South Africa Unemployed

Three types of ANC denial

Source: Politicsweb

RW Johnson says none of the party’s factions seem to have much grasp on SA’s predicament
As I have recently attempted to show, there are only three ways out of South Africa’s economic quandary. The great unknown was which way the government would jump. We have now had some early indications. They suggest that the key parties involved in drawing up the government’s response are all in a complete state of denial.

Everything’s been wrong since 1996

First we had Bheki Ntshalintshali, the Cosatu general secretary. In effect he expresses the SACP’s viewpoint – it would not have been politically clever for any of the Communist ministers in the cabinet to openly attack the government, so Ntshalintshali does it instead. And a full frontal attack it is.

It emerges that the present problems are due to, yes, the crisis of capitalism which “has been propped up by governmental policies for more than a quarter of a century”. True, he has some kind words for the Zuma government (after all, it included lots of Cosatu and SACP ministers). It turns out that that government did a sterling job but was let down by insufficient private sector investment.

So, no nine wasted years there. Instead, “the current socio-economic situation reflects the class character of the policies that have been implemented since 1996.” Which is to say the Ramaphosa government is part of the long-term sell-out which began under Mandela with GEAR.

There are baddies everywhere. There is “the rentier monopoly finance capital that oversees the country’s monetary policy” and then, in a turn of phrase uncannily echoing the American far right, there is “the neo-liberal deep state within the government and the SA Reserve Bank”.

Naturally, we hear that higher salaries for public servants are an investment and shouldn’t be counted as consumption expenditure. (This doesn’t work: if you invest in infrastructure you get a new road, bridge or port which increases productivity. What investment good does one get from paying civil servants more?)

This builds up to the closing peroration that “The country needs a capable developmental state to implement a uniquely South African developmental model”. For anyone used to reading such tracts this is as much a give-away as “the crisis of capitalism” (it turns out that it is always in crisis but always survives). One learns to be deeply suspicious of any model that is unique to a single country for this is just a variety of (in this case, South African) exceptionalism. Any decent model can be, and usually is, widely copied.

Nonetheless, Ntshalintshali’s statement is interesting for its sheer aggression and its fundamentalism. What it reveals is that the SACP and Cosatu have rightly understood that the present situation carries an elemental threat to their position and so they have decided to come out fighting. That is to say, they realise that the pressure is building for South Africa to carry out multiple structural reforms which will strengthen the power of the market – to their disadvantage.

So it is no longer good enough to mount a surly defence of the status quo, of their own established power and privileges. Instead they are fighting for a major paradigm change in the opposite direction: this is the moment to radically increase the power of the state in the economy and, indeed, to advance towards socialism.

The whole period since 1996 – including the Mandela and Mbeki administrations – here stands condemned as a sell-out to capitalism. The Zuma administration, it turns out, was the high-point – but we now need to go beyond even that shining example.

Two cheers for the developmental state

Next came Enoch Godongwana, the head of the ANC’s economic transformation committee, whose draft (and admittedly unfinalised) document on the ANC response to the crisis calls for a huge increase in state intervention right across the economy, with a state bank and a state pharmaceutical company to be set up and the Reserve Bank to be ordered to somehow conjure up R500 billion which will be lent at sub-market rates to development finance institutions (DFIs – Mr Godongwana just happens to be chairman of a DFI, the Development Bank of SA).

In addition the state might intervene in bankrupt companies, perhaps buying up their shares. In addition credit guarantees might be given to banks so that they would lend to struggling businesses while municipalities should give small businesses rates “holidays”. And the state would somehow intervene in the mining industry so as to create “a South African champion” company. All of which Mr Godongwana defended by saying there was complete agreement within the ANC about the state’s centrality to the economy.

