beneath the soil, the banks and monopoly industry”. In other words, the economy’s commanding heights.
However, it also maintained: “All people shall have equal rights to trade where they choose, to manufacture and to enter all trades, crafts and professions.” This concession to a mixed economy saw “workerist” elements within the emerging and militant domestic trade union movement, such as Moses Mayekiso of the Metal and Allied Workers’ Union, describe the Charter (in a personal interview in 1985) as a “bourgeois document”. Mandela had emerged into a world where, on the one extreme, within the broad ANC constituency, there was the demand for total “worker control” and, on the other, complete rejection of any but the minimum of state intervention in the economy.
Because of the legacy of gross inequality, redress was obviously required. The terrain of struggle was clear: the relationship between redistribution — of land, jobs and monetary wealth — and economic growth to ensure what politicians across the board declared should be “a better life for all”. The cost of military adventurism and repression and the effects of sanctions and domestic instability had seen South Africa’s economy stagnate in the decade up to 1991. Reserve Bank figures reveal a steady decline in per capita income calculations which, in the South African context, meant only that there was less wealth to share.
But the South African economy also had an inbuilt structural problem, described by Professor Sampie Terreblanche in his A History of Inequality in South Africa 1652 – 2002 as “unique”. Because of the racism of the apartheid system and earlier forms of segregation, the economy relied on a high level of capital intensivity on the one hand and a large, un and under skilled black workforce. With the formation of trade unions and the subsequent increase in wages to a no longer docile workforce, the skewed nature of the economy went a step further, with increased mechanisation having, as Terreblanche puts it, “a devastating effect on the employment of unskilled migrant labour”.
With hindsight, it is possible to see that prioritising growth over redistribution in such a situation would almost certainly exacerbate the problem of greater wealth creation running parallel with a growth in joblessness. At the time, however, this specific aspect does not seem to have been raised although the interventionist programmes envisaged by groups within and outside the ANC would obviously have had a direct — probably restrictive — impact on capital intensive growth.
A One-sided battle
Even before the Davos WEF meeting in December 1991, Mandela had attempted to assuage the fears voiced about future ANC economic policy by international investors and local big business. As early as 23 May 1990 he told a meeting of 300 executives in Johannesburg (op cit): “The view that the only words in the economic vocabulary that the ANC knows are nationalisation and redistribution is mistaken.”
He went on to explain: “…..while we look at economic models and study the experiences of other countries, we should not forget that we are dealing with South Africa, with its own history, its own reality and its own imperatives. One of these imperatives is to end white domination in all its forms, to deracialise the exercise of economic power.”
However, the ANC had by that time established an economics think tank, the Macro Economic Research Group (MERG). It was headed by economist and banker Vella Pillay, who was also an avowed socialist. The MERG was tasked with drafting the first post apartheid macro economic statement that was to be presented by Mandela to the 1991 WEF meeting in Davos. The detailed statement was prepared by Pillay, then still in exile in England, and forwarded to Davos for inclusion in the wider speech Mandela had prepared.
Pillay’s document, which included reference to nationalisation and followed the traditional, demand-driven social democratic orientation until then broadly thought to be ANC policy, was included in the first draft of the speech. But it was a draft that was never used. However, the draft was inadvertently released and published in South Africa to the consternation of the business community and the general glee of the trade union movement.
As Alan Hirsch in his Season of Hope (UKZN Press, 2005) makes clear, the speech Mandela delivered was controversially rewritten by another ANC economist, Tito Mboweni, later to become labour minister and now reserve bank governor. The result, Hirsch notes (p.30) “could best be described as carefully written, harmless and mildly reassuring for the collected band of plutocrats and international financial bureaucrats”. The battle had clearly been joined although, publicly, there still existed no clearly defined ANC macro economic policy.
The MERG, under Vella Pillay, at one stage widely tipped to become the first ANC governor of the reserve bank, continued to formulate what it saw as the social democratic — and demand-driven — outlines of future ANC economic policy. But others too were drafting policy. The ANC’s Department of Economic Policy (DEP), headed first by Max Sisulu and then by the present finance minister Trevor Manuel and including Tito Mboweni was charged with this responsibility. This team had rather different ideas from those promoted by Pillay and the MERG. The die was cast.
