The Multinational Monitor

MAY 1996 · VOLUME 17 · NUMBER 5

T R Y I N G    T I M E S    I N    S O U T H E R N    A F R I C A

Neoliberalism Comes
to South Africa

by Patrick Bond

JOHANNESBURG, SOUTH AFRICA -- President Nelson Mandela's cabinet shake-up at the end of March was, in the view of many progressive observers, a profound blow for this country's transformation. Non-governmental organizations, community groups and organized labor greeted the startling closure of the Reconstruction and Development Ministry -- which had been housed in Mandela's office and was led by ex-trade union leader Jay Naidoo -- with dismay.

Naidoo's mission had been to implement the Reconstruction and Development Program (RDP), a 150-page document adopted by the African National Congress (ANC) as its 1994 campaign platform. The RDP was a product of decades-long grassroots, shopfloor and community struggles, and to a large extent carried on the traditions of the militant 1955 Freedom Charter, a nationalist document which represented the ANC's program through its decades in exile and in resistance to apartheid. It represented an expansive social policy that might also have spurred much more balanced economic growth. Mandela and Deputy President Thabo Mbeki insist that the RDP will continue, arguing that it is now so well embedded throughout the administration that a separate ministry is no longer needed.

The catalyst for the shake up was the resignation of Finance Minister (and former banker) Chris Liebenberg and his replacement by Trade and Industry Minister Trevor Manuel, a black ANC activist with no formal economic training. This change is expected to speed the pace of the various facets of South African economic liberalization: widespread economic deregulation, lifting of currency controls, privatization, and generally more reliance on the market at the expense of government direction and intervention. In the months and years ahead, South Africa's orthodox macroeconomic strategy, which was beginning to come under fierce challenge from progressives, may well follow the aspirations of domestic and international bond traders and merchants even more closely, to the frustration of workers, the poor and even productive enterprise.

For critics who believe liberalization is likely to heighten economic inequality (and also mire the country in economic stagnation), there could hardly be a worse time to defer to market forces. South Africa's per capita gross domestic product (GDP) of $2,700 is approximately equal to that of Chile, Brazil and Malaysia, is substantially higher than Poland or Thailand, and is far higher than any other large African country. But with a legacy of apartheid married to extremely skewed, concentrated wealth, South Africa remains characterized by:

The demise of the RDP

Even as the scale of the country's poverty and stark inequality has prompted ever-more urgent demands from activists and ordinary people for immediate redistribution programs, elite policymakers have deepened their commitment to the unfettered market. Neoliberalism has never been as dominant in South Africa as it is today, after Manuel brought the market-friendly philosophy to the ANC when he took over the economic policy desk in the early 1990s.

On a variety of occasions prior to the April 1994 elections, Manuel pushed the ANC to back policies favored by financial and export-oriented mining interests. These include: endorsing the General Agreement on Tariffs and Trade (GATT); guaranteeing Reserve Bank independence in the constitution; agreeing to the first International Monetary Fund (IMF) loan since 1982 (with strict fiscal and monetary constraints); failing to contest the rescheduling of South Africa's apartheid-era foreign debt on onerous terms; and introducing neoliberal cost-recovery mechanisms in social programs ranging from education to health services to basic infrastructure provision. Such decisions were meant to prove to business the reasonable attitude of the ANC, and to spur renewed investment confidence.

But the ANC slide to neoliberalism has been slowed by its rhetorical commitment to, and widespread popular support for, the RDP. The RDP had raised popular expectations -- not unreasonably -- for one million new houses, the redistribution of 30 percent of good farming land, equality in education and culture, new environmental safeguards and major inroads into the power of big business.

Aside from a few successful upgrading projects to rebuild houses and supply services in violence-torn townships near Johannesburg and the provision of new water and electricity hookups (under highly commercialized conditions), however, the only major promises that have survived the retooling of the RDP are free primary health care and constitutionally guaranteed reproductive rights.

Several programs in key RDP areas -- especially urban and rural infrastructure -- were designed by austerity-driven World Bank teams. Whereas the RDP promised real houses and access to full services, experts from the Housing Ministry and the RDP Ministry decided -- under World Bank influence and without public debate -- that South Africa could not afford anything more than "toilets in the veld" (serviced sites in the countryside), that these should be privately provided, and that water will be limited to communal taps and electricity to high-mast lighting instead of household access.

Under this top-down, non-participatory and parsimonious model, South Africa's slums are likely to look worse after apartheid than before, as a result of intensifying inequality, joblessness and the growing housing crisis. Indeed very little has occurred by way of development in the townships and countryside since the ANC took power in May 1994.