This is a remarkable wish list. We know, after all, that the state will run a deficit of at least R700 billion this year. We also know that the Land Bank urgently needs another R22 billion and the “new” SAA R21 billion, while ACSA needs some R3 billion. Denel can’t even pay salaries and will also need some large but unspecified amount in order to survive. A large number of other SOEs will also be appealing for subsidies, not to mention the ongoing Eskom situation.

As yet it is completely unclear how the state is going to find all this money yet Godongwana’s committee is apparently ignoring that problem and will want huge amounts of extra money with which to capitalise a state bank. It is unexplained how this bank will compete with all the private banks, particularly since it will be handicapped by having to charge specially low interest rates. Logically, to do that it will need continuous state subsidies.

How a state pharmaceutical company – which will charge specially lower prices for its products – will compete in its highly competitive sector is also unexplained. Again, regular subsidies would appear to be the only way.

Moreover, the pharmaceutical business is extremely sophisticated, employing large numbers of highly skilled personnel and with very exacting operating procedures. The South African state has failed to make many far simpler enterprises run properly. The state laboratory service is over 100,000 Covid-19 tests behind and is thus falling at the first fence. This while Senegal – a much poorer country – is happily conducting such tests and providing the results in ten minutes.

One could go on. Where will the money come from to rescue and take over companies? Or to provide the credit guarantees to banks? And how will bankrupt municipalities afford to give rates holidays? How will the Reserve Bank magically come up with R500 billion? Perhaps better not to answer that.

Apart from a feeling of sympathy for Tito Mboweni in having to deal with this basket of absurdities one gets an impression of what a strange meeting must have produced them. One imagines a room full of men (specifically men), all very sure that as a result of their NEC membership they are in charge and that thus, collectively, they constitute the state.

Their idea of economic policy-making seems to be that you go round the table and everyone volunteers their plan for spending more money. In many cases this involves the creation of institutions of which someone very much like themselves will be in charge, employing large numbers of people, which will likely include a number of their friends and relatives. Nobody volunteers how money can be raised. Nobody bothers to cost the resultant programme. A high school class could probably do better than this.

For this is policy-making by patronage barons. It’s all about what else can be extracted from the economy. There is no concern with, or even interest in, encouraging economic growth. If the question ever comes up of where the resources are to come from, the answer is “let’s assume the resources”.

That sounds amiable enough but one of those present, the SACP No.2, Solly Mapaila, gives a somewhat less friendly impression. The Covid-19 crisis, he avers, has created an opportunity for the state to be “empowered” in order “to discipline capital and the private sector which are now at their weakest”. This, it should be seen, is not far from Julius Malema’s idea that the “white economy should be allowed to collapse”. And, indeed, Mapaila is in a fighting mood: “We want a much more assertive state”, he says, “which is not cajoled or bullied by the private sector.”

No mention here, let alone appreciation of, the spectacular generosity of the Oppenheimers and Ruperts or the wider business community. Mr Mapaila, not surprisingly, denounces the Reserve Bank’s monetary policy as “pathetic, to say the least”. “Now is the time to use quantitative easing”, he says. So just print more money. This is, indeed, a perfect way of just assuming more resources.

But there is another way, which is by getting your hands on other people’s money. For some time now Cosatu has been volunteering the idea that the PIC, which manages public servants’ pensions, should exchange R100 billion of Eskom bonds for equity. Since Eskom’s value is probably negative, this would amount to surrendering a revenue stream of around R10 billion a year for nothing at all.

The extraordinary thing about this proposal is that Cosatu feels happy to volunteer that a considerable body of its own members should be robbed in this fashion. The fact that pension funds have trustees who have a fiduciary duty to protect the rights of their members does not seem to occur to them and, if it does, it is just assumed that Cosatu’s bosses have the authority to over-ride that.

Godongwana wants to alter regulation 28 of the Pension Funds Act so as “to increase access to the savings of South Africans to fund long-term infrastructure capital projects managed by DFIs”. At the moment very little money from these savings finds its way into the hands of the DFIs but Godongwana is sure this can be changed.