But, as with earlier comments on economic policy, the ANC, at a national conference in May of 1992, continued to straddle both redistribution and growth, without publicly prioritising one or the other. However, the 1992 meeting finally outlined, in the Ready to Govern document (www.anc.org.za/ancdocs/history), a “mixed economy” package which stressed “a dynamic private sector” However, it also stressed flexibility and reference to nationalisation was not dropped. But, as the ANC now saw it, a mixed economy would “foster a new and constructive relationship between the people, the state, the trade union movement, the private sector and the market”.
While this policy document also talked of “reducing the public sector in certain areas” to “enhance efficiency…” it also pledged that an ANC government would consider “Increasing the public sector in strategic areas through, for example, nationalisation, purchasing a shareholding in companies, establishing new public corporations or joint ventures with the private sector.”
As negotiations drew to a close, and elections under a universal franchise were held, there were other pressures too. The ANC was the dominant party in an agreed national unity government. As such the ANC had to co-manage the economy along with a National Party that had come, in the last decades of its existence, to represent big business interests. At the same time, the ANC headed an alliance with the largest trade union grouping in the country, the Congress of SA Trade Unions (Cosatu) and the SA Communist Party (SACP), both of whom opposed what current jargon refers to as the neo-liberal paradigm.
One result of this balancing act was the Reconstruction and Development Programme (RDP) with an office established in the post-1994 Presidency and headed by a minister without portfolio, the former Cosatu general secretary, Jay Naidoo. Director-general in the department was former Cambridge astrophysicist and “workerist” trade unionist, Bernie Fanaroff.
The RDP policy (www.anc.org.za/ancdocs/policy) did not go as far as most of the trade union constituency would have liked. And it proposed a decidedly orthodox view about macro economic stability. But it was based on the fundamental concept that the redistribution of income would lead to greater demand and so to higher economic growth. Unlike the stress in documents such as Ready to Govern (op cit), it clearly prioritised redistribution before growth as a means to redress past imbalances and distortions. A massive house building proposal lay at the heart of the RDP.
Given the shortage of managerial capacity within the ANC-led alliance, which was also very much a legacy of the crippling past, all sides to the debate seemed happy to downplay the prospect of any imminent nationalisation, However, the RDP was also supposed to be financed by “the better use of existing resources”; there was no mention of how — or if — additional funding could be obtained. It amounted, the then chief economist of Nedbank, Edward Osborn told trade unionists and myself, to “a cascade of improbabilities”.
Coming from a different perspective, Philip Dexter of the SACP, in a Labour Bulletin article in September 1995, admitted that the RDP was open to differing interpretations “The business/conservative axis that controls the media is making certain that the neo-liberal interpretation of the RDP is the one that gets daily rammed down our throats,” he wrote.
The establishment of the RDP office now seems to have been the last governmental genuflection in the direction of Keynesian, demand-led economic policy. Its position within the government structure, and its relatively unclear mandate doomed it to failure. But even as it existed, the various policy drafters were busy, aware that something new, different and comprehensive needed to be put in place.
First off the mark was that flag bearer of established big business, the SA Foundation. In February 1996 it produced a document entitled Growth for All (www.businessleadership.org.za/documents). In its introduction, it made the by then customary statement of primary intent: the eradication of poverty. It went on the list five priority areas for “urgent attention”: 1. Dealing with crime and violence; 2. Streamlining government expenditure and revenues; 3. A brisk privatisation programme; 4. A flexible labour market; 5. A vigorous export drive. It amounted to a classic liberal “free market” or “trickle-down” approach that saw economic growth, led by the private sector, with minimal state intervention, as the way forward.
The trade unions, with input from research carried out by the MERG, responded with the 46-page the Social Equity and Job Creation document, subtitled The key to a stable future. It was produced by the combined labour caucus at the National Economic Development and Labour Council (Nedlac). The proposals it contained were adopted by all three of the then existing union federations. They condemned the “trickle-down” theories of Growth for All as divisive and designed to “strengthen the wealthy”. Social Equity listed six policy “pillars”, starting with job creation through public works and mass housing campaigns. labour intensive processes, job sharing and land redistribution and followed by “redistributive fiscal policies”.
