You are currently browsing the monthly archive for December 2010.

Those who know me would expect me to profess that I would rather eat broken glass than say anything sentimental and upbeat for the sake of Christmas cheer.

They would also know that I often fail: that a sort of “jolly hockey-sticks” optimism can sometimes creep into my disposition, that the studiously steely eyes often mist over at the occasional heart-warming story – usually about children, dogs, down trodden people pulling themselves up by their own bootstraps (whatever that means) and politicians being hoisted by their own petards or any other suitable handle.

A bit lame I know, but that’s the way it is.

Anyway, nothing too mawkish this time – but still using every edge I can to generate interest.

Craig Tyson, my friend and the fine Editor of that  excellent men’s magazine GQ,  has agreed to my publishing in these humble electronic pages something of mine he has only recently paid for and placed in the December issue of his paper and ink magazine – which also has an excellent website you can catch here.

As I did previously: here is the cover of the GQ. Click on the nose of the gorgeous Gisela Calitz and you will be whipped through to my article arguing that it is, ultimately, unsurprising that political risk increased this year.

Only joking. You can click anywhere on the picture – I momentarily liked the thought of lots of people carefully resting the cursor on her perfect nose and giving it a little click, but I am over it now.

Oh, and buy the magazine. It’s a wonderful gift  for the season of giving … oops.

This is the second of three articles about the New Growth Path (NGP) Framework released last week by the Ministry of Economic Development.

One of the architects (I must assume) of the NGP, Neva Makgetla  (an economist long associated with Cosatu and now deputy director general in the Department of Economic Development) recently examined both the Growth, Employment and Redistribution macro-economic policy and the ‘industrial development plan’ alternative usually advanced (in my opinion) by members of the SACP.

Writing in the September 2010 special issue of the African Communist (journal of the South African Communist Party designed as a forum for Marxist-Leninist thought) Makgetla spells out what she thinks are the problems with both polices are.

Her views of what has gone before are interesting because the new policy tries to marry these frameworks by taking only the best of both.

Someone should have warned them that in policy marriages, as in human ones, you take the good with the bad … but more about that in the third post about the NGP which I will probably only get to by Monday.

The ‘anti-poverty framework’ associated with GEAR

“In effect, the transition to democracy built an implicit social compact: business would retain its property rights, and by extension its wealth and standard of living, while government would use its tax revenues increasingly to address backlogs in services for black communities left by apartheid.”

Makgetla sees the 1996 GEAR policy framework as having left in place the basic structure of the Apartheid economy.

Path dependency meant mining and finance continue to dominate and that property relations and inequality remained unchanged.

But the strategy, according to Makgetla, was attractive to successive ANC governments because it was quick to roll out and provided immediate benefits for the poor (particularly through social grants), while (hopefully) stimulating production and generating employment as the poor consume more goods and services.

“(The major benefit of the strategy) from the standpoint of the state was that it did not require explicit intervention in the economy. It relieved the government of responsibility for transforming the economy, with the associated risks of failure and potential conflict with business. Instead, government could focus on the more agreeable task of improving the lives of constituents through the more conventional public functions of providing basic services and housing.”

The risks were largely in lost opportunity – not achieving “new kinds of economic growth and by extension enhanced employment”. Because the strategy was dependent on state revenues, it was ultimately hostage to the booms and busts of the global economy.

Her key assessments of the policy are:

1. the transfers remained too small to provide the hoped improvement in the conditions of life of the poor and therefore the expected increase in demand and economic stimulation;

2. the relatively strong rand meant that new demand for manufactured goods, especially clothing, appliances and household furnishings was largely met by imports, and

3. the poor were ultimately dis-empowered and demobilised by top-down hand-outs that are central to the strategy.

Industrialisation strategy – SACP alternative

This is the policy proposal that ‘stands in’, in Makgetla’s assessment for the traditional left contribution to the policy debate. It is best revealed, in her opinion, by the Industrial Policy Action Plan (1 and 2) of the Department of Trade and Industry.

These strategies are designed to encourage production of manufactured goods, especially for export.

The industrial strategy has the potential, in her opinion, to access larger markets in order to drive mass based production, which in turn will secure more rapid growth and higher employment.

Crucially, the approach is modelled on the relatively rapid development experienced in Asia especially in the 1960s and 1970s.

The version of the strategy she deals with – which is the version in IPAP2 of the DTI – explicitly requires government to change which parts of “capital” it supports i.e. government would need to collaborate more closely with “industrial capital”, while reducing support for mining, farming and finance.

The state should focus its support on conventional manufacturing especially of capital goods, transport, electronics – and to a lesser  degree “light industries” like clothing, food processing and minerals beneficiation. The policy tends to assume that services and production to meet domestic demand are inherently less competitive “and hence less desirable.”