The worrying thing here for pensioners is that there is an assumption throughout that all monies which go to such purposes must be lent at “developmental (ie. lower) rates” and that in practise they would not have any say over which capital projects their money would be invested in. And anyone who invested in, say, the Gautrain or King Shaka airport would still be waiting for any return at all.

Moreover, Godongwana and his committee want access to “the savings of South Africans” – not just their pensions. They are extremely aware that asset managers have some R8 trillion under management and they would like to squeeze these managers out of the picture both because they charge commission (thus increasing the cost of whichever funds do get invested in DFI bonds) and because they are altogether too discriminating about which bonds they will buy.

What this signals is that as the squeeze on the government’s funds tightens there is an increasing willingness to raid any large pools of capital that may exist, irrespective of who they belong to or what their owners might prefer.

When it comes to pensions Mr Godongwana has, as they say, some form. In 2012 he was forced to resign from his post as deputy minister for economic development in the Zuma government because of an embarrassing scandal involving the pensions of 20,000 workers in the SA Clothing and Textile Workers Union.

These workers, earning an average of R700 a week, had contributed 6.5% of their salary to their pension fund. R100 million from this fund was misappropriated and invested in Canyon Springs, a company half owned by a trust belonging to Mr Godongwana and his wife, Thandiwe. Amazingly, the R100 million had been “loaned” to Canyon Springs but the loan agreement for this had only been drawn up two years later.

The fixation about “the developmental state” is peculiar. As Ramaphosa keeps telling us, the state itself is not capable: it’s no good at being a state, let alone at running enterprises. If you look at the variety of state and SOE experience one is struck above all by the sheer lack of management ability.

The public service were promised a three year wage deal though the state had no idea how it could pay for that. Who runs a business like that? And then it simply reneged on its wage deal, which is now in arbitration.

Similarly, Eskom conceded wage increases to its staff which it had no idea at all how it could pay. This at Pravin Gordhan’s express wish. Who manages a business like that? But all the SOEs employ far too many people and pay them too much. No proper business would do that.

SA Express, Denel and SAA have all been run right into the ground so that they crash only when they can no longer pay any of their workers. Quite ordinary management would have seen that coming and taken preventative steps, just as Comair has.

SAA could have been sold or acquired a strategic partner on attractive terms many years ago. Now it has been run so far into the ground that the whole airline, which has absorbed over R50 billion in public money in the last decade, can now be sold for R2 billion.

Is there a single enterprise which the ANC has managed successfully? So how can one possibly believe that increasing the role of the state in the economy and making it “more assertive” will be anything other than a disaster? One boggles at the sheer irrationality of this “policy-making”.

The president on cloud nine

Finally, there is Ramaphosa himself. He too seems wholly infected with the strangely millenarian mood that grips so many of our political elite. In their eyes the country has come through a great trial, much has been destroyed but now a brave new world will be born, better, more equal and more just.

To many within the ANC now is the time for a new RDP, a new Marshall Plan, a new dawn. In this delusional conception the Covid-19 crisis is “an opportunity”: presumably if we now had typhoid and ebola epidemics these would create even more “opportunities”. It is a most peculiar mood, too, because the country’s trial is not only not over but it has only just begun.

And every blow to “white capital” is a much greater blow to blacks. For every white restaurateur who closes down, a dozen cooks and waiters lose their jobs. And far from having the resources with which to launch a new RDP, the country is looking around desperately to see how it will pay its debts.

But listen to Ramaphosa. “We are resolved to forge a new economy in a new global reality.” It will be no bad thing to leave the old economy behind because it was “racist and colonial”. (Though it’s not clear that an economy can be racist any more than it can be musical.) This economy will be based on a “new social compact” determined on inclusive growth. It will include localisation (ie. import-substitution), economic patriotism (ie. protectionism), a strengthened informal sector, an infrastructure and maintenance programme and a much bigger public works programme.