Fewer than 40,000 low-cost houses have been built during Mandela's administration, for example, far short of the pace needed to reach the RDP target of one million by 1999. Here, the costs of the ANC's heavy reliance on market mechanisms and market institutions is clear. The late Housing Minister Joe Slovo, former head of the South African Communist Party, negotiated an arrangement whereby commercial banks would provide low-interest loans to new home buyers. Despite government backing, the banks have failed to make cheap credit widely available. And the principle that commercial lenders should take their lead from mass-based community groups, known as civics, in the financing of community-controlled development has been abandoned.

The original RDP envisaged the construction of a "strong but slim" democratic state apparatus that would redistribute wealth and ensure that organizations in civil society had every chance to exert community and worker control over development. Basic goods and services were to be provided as entitlements, not commodities. The technical details had largely been established, fiscal constraints understood and mass popular support for the RDP mobilized.

A good example of what could be accomplished is the housing in "Tamboville 2" in a township east of Johannesburg. Under the guidance of the local mass-based "civic association" and with the support of a well-respected, progressive non-governmental group, the project received full subsidies for dozens of new -- small but comfortable -- houses with full services, collectively owned by the residents so as to ensure permanent affordability. The one catch was that the French government had to supply all of the money involved, as the subsidies required were double that provided in the official subsidy program, which also did not initially cater to housing cooperatives.

One interpretation of the broader RDP failure blames Naidoo's own weaknesses. Naidoo allowed implementing policies and programs to be hijacked by apartheid-era bureaucrats (whose jobs are guaranteed by constitutional "sunset clauses"), and was inexplicably averse to funnelling policy-advisory roles and capacity-building funding support to non-governmental progressive groups in civil society. Many community groups and non-governmental organizations have collapsed for want of funding, as international donors continue to switch their loyalties from anti-apartheid civil society to the new state. And many were simply shut out of the policy process, particularly in the fields of urban housing and infrastructural services, as a result of pacts among ANC politicians, white bureaucrats and white businesses.

"We are facing more resistance to playing our legitimate role as a social movement, as a force that raises issues and embarks upon coordinated campaigns to counteract the power of big business and conservative elements within the state," says Mzwanele Mayekiso, leader of the main community organization in Johannesburg's Alexandra Township.

Marketable macroeconomics

But if grassroots development processes have never taken on the "people-driven" character that the RDP pledged, it is in the realm of macroeconomics that hopes for redistribution have been most conclusively shattered. The policy chatter most amenable to bond markets -- fiscal discipline, free trade, financial deregulation, flexible labor markets and "sound" monetary policies -- has drowned out even mildly Keynesian voices calling for state involvement in the economy. There is a sense, here, explicitly articulated by Manuel, of the omniscience of the market, a view that "There Is No Alternative" to steady liberalization, and a perennial hope that some South African exporters will prosper with a free-trade and free-market regime.

Meanwhile, the country's financial managers sit atop a potential volcano. Real interest rates on South African bonds are 8 percent, compared to 4.95 percent in Britain, 4.78 percent in Germany, 2.96 percent in the United States, 3.3 percent in Japan and 3.21 percent in Australia. This spread has generated an enormous inflow of footloose foreign investment which has rushed to cash in on the high interest rates. In 1995, more than half the turnover on the Johannesburg Stock Exchange was of foreign origin. But it has also wreaked havoc on the South African currency.

So too has the neoliberal approach to the balance of payments, which included lifting the most substantial exchange controls. The current policy permits a steady flow of luxury consumer goods, departing from an original RDP call for taxation on luxury goods to conserve foreign exchange for necessities.

Manuel berates African countries for the excessive reliance and then blame they place on the World Bank, IMF and World Trade Organization. "Rather than seeing these institutions as God or the Devil incarnate, my view is the agnostic one that says, `Shit! This thing is here! It's alive. Let's rather work out how to deal with it, let's study the countries who have worked the system because they dared to understand it,'" he says.

Manuel has attempted to establish some South-South trade relationships (particularly with India and Brazil), but these do not begin to challenge the more traditional North-South trade patterns. And rather than building ties with Southern African countries, as the RDP insisted should be a top priority, Manuel and his colleagues bowed to the wishes of local industrialists, pushed hard for regional exports but blocked imports, and in the process profoundly alienated nations which had long sheltered the ANC in exile.

During his 1994 to 1996 stint as trade minister, Manuel pulled down tariff walls much faster than the WTO required. As a result, key sectors that were once considered potential export success stories -- clothing, electronics, appliances -- have shrivelled.