Makgetla thinks there is high political risk for government in this strategy. The chances of failure in such an unequal society are high and if government adopts a strategy largely dependent on its effective intervention in the economy, it will get the likely flak along with the less likely kudos.

Risk is increased because the strategy is hostage to global demand for manufactured goods and RSA will be competing with China and almost every other developing country that sees this kind of strategy as central to their development path.

Finally, the industrialisation strategy supports long term economic growth but not employment and equity, which are not automatic consequences of growth. It ignores labour intensive activities like agriculture, services and construction and often leads to proposals to hold down wages to support competitiveness – she was prescient about that, but then she did help write the NGP!

On Monday I will spell out more specifically what the NGP proposes to do and I will make an assessment as to whether the policy will ever be implemented by this government and if it is, what it’s likely consequences would be.

If any of you are still with me by then, I will be surprised and you will probably be slightly sick of grandiose government policy making.

This is the first of three articles that look at the political and policy bloodline of the New Growth Path and the main criticisms that have emerged about the policy in the public domain over the last few days.

This first post is a summary – using quotes and paraphrasing – of Ruling Alliance statements about macro-economic policy since 1990.

To understand the policy we have to understand:

  • firstly how the policy fits into the discussion/dog fight in the Alliance over the last 20 years;
  • and secondly the fact that the policy comes from Minister of Economic Development, Ebrahim Patel, whose department and position, in my opinion, was a last-minute structural compromise to reward Cosatu (and to a lesser degree the SACP) for having backed Jacob Zuma against Mbeki.

So the big bulls (ANC and the SACP) have been butting heads for 20 years (see below) and now the little bull is trying to horn in on the action.

20 years in the trenches of the ideological squabble

Since the release of Mandela from prison in 1990 (and, in fact, well before that – mostly behind closed doors) different factions of the ANC, the SACP and Cosatu have had a sometimes productive and sometimes vicious policy debate about economic policy. At issue has always been the stance the state should take towards private business and the appropriate amount of persuasion and coercion required to achieve redress and redistribution.

The first sign of things to come was the speech Nelson Mandela made on his release from prison in 1990.  After the excerpt from Mandela’s speech I will let the comments flow and tell their own story of the conflict within the Ruling Alliance.

A history of the conflict in quotes and paraphrases

“The nationalisation of mines, banks and monopoly industry is the policy of the ANC and the change or modification of our views in this regard is inconceivable”

Nelson Mandela paraphrasing the Freedom Charter on his release from prison in 1990

“We are convinced that neither a commandist central planning system nor an unfettered free market system can provide adequate solutions.”

The 48th ANC National Conference, July 1991 from a conference resolution

“It was a demand-led and internal infrastructural development proposal, which envisaged less immediate concern with budget deficit reduction and inflation.”

African Communist No 147, third quarter 1997 discussing the Macro Economic Research Group’s (MERG’s) proposals from 1993

“Of particular importance was the proposal to restructure the economy by way of a policy of ‘growth through redistribution in which redistribution acts as a spur to growth and in which the fruits of growth are redistributed to satisfy basic needs’. This proposal was predicated on the central policy idea that the state needed to boost demand, primarily by ensuring that greater amounts of income would be received by the poorer sections of the population, which in turn would stimulate output and hence economic growth.”

Dennis Davis in From the Freedom Charter to the Washington Consensus 2002 discussing the RDP proposal of 1993

“Despite its ideology while in opposition, once in power the ANC government implemented an orthodox macroeconomic policy which stressed deficit reduction and a tight monetary policy, combined with trade liberalisation. The stated purpose of this package (the Growth, Employment, and Redistribution programme, or GEAR) was to increase economic growth, with a 4.2% rate programmed for 1996-2000. At mid-term of the programme, growth remained far below this target. The GEAR’s lack of success cannot be explained by unfavourable external factors; rather, the disappointing performance seemed the result of fiscal contraction and excessively high interest rates”

A standard left criticism of GEAR from: Stuck in Low GEAR? Macroeconomic Policy in South Africa, 1996-98 John Weeks Cambridge Journal of Economics, 1999, vol. 23, issue 6, pages 795-811

“Faced with deepening unemployment, poverty, and inequality, and with disappointing growth and investment, the GEAR policy framework has met with persisting criticism from COSATU and the SACP in particular. From the side of its principal proponents within the government, there have been several adjustments in the face of disappointment. Increasingly, GEAR has been redefined as a conjunctural stabilization program and not what its acronym suggested it once aspired to be (a growth, employment and redistribution strategy). In this rereading, GEAR was necessitated by global turbulence and by a very precarious foreign currency reserve situation in 1996. Its “success” is now measured not in terms of growth, employment, and redistribution outcomes, but anecdotally and by way of comparison—“whatever our problems, South Africa’s economy is not in the same predicament as Argentina, or Turkey, or Zimbabwe,” or “GEAR has helped us to survive the worst of global turbulence” (which may not be completely incorrect).”