It was a comprehensive document which was diametrically opposed to Growth for All in that it prioritised redistribution. Although it raised hackles among business leaders, it was also far from revolutionary and allowed for a mixed economy, but with the private sector operating within a strong regulatory framework. However, as Hein Marais in his South Africa limits to change (1998) points out, the battle was already lost by 1994. The ANC had already committed itself to an economic revival that would be market-led and geared at achieving sustainable growth by by attracting foreign and encouraging domestic investment although there never was unanimity among the leadership.
There were also solid arguments raised against such a policy orientation. Asghar Adelzadeh and Vishnu Padayachee raised warnings in their 1995 paper Reconstruction of a Development Vision about the RDP White Paper (http://scholar.google.com/scholar). They maintained: “Any serious and honest analysis of South Africa’s history, its stage of development and of current local and global conditions would suggest that a strategy of development based on an essentially neo-liberal, free-market ideology, or the magic formula of privatisation, liberalisation and convertibility will be singularly inappropriate.”
A year later, in June 1996 and in the wake of Growth for All and Social Equity and Job Creation, came an apparently hurriedly created set of government proposals entitled Growth Employment and Redistribution (www.info.gov.za). Largely influenced by mainstream economists such as Iraj Abedian, Gear was essentially Growth for All with a few redistributive frills. It also emerged without any debate either within or outside the broader ANC, as Nelson Mandela admitted at Cosatu’s 1997 national congress.
Subtitled An Economic Strategy. the Gear document was said by The Southern Africa Exclusive (1996) to be “vague enough in parts and contains sufficient contradictions to make it mecessary to adjust many of its assumptions and recommedations” This was a generous assessment. Edward Osborn, repeating his observation about the RDP, in an interview with the author, saw it as another “cascade of improbabilities”.
Gear proposed a steady, rising growth path which relied almost exclusively on foreign direct investment and increasing domestic capital inputs. The underlying argument seemed to be that if a business and investor friendly environment was created, investment would flow, exports would grow and wealth increase. The Gear recipe maintained that there would be a 23 per cent rise in the export to gdp ratio within four years. At best, as several observers noted at the time, the Gear targets were based on “a leap of faith”.
Above all, and despite the evidence of preceding years, Gear failed to acknowledge that even where investment occurred, it need not necessarily lead to job creation; that the structural realities of South Africa’s inherited economy favoured capital intensive investment. For critics, its projections on job creation amounted therefore to flights of fancy.
In the event, the critics were proved correct as South Africa became more of a target for fickle portfolio investment, especially in companies capitalising on the country’s considerable mineral resources. This form of investment continues to chase higher stock exchange returns — wealth accumulating upward — while long-term “bricks and mortar” or greenfields investment moves increasingly to lower cost environments. This is a clear, global reality.
International realities and the ignored revolution
The one reality of the global economy that seems most frequently ignored is that the world economy is in crisis and that it is a crisis not of shortages, but of gluts. That this is not widely seen as a problem seems to be a consequence of adherence to an almost religious belief that “the market” is some sort of sane and sensible mechanism; that the mystical “invisible hand” mentioned by the 18th Century economist, Adam Smith, is a reality.
Smith’s Wealth of Nations, the foundation of modern laissez faire — free market — capitalism was written in 1776, yet many of his supporters dismiss as “old hat” the ideas of Maynard Keynes or Karl Marx. But Marx propounded his theories about 100 years after Smith and Keynes wrote in the 1930s. Both acknowledged a debt to Adam Smith.
What laissez faire supporters also seem conveniently to forget is that Smith also warned against shareholder companies, the forerunners of the giant corporations of today. They were banned in England when Smith was alive because, as he noted in Wealth of Nations, the very structure of what we now call corporations provides a recipe for corruption. How true this is, is is well illustratedby Joel Bakan (2004).