Vested interests still have some residual clout, however. Pressure from the country's biggest company, Anglo American, kept tariffs high enough to justify major new (and highly subsidized) industrial investments.

For all Manuel's efforts to force South Africa into global markets and institutions, the country has not fared well there. During 1993 GATT negotiations, the late U.S. Commerce Secretary Ron Brown had South Africa classified as a "developed" rather than "developing" country. Partly as a result, South Africa lost preferential trade privileges and ran a $541 million trade deficit with the United States in 1995. Similarly, the European Union (EU) is negotiating with South Africa an extremely exploitative free trade agreement which treats South Africa as Europe's industrial equal. Some leading ANC parliamentarians are resisting the EU deal on the grounds that it would wipe out an enormous proportion of industry.

At home, Manuel as Finance Minister is expected to continue his market-friendly approach. Exchange controls are expected to be completely lifted within months or even weeks, notwithstanding limited foreign currency reserves and a frightening slide toward Mexico-scale meltdown in February, when the rand's value dropped 10 percent within a few days on groundless rumors that Mandela was sick.

Manuel is also expected to lend support to proposals for corporate tax breaks, location incentives and even export processing zones, adding to the package of "supply-side measures" (subsidies for big business) he announced late last year to boost South Africa's export competitiveness.

In contrast, the RDP proposals to promote demand through mechanisms such as targeted consumer subsidies, to favor basic needs through, for example, taxes on luxury consumption, and to promote worker ownership seem to have fallen entirely by the wayside. Neoliberal bureaucrats appear intent even on denying subsidies to impoverished consumers of electricity and water.

Many in the business community defend the government abandonment of expansionist or redistributive policies on the grounds that such spending will balloon the government deficit. Business economists regularly cry about the danger of a "debt trap" and the dreaded specter of "macroeconomic populism."

In reality, the government deficit only amounts to 5.1 percent of GDP, down from 8 percent in 1993. It will fall further this year, as the government undertakes a program of rapid privatization, following negotiations with the Congress of South African Trade Unions (COSATU). Nearly half of South Africa's GDP is generated by the state and parastatals.

Total public debt is 56 percent of GDP, less than the proportion found in the United States, Japan and nearly all European countries. The foreign debt of $20 billion is almost entirely inherited from apartheid years, but still there is no effort by nervous ANC financial technocrats to reschedule on better terms.

On the revenue side, outgoing Finance Minister Liebenberg's recent budget "reduces the progressivity of the tax structure, calls into question its equity, and mitigates against its use as an efficient tool for redistribution," according to the University of Cape Town's conservative School of Economics. South Africa's maximum marginal tax rate of 45 percent is below that of most European countries.

Greed vs. need

Big business is nevertheless not satisfied. Anglo American Industrial Corporation Deputy Chair Leslie Boyd complains that the "gradualist, politically correct" budget "does not improve the investment environment as it does not commit government to privatization, relaxation of exchange controls, reduced taxes, investment incentives, a radically reduced deficit and lower consumption spending."

South Africa's 50 largest corporations released a policy paper -- "Growth for All" -- in February that exhibited a new degree of greed. It calls for a separate second-tier labor market with much lower starting wages, accelerated privatization, a more vigorous export drive and a renewed focus on fighting street crime.

In principle, corporate executives concede the need for South Africa to embrace competition internally as well. But in fact the top five conglomerates -- Anglo American (roots in diamonds and gold), the Sanlam insurance empire (Afrikaner financiers), the Rembrandt Group (another Afrikaner empire based on tobacco which has relocated to Luxembourg), the Old Mutual insurance conglomerate and Liberty Life insurance -- own 80 percent of stock market shares, with no prospect of a break up in sight.

Although Manuel often spoke of the need for a tough competition policy -- in the process bickering publicly with Anglo American executives -- in almost two years as Trade and Industry Minister (and four before that in the ANC) he has failed to promote anti-trust legislation.

Even ongoing attempts to pull a tiny black business elite up to the economy's commanding heights have faltered. During the 1960s, Anglo American strategically disposed of some mining interests (now Gencor, part of Sanlam) so that Afrikaner rulers would have a stake in the mining sector's profitability. Today, Anglo has "unbundled" its huge brewery and some of its press and industrial interests with the intent of "black economic empowerment," again to curry favor with the current regime in Pretoria. But it took a surprise resignation from parliament by former mineworker leader and constitutional negotiator Cyril Ramaphosa in April before a consortium of black investors, pension funds and a few trade unions -- under Ramaphosa's lead -- drew together the $1.2 billion required to buy the Anglo American spinoffs.