Jeremy Cronin rephrasing GEAR as a conjectural stabilisation strategy – 1998

In an address to the Socialist International October 2003 and then in various speeches in 2004, Thabo Mbeki argued that solving unemployment, poverty and low levels of black participation in ownership and control of the economy had become very urgent. Further, he argued that to solve these problems an effective, strong and interventionist developmental state was needed – just proving that there is nothing new in heaven and earth. He put the case for improving the public service and extending the state’s influence and ability to lead the economy. “Influence” meant keeping hold of strategic state assets (and therefore a partial withdrawal from the privatisation specified in GEAR) as well as a detailing of micro-reforms including BEE. He placed a strong emphasis on private public partnerships as well as on galvanising a collective consciousness about the “common good”. From this shift the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) was codified in 2005/2006. While it set targets for growth and employment, Asgisa was primarily an infrastructure investment programme combined with various (mostly supply-side) measures to remove impediments to growth – much of which the economy continues to benefit from today.

My own summary of Thabo Mbeki’s initial motivations for AsgiSA

In the lead up to Polokwane this was the definitive statement from ‘the left’ attacking the direction that the Mbeki government had taken: “The post-1996 class project” was led by a “technocratic vanguardist” state with the mission for “a restoration of the conditions for capitalist profit accumulation on a new and supposedly sustainable basis” (as opposed to “a revolutionary … transformation … to resolve the .. contradictions in favour of .. the working class ..”). The document argued that “The post-1996 class project” rests on three pillars: Firstly, the ANC leadership has mistakenly bought into a myth of a gentler, kinder world, but imperialism is stronger and more hostile to popular democracy than ever; secondly, to fit into this world “the second pillar of the project is a powerful presidential centre” that necessarily installs a top state/ leadership group of state managers and ‘technocratically’-inclined ministers and (often overlapping with them) a new generation of black private sector BEE; and finally, the project calls for the organisational modernisation of the ANC … “to transform the ANC from a mobilising mass movement into a ‘modern’, centre- left, electoral party”. There is a “manifest inability of capitalist stabilisation and growth to resolve the deep-seated social and economic crises of unemployment, poverty and radical inequality in our society. The ravages to the ANC’s organisational capacity and coherence (are caused by) “the attempts to assert a managerialist, technocratic control over a mass movement, and in the crises of corruption, factionalism and personal careerism inherent in trying to build a leading cadre based on (explicit or implicit) capitalist values and on a symbiosis between the leading echelons of the state and emerging black capital.”

My paraphrasing of the SACP Central Committee Discussion Document. Bua Komanisi – Volume 5, Issue No1 May 2006 – difficult to read but a perfect summary of the position that exists to this day in the SACP

Then came the answer to the ‘left critique’ from the central ANC leadership: “…the trapeze act here is to co-opt the ANC, formally, as an organisation pursuing socialism; and then condemn it as having betrayed the socialist project”. First, and most importantly the ANC denies that it ever was or should have been an organisation whose objectives was to achieve socialism. The ANC, the document claims, is the organic result of the struggle of black South Africans for national liberation and redress for what they suffered and lost under Apartheid. Additionally the ANC prioritises the poor and the working class. Once this point is made, the ANC argues, all the rest of the SACP critique falls away. The ANC accuses the authors of the SACP document of “ahistoricism, subjectivism and voluntarism”. This is more than just name calling. In the argument of the authors of this document:  ahistoricism refers to the SACP’s alleged  failure to understand what led to the present conditions as well as the character of the historical moment in which they find themselves, subjectivism means that the SACP has used its own preconceptions to guide its views and has seen the world as they wish it to be rather than how it really is; voluntarism  means the SACP believes that through pure force of will, hard work and determination it can achieve socialism in South Africa, whatever limitations the domestic or global environment and balance of forces, especially the strength of global capital markets, impose on possible outcomes.

Managing National Democratic Transformation – ANC response to SACP discussion document – probably the last time the ANC spoke plainly and confidently about economics and the class struggle – 19 June 2006 the official NWC response to the above quoted SACP Central Committee discussion document

The next post will summarise the actual policy contest (from an economists point of view) of the last 15 years. This will essentially be the actual macro-economic policy of the ANC (run from the Treasury) and the SACP’s consistent “industrialisation” alternative (proposed from the Department of Trade and Industry).

I phrase it like that deliberately to suggest that the Department of Economic Development and the New Growth Path Framework represents a new political assertion even if the policy formulation ultimately turns out to be a hodgepodge of previous proposals – as suggested by my summary of Thabo Mbeki’s AsgiSA policy above.

I am an independent political analyst focusing on Southern Africa and I specialise in examining political and policy risks for financial markets.

A significant portion of my income is currently derived from BNP Paribas Cadiz Securities (Pty) Ltd.

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