But Smith was also writing before the advent of limited liability, about which the 19th century English Lord Chancellor Edward Thurlow (www.giga-usa.com/quotes) commented: “Did you ever expect a corporation to have a conscience, when it has no soul to be damned and no body to kick?”. This reality was also summed up well by Gilbert and Sullivan in their opera, Utopia Limited (http://math.boisestate.edu):
“Though a Rothschild you may be, in your own capacity
As a company – you’ve come to utter sorrow
But the liquidators say: ‘Never mind — you needn’t pay’
So you start another company tomorrow”
Smith did not foresee the advent of limited liability Nor did he foresee — courtesy of his belief in an invisible hand — a future crisis of over production. But, writing in 1848, Marx noted that there would be future crises “that in all earlier epochs would have seemed an absurdity — the epidemic of over production” (1977). Nearly 100 years later, Keynes proposed his state interventionist solutions to tackle the boom-slump cycle of the system.
Today that crisis of glut and surplus is solidly with us as corporations chase around the globe seeking ever cheaper and less regulated regions in which to outsource or base production. This is largely the result of an industrial revolution that few people, anywhere, seem to have come to terms with: the industrial and commercial transformation brought about by the development of the advanced integrated circuit or microchip. It has allowed much more to be produced faster, at ultimately lower cost and with far fewer people.
Coupled with this is the development of genetically modified food grains which allow for greater and generally cheaper production of food while, at the same time, giving increasing control to near monopolistic international seed companies. This factor of control contains the potential for eventually much higher costs if and when controlling companies raise their seed prices to maintain or increase profits.
These developments — especially the rapid improvements in the capacities of the microchip — have speeded up an international economic system already prone to crises, a system in which credit increasingly takes the place of disposable income and where national and household debt threatens constant instability. This is very much a reality in South Africa, as is the huge army of the un and under employed, many displaced by capital intensive machinery. On a global scale, these are consumers who do not have the income to buy the cheaper products of this new industrial revolution.
Perhaps the best illustration of this crisis in a global and South African context came with the abolition, in January 2005 of the quota regime on textiles and clothing first implemented as a short-term measure in 1974 to allow developed countries to adjust to lower cost labour imports from the developing world. This multi-fibre agreement was replaced in 1995 by the ten-year WTO Agreement on Textiles and Clothing (www.wto.org).
The lifting of quota and tariff restrictions on textiles and clothing resulted in a flood onto the market of such products, mainly from China, but also from countries such as Bangladesh and Vietnam. The International Confederation of Free Trade Unions (ICFTU) in its 2005 document, Stitched Up (www.ictuglobalsolidarity.org) highlighted the massive scale of job losses around the world as a result of this trade liberalisation. In South Africa, the SA Clothing and Textile Workers’ Union (Sactwu) estimated that “slightly fewer” than 19,400 jobs had been lost in the rag trade sector between January and October 2005 as a direct result of free trade flows.
However, both the ICFTU and the Sactwu sourced the problem to “unfair competition”, with the ICFTU’s Stitched Up carrying the subtitle: “How those imposing unfair competition…..are the only winners in this race to the bottom.” The fact of surplus productive capacity and over-production was once again downplayed or ignored.
Two factors which were not and are generally not ignored and which have had direct and sometimes serious effects on sectors of the South African economy were and are variable currency exchange rates and the range of subsidies available to domestic producers and exporters in developed countries. The strengthening of the South African rand in 2003, for example, caused serious problems in both the gold mining and garment manufacturing sectors. This has led to a steady clamour by exporters for a cheaper rand and by importers for a stronger currency.
Gold mining in South Africa, being at the deepest levels in the world, is a costly affair, but costs are largely in local, rand terms. Income is in US dollars. A weaker rand therefore makes sense in this instance. The same applies to most agricultural production, to wine and to downstream manufactures. But importers and those investors relying on dividends exchanged from rands, are in the opposite camp: they want a strong rand to pay less for imports or to buy more foreign exchange.
Reasons for a lower Gear
Gear, as predicted by its critics, did not achieve either its growth or any of its job creation targets. The 6 per cent per annum gdp target set remained as illusive as ever. But the economy did grow. However, in the face of apparent investor disinterest and trade union opposition, there was a retreat from the policy of rapid privatisation.
But as regards growth, the question of statistical analysis arises once again. For the growth was very skewed and unemployment also grew. Where new jobs were created they were all too often temporary, casual or so low-paid that they could be disregarded as jobs at all. Some of the increased growth throughout the past decade also came from increased commodity prices, from minerals such as platinum, iron ore, coal and, perhaps strangely, gold.
