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

Weekend Argus (Saturday Edition) - - COMMENT -

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.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.