It will be a “care economy” and a “green economy”. “We must transform and restructure. We need a reset of the economy for inclusive growth. We need an economy that responds to poverty. We can’t countenance 10 million people out of work.”

Thus Ramaphosa too seems to believe that the economy can be re-purposed and made to perform in all sorts of socially desirable new ways simply by having some men sit around a table. Somehow Solly Mapaila and Johann Rupert will hammer out a wonderful new plan and then the economy will be “reset” like a wind-up toy. But what to say to the fact that when the ANC took power unemployment was just over 3 million and that it has tripled under ANC rule? If racism was really the problem, why was unemployment so much lower under apartheid? And what if the economy can’t “respond to poverty” because the labour laws and the minimum wage legislation discriminate so strongly in favour of the employed?

In a clearly euphoric mood Ramaphosa went on to forecast a bright new future for Eskom and the “new” SAA. He also repeated his vows to introduce NHI and said that Covid-19 had accelerated this programme because of the wonderful co-operation between the private and public health systems. This was all very peculiar. Eskom’s debt remains mountainous, its problems unsolved. No one in their right mind would choose to launch a new airline under present conditions.

Ramaphosa’s take on NHI is equally wishful. The public and private health sectors came together spontaneously to deal with a national emergency. But the state then tried to get the private sector to agree to a low tariff for whichever public sector patients it took. This was refused as not even covering half the cost and there has been no agreement at all. In effect the private sector will end up treating state patients for free rather than agree a bad deal which might tie their hands in the future. Everything suggests that when the Covid-19 crisis recedes the two sectors will return to their separate tracks.

In other words all these men are living in a fantasy world and are in an advanced state of denial about the real economic choices that confront them. It is perhaps not surprising to find that some Cosatu and SACP figures are delusional but it is quite alarming to find that the president is too. Ramaphosa may have squirrelled away a vast amount of money by sitting on boards for twenty years but in all that time he appears to have learnt nothing at all about the economy.

Beware the Ides of June 24

All of which creates a peculiar situation for Tito Mboweni as he prepares his emergency budget on June 24. He has already ruled out completely any notion of the Reserve Bank losing its independence or of it finding R500 billion with which to fund the state. The Bank’s deputy-governor, Kuben Naidoo pointed out that “If we were to finance the government directly, there would be no pressure on the government to manage their costs in any way.” This is bound to cause a head-on collision with the SACP and Cosatu but one senses that there will be many other friction points as well.

More generally, Mboweni has to face not only Cosatu and the ANC’s economic transformation committee but apparently also the president himself, for all of them seem determined not to think about the immediate question of how the country will fund its R700 billion budget deficit this year?

And they all seem to think the downfall of white business a fine thing – but they can only continue to think that way if they ignore the extra millions of unemployed that that will create. In general they seem to be living in a euphoric miasma. This cannot last, and certainly not when Mboweni unveils his budget before the cabinet.

It is of capital importance that Mboweni has quickly ruled out any infringement of the Reserve Bank’s independence or the printing of Monopoly money. In effect this rules out the resort to Modern Monetary Theory and thus leaves just the option of major structural reforms with or without an IMF bailout. Given that the SACP and Cosatu are hotly opposed to either variant the stage is set for a trial of strength: they will want to force Mboweni out and to install a finance minister more to their liking. If Ramaphosa allows that to happen he will lose all control of the government.

It is, though, important to realise that even if the Left were to succeed in forcing Mboweni out, there is no escape from the approaching crisis. Imagine the Left wins and installs someone like Malusi Gigaba as finance minister.

He will still have to find R700 billion+ this year and more hundreds of billions the next. This will end either in Zimbabwe-style hyperinflation (if we go the money-printing route) or in ever-mounting bond yields and an ultimate default. Up until now the ANC has always opted for drift but we have reached a point where if drift continues we will slam into the buffers. No amount of NEC heavies sitting around the table and opining away can change that.

R.W. Johnson