Gold remains an anomaly because it has little use outside of jewellery and because the huge stockpiles of the metal held by various central banks, notably in the US, means that the price can quite readily be undermined for political reasons.
But the measurement of South Africa’s economic growth over recent years also includes the massive boom in the wholesale and retail sectors. This is based largely on a surge in imported goods. Growth statistics also take cognisance of the contribution of crime. A high rate of criminal activity has ensured greater premiums for insurance firms and higher profits for security companies.
Within the present context, perhaps the best real assessment of economic well-being is the balance on the country’s current account. That, for the uninitiated, means the difference between the value of imports and of exports.
The British-based Economist magazine’s The Pocket Economist (1985) correctly noted: “A current account deficit sets alarm bells ringing.” As well it should, for deficits have to be paid for by capital inflows. Supporters of present government policy can, of course, argue that the capital inflows exist. They do. Except that they are, effectively loans. The bulk of the inflows comprise portfolio investment on the Johannesburg Securities Exchange.
This money chases the highest nominal interest rates on deposits or the best dividends on shares, both of which equate to interest on loans, usually paid abroad. But unlike more conventional loans, this money is autonomous: there is no fixed time limit for its stay and it can disappear at the touch of a computer keyboard.
Yet, if these potentially fickle flows of capital are discounted, what is left is a yawning and growing gap between the value of exports and imports. The precise figures, whether given as percentages of gdp or as a total amount, can be argued about. But there can only be agreement that the deficit is worryingly large and that it is growing. In 2003, according to Reserve Bank figures, the deficit stood at R13.7 billion or 1.1 per cent of gdp. Two years later it had reached R58.4 billion or 3.8 per cent of gdp. In 2006 it had topped R111 billion or 6.4 per cent of gdp. This year (2007) it is estimated to reach R120 billion and still top 6 per cent of gdp or more than twice the ratio recommended by the IMF.
A current account balance of this kind does not indicate a powerhouse. It is indicative more of a balloon. And balloons can — and often do — burst. Not that this seems likely given current circumstances, nationally and internationally. A much more likely scenario is that the balloon will deflate, quite slowly. But it will not continue to grow much more under present conditions, simply because it cannot.
The reason is simple: the minor boom in South Africa’s economy is not based on bricks and mortar investment or mainly on a burgeoning export trade. It is based heavily on imports and burgeoning consumer spending fuelled by massive credit growth which is, in turn, very flimsily covered by so-called autonomous investments that could flee at the first sign of downturn or the emergence of better opportunities elsewhere.
If and when that happens the all-share index on the JSE will cease its upward movement; there will be what are referred to as “corrections”. Perhaps gradual or perhaps precipitous. Finance minister Trevor Manuel has warned that what he sees as “the good times” will not last forever; that South Africans should all prepare for leaner times. For the vast army of the unemployed, that is probably impossible: the good times have never reached them.
But even some of the elements that have encouraged greater profits and greater tax revenues have also helped to undermine the future of the economy. Iron ore, for example. Prices have boomed and record amounts have been exported, much of it to China. But China has been turning that ore into steel and steel products, such as flanges, which are undermining local manufacturers. South Africa’s formerly nationalised steel industry is also now controlled by the Indian-owned, British-based Mittal, much of its direction now outside of national influence let alone control.
One of the greatest proclaimed inward investments of recent years, the R30 billion buyout of Absa bank by Britain’s Barclays is also a two-edged sword. Widely hailed in the popular media as foreign investment, it was, rather, the sale of an existing, income generating asset which, through dividend flows, will add to outflows on the current account. The Absa banking group, a beneficiary of a controversial R2 billion government “lifeboat” loan, was and is a going concern. At current rates of profitability, Barclays will probably recoup its original investment in under ten years, while the dividend flows continue to put strain on the current account.
The growth in the import of consumables, sometimes the result of subsidised products from regions such as the European Union, has also been fuelled by an ongoing surge in household debt. The reserve bank admits this has reached worrying levels. According to the June 2007 SARB Quarterly Bulletin, household debt as a percentage of disposable income has reached the historic high of 76 per cent, the bulk of this, however, being long-term mortgage debt.