COSATU ridicules big business efforts to transfer wealth to blacks. Its report, "Social Equity and Job Creation," states, "Current efforts by conglomerates to `unbundle' are no more than corporate camouflage which retains power and control in the small group of shareholders and their directors."

Led by clothing and textile workers' union leader Ibrahim Patel, COSATU has advocated job creation by reorienting the economy to meet basic needs production. COSATU also calls for a more aggressive industrial policy, and more cautious engagement with the world economy.

The COSATU and business plans will be debated in the National Economic Development and Labour Council -- a formal business-labor-government policy advisory group -- alongside government's upcoming revision of the RDP. But that is not much source for optimism, given labor's poor performance in prior Council negotiations.

Still, with the ANC the dominant political force over at least the next couple of decades, it will be up to civil society -- community groups, trade unions, women's organizations, youth, the disabled, environmentalists and others -- to demand that the 1994 RDP campaign promises are kept. Such organizations are today weaker than they were two years ago, but their vibrancy and insistence on a more durable transition from apartheid will ensure that notwithstanding the various paths that former movement leaders may take, this society will never forget that the point of its struggle for national liberation was also social justice.

A Labor Perspective on the South African Economy

Tony Kgobe is National Organizer with the National Union of Metalworkers of South Africa (NUMSA).

Multinational Monitor: What are the immediate struggles now facing the labor movement?

Tony Kgobe: Privatization negotiations, which began late last year when we threatened national strikes, have bogged down. We expect developments by mid-year. Aside from preventing privatization, we have told the Department of Trade and Industry that we need to slow and possibly stop the tariff reduction. While we have obligations under GATT, we need to go back and say it is not workable.

MM: What's the meaning of the recent cabinet shake-up?

Kgobe: Just from my own perspective in the union, it seems that the state is now better situated for tough negotiations now underway on privatization, especially the sale of Telkom [the national phone company]. They needed someone with clout to sell it to the unions, and that's Jay Naidoo [former general secretary of the largest trade union federation, who was moved from the RDP Ministry into Posts and Telecommunications]. He'll be instructed to do some form of joint venture with AT&T or another multinational. But that won't lead to more telephones for our people. That is the contradiction that will make his job very difficult indeed.

Make no mistake, our former leaders are still popular within the ranks of workers. But the anticipated job loss from privatization and tariff reductions is frightening. For the state, it will be a hard sell.

MM: Does the closure of the Reconstruction and Development Ministry worry you?

Kgobe: Yes, because the RDP itself is in question, which is a pity. You go back to promises made in the RDP, and find that basic goods and services are meant to be decommodified and universally available. But now they are being increasingly subject to cost recovery and to lower standards, due to what government says are fiscal constraints. So it is clear that we must go back and fight for those promises to be kept.

The balance of forces determine our strategy. Without falling into the trap of becoming a victim of our own propaganda, it means using the RDP -- which is premised upon delivery of goods and services -- as the minimum platform. That should be the way forward.

MM: What are ordinary workers experiencing, in economic terms?

Kgobe: Given the lack of jobs and all the pressure associated with economic restructuring, the very survival of workers is threatened more than we can ever remember, and this means that some are retreating into individualism.

We are often under attack in the business press for becoming a "labor aristocracy" among the masses of poor people. But actually, if you consider the fact that so many employed workers support their extended families, this is just a divide-and-rule strategy. I'm looking after eight people myself -- my mother and siblings and several friends -- and that is not uncommon.

MM: And which organizations would they look to for direction during this period?

Kgobe: The unions have become the primary political representatives of workers now, which was certainly not the case prior to the ANC taking power. But if unions operate within the parameters that have been set, we're going to have our own set of problems, because the parameters are very corporatist. They depend upon us making deals with big business and big government.

MM: The Congress of South African Trade Unions (COSATU) seems to have embraced corporatism -- a cooperative approach with industry and government -- with enthusiasm. How do you explain this?

Kgobe: It's not the unions uniformly. It's a collection of leaders and their intellectual allies who believe that this is the only way forward. But they are taking a major risk, because the deals are not paying off.

So these union leaders, ironically, have been saying to business, please talk to us, let's do deals. But business leaders are saying that they don't need this approach anymore, they don't really need structures like the National Economic Development and Labor Council [NEDLAC]. This and similar structures have been gaining influence for the last few years, but perhaps we have come to the end of their usefulness. Some leaders of government also now seem very hesitant to subject their plans to NEDLAC.

As for the unions, NEDLAC traps the labor movement into perpetual discussions with the bosses. The bosses, meanwhile, just knock on the door of their favorite ministry and get what they want. So we have a very unequal power relationship. This is why COSATU pulled the privatization negotiations out of NEDLAC.

