The casino economy has its pitfalls
Our country is in a better place now than 20 years ago, but let’s not get too carried away, writes Jeremy Cronin
THE ARCH promoter of neoliberal policies, Goldman Sachs, published a favourable 20-year review of South Africa earlier this month. The report is entitled “Two Decades of Freedom – What South Africa is doing with it, and what now needs to be done”.
It was warmly welcomed by Finance Minister Pravin Gordhan, and the ANC’s treasurer general, Zweli Mkhize. They certainly have a point. It was pleasing to see how the Goldman Sachs report flummoxed our doomsday prophets, our naysayers in the media and opposition parties. It paints a very different picture from their “things are going from bad to worse”, “it was better under apartheid” litany.
Some accused Goldman Sachs of “sunshine journalism”. Others, like Tony Leon, did ideological flip-flops, suddenly quoting from a (presumably hastily googled) left-leaning Rolling Stone exposé of the Goldman Sachs predatory track record.
Leon further asserted that it was largely pointless comparing present day South Africa with the pre-1994 nation. Rather compare us with our contemporary “peers”, he suggested, implying that our past history no longer has much traction on the present.
Writing in the Daily Maverick, in an article reprinted in Business Times, Richard Poplak outdid himself in his anxiety to hold on to the “things are worse than ever”, antiANC, anti-government viewpoint.
He ended up exhibiting his own statistical illiteracy.
“Goldman wants us to believe,” he scoffs, “that while there is no change in the unemployment percentage, there are more actual people working”. Yes, that is what the report is saying, and yes that is what has actually happened. The explanation is simple – since 1994 the South African population has grown and the number of work-seekers in particular has expanded.
While there has been a net increase in the number of people working, sadly it has not brought the unemployment percentage down.
So what are some of the positive achievements listed by Goldman Sachs that have so much miffed the Poplaks? They include:
● A trebling of South Africa’s GDP from $136bn (R1.3 trillion) to $385bn (R3.8 trillion) since 1994.
● An increase from 13.8 million (2001) to 23.5 million (2010) of those in the LSM 5-10 bracket (LSM stands for Living Standards Measure, and brackets 5-10 are regarded as “middle” and “upper” strata).
● The reduction of those living below the poverty line to 9 percent of the population.
● The increase in the number of those receiving social grants from 2.4 million (1994) to 16.1 million at present.
● Households with electricity rising from 58 percent in 1996 to 85 percent in 2011.
● Labour productivity per worker trebling in a decade – from $8 800 or R89 158.96 (2002) to $25 600 or R258 470.40 (2012).
But if so many positive achievements have been notched up, why are there still crisis levels of poverty, inequality and unemployment?
It is here that the Goldman Sachs report falters. It certainly notes the unemployment crisis, but it is unable to explain it and therefore to offer systemic responses to it.
Part of the problem is that some of the other things the report regards as positives are, in fact, at the very root of our problems.
When the report praises the government for making “decisive positive structural changes” it is referring largely to short-term investorfriendly, macro-economic policies associated with the 1996 Gear programme, and not to measures that will ensure long-term inclusive and job-creating economic growth.
The report notes that as a result of macro-economic measures “overall cost of capital has declined”, that South African “corporate valuations have improved relative to peers”, and that “real ZAR returns” (ie rand- denominated profits) “compare favourably” with other developing countries. In short, monopoly capital is doing exceedingly well in South Africa, thank you very much.
But what is the story behind these super profits?
The report notes the “rise of a black middle class” that “has led to a structural boost in spending”.
But it fails to connect this development with some of the warning lights that it flashes elsewhere, namely that “household debt to disposable income soared from 57 percent in 1994 to 76 percent”, and the “contribution of mining and manufacturing to GDP has fallen to 23 percent from 38 percent in 1986”.
In short, the growth Goldman Sachs celebrates has been considerably consumer-driven, and this consumer- driven growth has been directly linked to the increasing financialisation of the economy at the expense of the productive (and labour-intensive) sectors.
In effect, the report celebrates this financialisation, the increasing exposure of our economy to speculative flows of short-term capital.
It proudly tells us “South Africa is a standout among all countries covered, with an equity market capitalisation twice the size of GDP”.
In other words we are a casino economy.
In one breath Goldman Sachs praises the liberalisation of capital flows and then, in another breath, but without connecting the dots, it notes that financial liberalisation designed to attract fixed investment into the economy has produced paltry results with almost as much outflow as inflow.
“On a net basis after accounting for outflows such as dividends to international investors, particularly after 2000, as a result of offshore listings, dividends or outward bound FDI (foreign direct investment), we see that net FDI has been volatile… Through the period 1994 to 2012 net annual FDI has been on average only $1.9bn (about R19bn) with only two years (2001 and 2008) in which net FDI has exceeded $10bn (about R100bn).”
Other studies have shown the loss of surplus since 1994 has been much greater, resulting in a veritable haemorrhage.
The drastic cutting of exchange controls, dual listings for South African monopolies like Old Mutual, Anglo, and Sasol, and consequent dividend outflows to foreign investors, and a significant illegal capital flight, have all contributed.
The government now increasingly confronts companies that were once South African born-and-bred as if they were foreign investors.
Add to these developments the investment strike prevailing in our country with a widening gap between surplus generated and gross savings, on the one hand, and actual bricks and mortar investments by the major corporates on the other, and then we get closer to understanding what lies at the root of the unemployment crisis in our country.
The Goldman Sachs report is to be welcomed at least for the consternation it has stirred among all those nay-sayers in our country (many of whom would normally treat anything coming from this source as biblical truth).
The report tells us what any sane and relatively objective South African knows – our country is an immensely better place now than it was 20 years ago for the majority of our people.
But the question as to whether things have got better is different from another, more important question – has the balance of forces shifted more favourably towards the working class and poor over these past 20 years? While the answer to the first question (have things got better?) is yes, the answer to the second is, unfortunately, no.
The power of South African monopoly capital and mistaken policy choices by the government particularly in the period 1996 to around 2003 have meant it is monopoly capital that has positioned itself as the main beneficiary of the democratic breakthrough of 1994. But it is not just a question of who has benefited most. Benefits translate into class power, and class power translates into the ability to dominate, the capacity to subvert and undercut transformational endeavours and to infiltrate our own formations, and the resources and arrogance to wage an unceasing ideological onslaught against progressive, state-led policies.
Only a determined effort to use state and popular power to transform the problematic growth path of our economy will reverse this situation. That, of course, is not something we can expect Goldman Sachs to advise. The report is very careful not to offend the government or the ANC, but just occasionally there is a revealing misstep. On page 11 of the report we are told that a decade of “sound growth” was “moderated” after 2007 as a result of “the changes brought about by the ANC’s Polokwane conference and the onset of the global financial crisis”. Does the ANC’s Polokwane conference weigh equally with the global economic crisis in knocking growth? And, more importantly, exactly what are the changes brought on by Polokwane that the report is complaining about? A more coherent commitment to a state-led industrial policy action programme? Greater focus on localisation? A massive state- led infrastructure programme? The consideration of a tax on short-term capital flows?
Let’s welcome the fact that even one of the high priests of neo-liberalism acknowledges significant achievements over the past 20 years. But let’s not get too carried away, or we will risk getting sucker-punched into believing the way forward is to endlessly curry favour with Goldman Sachs’s casino economy clientele.
● Cronin is the first deputy general secretary of the SACP
PLAYING THE GAME: South Africa’s equity market capitalisation is twice the size of GDP. In other words, says the writer, it is a casino economy.