But the official statistics are conservative in that they do not take any account of debts owed to other than banks. Tony Twine, chief economist at leading consultancy, Econometrix estimates that if all debt were taken into account, the ratio could be up to three times as high.
This situation also applies to inflation, which records movements in the cost of living measured by the Consumer Price Index (CPI), with the figure usually quoted being minus mortgage interest rates or CPIX. The official figures are calculated on the average household expenditure in an economically grossly distorted society. As such, CPI and CPIX have little bearing on the reality of cost of living increases for the majority of the country’s population.
Statistical “truths” therefore often differ markedly from reality on the ground. Yet it is official statistics that provide the basis for policy decisions both within the public and private sectors. However, despite arguments about precise figures, there is general agreement that unemployment and poverty remain massive and perhaps growing, problems. Gear clearly did not encourage the hoped-for surge in foreign or domestic investment and failed to achieve its ambitious growth, let alone job creation targets.
As a result, the initially planned rapid move toward privatisation was dropped. The use of the crude method of interest rate increases by the SARB as a way of slowing credit growth also came into question. There was also rising dissent about the apparent effects of government policy from communities around the country as well as from the alliance partners of the ANC. A move back to the drawing boards saw the government emerge with another economic policy outline and acronym, Asgisa — Accelerated, Shared Growth Initiative for SA (wwww.info.gov.za).
From Gear to Asgisa: tinkering with the superstructure
Asgisa (op cit) promised, in February 2006, to put economic growth onto “a more balanced footing”. It acknowledged that “recent growth has been based on a combination of strong commodity prices, strong capital inflows and strong domestic demand”. It also claimed that a combination of these factors, together with rising asset prices and what it saw as “growing employment”, had resulted in a strengthening of the rand. This, the document blamed for a loss of competitiveness resulting in “a trade deficit of 4.3 per cent of gdp in 2005”.
Asgisa acknowledged the failure of Gear to deal with the continuing problems of job creation and poverty, and promised to create more jobs with the aim of halving poverty by 2014. However, it failed to move the policy stress from growth to redistribution. But it was initially hailed by a majority of trade union leaders, with the traditionally militant National Union of Metalworkers of SA proclaiming it to be “a major breakthrough signalling the creation of more jobs”. Even the SACP “welcomed the broad strategic perspectives” outlined in Asgisa.
But there were also detractors. Alone among the trade unions, the SA Municipal Workers’ Union (Samwu) distanced itself from Asgisa. In an interview published in Business Report on February 2, 2006 (Bell), then Samwu general secretary Roger Ronnie said: “It [Asgisa] also tends to continue to promote the myth of two economies when what we have is a single economy that favours the rich and increasingly marginalises the poor.” He saw Asgisa as “Gear under another name”.
In the same report, economist Sampie Terreblanche categorised the Asgisa outline as: “A growth strategy to enrich the rich still further.” He added: “”Just as the ‘r’ in Gear was just an exercise in propaganda, so too is the first ‘s’ in Asgisa.”
Critics pointed out that Alan Hirsch, the chief director of economic policy in the presidency, had made that clear that the orientation of policy remained growth before redistribution. Speaking on radio in support of Asgisa he noted: “The faster we grow, the more jobs we can create.”
However government commitments to greater social welfare spending from increased tax revenues, legislative measures to curb credit extension and “irresponsible lending” and the creation of a developmental state, have again seen support coming from former critics such as the SACP and Cosatu. They maintain that there has been a “turn to the left” in national economic policy. At the same time, they acknowledge that the fundamental orientation remains growth before redistribution.
Yet the idea that growth equals job creation equals wealth redistribution, was the basis of Gear and forms the foundation of the neo-liberal approach to economic policy. It also seems highly improbable that social democratic goals of sustainable job creation and the alleviation of poverty can be achieved on a neo-liberal base.
Even well intentioned tinkering can backfire. The National Credit Act that came into force on June 1, 2007, is a good example. Announced as a measure aimed at curbing irresponsible lending and protecting especially micro loan borrowers, it does make the acquisition of credit more difficult and sets the maximum rate on micro loans (below R8 000) of 5 per cent a month or 60 per cent a year.