MM: Could you have better handled the opportunities?

Kgobe: We as unions went into these corporatist structures without a clearly defined agenda. It would have made a difference if we'd unified our strategic orientation. Then we could have walked out if we didn't get our way. That would have left us in a position to have bilaterals with the ANC government, which may still be the best route. So part of the problem has been our own lack of clarity.

But I think in the next round of struggles, we won't necessarily want to use these structures. It will be back to basics -- shopfloor organizing and mass action -- as well as advancing a much tougher agenda on economic policy and development.

MM: Would this have political implications for the "Alliance" between the ANC, the Communist Party and COSATU?

Kgobe: There are two possible routes forward. First is the position that the ANC is still a party that demands our support, and that as a worker-leader you have to work within it to win its "heart and soul." I don't think the South African Communist Party will pull away from the Alliance anytime soon, which means that this position will remain very strong.

The other argument is that the ANC's soul is already too far lost, given the policies it has adopted since coming to power. What you need is an alternative which is rooted within the labor movement, which really means a new political party. And since many workers are now scornful of the Alliance, it may be that within a few years, mass support for a Workers' Party will emerge.

Overcast Environment

ONE OF THE AREAS in which the new South African government could easily have attacked corporate power was through enhanced environmental protection. Instead, growth and attracting multinational corporate investment have been the overriding concerns.

One sign of the government's unenlightened environmental policy is its embrace -- or at least tolerance -- of the global toxic trade. In 1994, with the Environment Ministry's apparent approval, a scheme was hatched to ship U.S.-created toxic waste stored in Finland to South Africa, but trade unions, community groups, environmentalists and progressive lawyers mobilized to prevent it. This popular protest embarrassed Environment Minister Dawie de Villiers, a holdover from the apartheid era, but did not cause a fundamental change of heart.

Recycling of toxic waste has been a longstanding issue in South Africa thanks to struggles against the British firm Thor Chemicals. Thor's mercury importation, burning and supposed recycling have killed at least two workers and seriously injured nearly two dozen others. Although an official South African commission was recently given limited terms of reference to investigate the company, Thor's opponents sense they are on the verge of a larger international victory thanks to a British decision to allow victims to sue Thor in England for its South African subsidiary's activities. With this precedent, another British firm will soon be sued in a South African asbestos case.

Nevertheless, a local company is currently proposing to import 10,000 tonnes of German waste plastic per month. According to Chris Albertyn, coordinator of the Environmental Justice Networking Forum, no studies of the project's impact on the environment or worker health have been conducted. Yet the proposal is apparently being considered favorably in the Trade and Industry Ministry.

Albertyn says the new government's approach is "indicative of the kind of thinking that has prevailed since the apartheid era. There is a very strong perception in the Trade and Industry and Finance Ministries that any environmental concern is a brake to development."

That thinking was reflected in the extremely low-key official response to at least two mining and industrial disasters that occurred last year: the Vaal Mine Reefs accident in which 104 black mineworkers were killed in an underground vehicle crash due to negligence by an Anglo American-owned company; and the 1995 fire at Anglo American's AECI chemical subsidiary, which killed two and injured hundreds of working-class and poor people living nearby.

Environmental destruction is occurring at the hands of even one of the most progressive ANC politicians, Water Affairs Minister Kader Asmal [see "Making the Earth Rumble"]. Asmal has endorsed the World Bank's Lesotho Highlands Water Project, which will carry water by tunnels from neighboring Lesotho across catchment zones to Johannesburg at the risk of drying up the Orange River. Rural Basotho people are now mobilizing against the socio-economic devastation, and there is also new evidence of design flaws in the huge dams which have caused a large fault to open up in the mountainous region's geology.

One partial exception to the disturbing environmental trends appeared to be a South African court order halting titanium mining at the beautiful St. Lucia estuary by the British-Canadian multinational Rio Tinto Zinc in order to promote large-scale eco-tourism. But Albertyn warns that the track record of major international hotel and eco-tourism "threatens an equal if not greater rape of St. Lucia."

A silver lining in the otherwise overcast environment, however, is that the Environmental Justice Networking Forum has rapidly expanded its base to include COSATU trade union affiliates, the South African National Civic Organization and 225 NGOs, and will broaden into the rest of Southern Africa later this year. Although the network's access to Environmental Ministry officials at national and provincial levels is generally weak -- given the overpopulation of National Party politicians and apartheid-era bureaucrats -- ordinary South Africans nevertheless still know how to shake up the government and corporate polluters through grassroots activism.

-- P.B.

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