But, as Rhodes University legal aid clinic director Jonathan Campbell pointed out on July 8 (www.grocotts.co.za): “The cost of credit will in most cases be as high or much higher than current interest rate levels.” Because of additional costs such as initiation and service fees which may be levied and on which interest may now be charged, a maximum interest rate of 385 per cent a year could be charged on a micro loan. The more stringent conditions imposed on legal lenders will also almost certainly drive poorer borrowers to the mashonisas, the illegal loan sharks.
The commitment by government, in common with all role players in the economy is for a developmental state. This is generally accepted to mean a country with a stable political and economic base, a steadily increasing number of sustainable jobs and an equally steady decline in the numbers of families living in poverty. These are precisely the same goals enunciated in the RDP and in the three 1996 programmes advanced by business, labour and government. The question now, as then, is how, if or when these will be achieved and to what extent.
The June 2007 policy conference of the governing ANC dealt at some length with future approaches to the economy in a discussion paper entitled Economic Transformation for a Democratic Society (www.anc.org.za/ancdocs/policy). The party stated that its vision was characterised by:
1. A thriving and integrated economy that draws on the creativity and skills that our whole population can offer, building on South Africa’s economic endowments to create employment opportunities for the benefit of all.
2. An economy in which increasing social equality and economic growth form a virtuous cycle of development, which progressively improves the quality of life of all citizens, rolls back the frontiers of poverty and frees the potential of each person.
3. An economy in which national prosperity is ensured through innovation and cutting-edge technology, labour-absorbing industrial development that creates decent work for all, a thriving small business and co-operative sector, the utilisation of information and communication technologies and efficient forms of production and management.
4. An economy in which the socio-economic rights of all are progressively realised, including through fair labour practices, social security for the poor, the realisation of universal access to basic services and ongoing anti-poverty campaigns that promote the economic integration of all communities.
5. A mixed economy, where state, co-operative and other forms of social ownership exist together with private capital in a constructive relationship, and where democracy and participation lead to growing economic empowerment.
6. An economy that is connected to the world, benefiting from vibrant trade with North and South, in a fair and equitable global trade regime, and which is an integral part of a balanced regional economy that contributes to the growing prosperity of Africa.
7. A sustainable economy where all South Africans, present and future, realise their right to an environment that is not harmful to their health or well-being.
However, as with Asgisa and Gear before it, the latest document is short on detail; there is little clarity about how these admirable goals may be achieved. In many ways, it amounts to a wish list, especially regarding the hoped for existence of a “fair and equitable global trade regime”. As economist Stephen Gelb noted in the Sunday Times of June 17, 2007: “Though the document correctly argues that ‘we cannot simply proclaim the existence of a developmental state; it must be painstakingly constructed’, it does not tell us how to do so.”
The economy also remains skewed in favour of capital intensive investment and while the current boom in commodity prices is providing useful revenue flows, it may not last. At the same time the price of oil seems more likely to move toward $100 a barrel than to fall below $60. With little likelihood of much reduction in the current account deficit, the rand also seems vulnerable, especially if there is any fall-off in capital account inflows. This raises the prospect of rising inflation and a higher interest rate regime, both of which will impact severely on the country’s heavily indebted households.
Continued liberal exposure to often glutted world markets could also impact negatively on agricultural production and related downstream manufactures. Unless there is a concerted effort by government to introduce wide raging labour intensive public works programmes there also seems little chance of any considerable inroads being made in the unemployment rate.
The crime rate, which remains at worryingly high levels, is also, therefore, unlikely to decline and this will pose ongoing problems regarding future investment and could threaten the liberal nature of the state. Social instability, including crime can be alleviated either through job creation and redistribution or by repressive measures. That is the fundamental choice for government.
However, because of its relatively sophisticated infrastructure, the extent of its mineral resources and related downstream industries, the South African economy is in no danger of collapse. In fact, given the present ability to feed the population at a basic level and the fact that the country contains the bulk of the world’s known reserves of much demanded platinum and a range of other demanded minerals, it is possible that South Africa, given a different orientation, could adopt a largely self-sufficient posture, slowing — and, to a degree, reversing — the integration into what is still a grossly unequal global market.
This is unlikely, but some major steps toward redistribution will have to be instituted if poverty is to be alleviated and social stability ensured.
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