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| New Growth Path fails Critical Political Test | by Radhika Desai and Alan Freeman | | Print | |
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The ANC paid a ransom for the freedom of black South Africans: neo-liberalism. Amid the present crisis that model lies in ruins. In proposing the New Growth Path (NGP) Minister Patel rightly recognizes that the global economic turmoil has opened up a new policy space for developing economies to go beyond conventional [that is, neoliberal] policy prescriptionsí. He is clear that the NPG must be the work of a developmental stateí for creating decent work, reducing inequality, and defeating poverty. The NGP charts a path away from neoliberalism in many important ways. It invokes developmental states, direct employment schemes, industrial policy, and recognizes that social equity is not only the foundation of development but benefits, rather than obstructs, competitiveness. It identifies critical shortcomings of the South African economy, including its dependence on the minerals value chain, misuse of revenues and rent-seeking. The document correctly emphasizes employment creation and domestic market deepening as critical needs. Of course, this is a document still in development, and as yet, does not conjure with the actual sums it will involve. Nevertheless, we argue that it betrays the extent to which the NGP remains captive of the old policy paradigm and how this captivity will ensure that the rest of this otherwise inspiring document risks remaining a dead letter and will not grasp the opportunities afforded by the current crisis of neoliberalism. Amid the crisis of neoliberalism the catchphrase is often heard that ëthe state is backí. In reality, it had never gone away. For neoliberalism did not mean a reduction of the stateís economic involvement, only a reorientation towards serving the interests of capital in general, and financial capital in particular, even more exclusively and unabashedly than before. And today, in all too many countries it continues to serve the very financial capital that it served under neoliberalism over the past three decades. This should tell us that ending neoliberalism is as much a political as a policy matter. Two tell-tale signs of the stateís continuing service to financial capital are the massive bailouts of banks and financial institutions and fiscal austerity that are witnessed in one country after another. South Africa has not witnessed bank bailouts as elsewhere. Moreover, the NGP recognises the dangers associated with the short term capital inflows that finance South Africaís balance of payments deficits. However, it makes no mention of capital controls to keep out unproductive and dangerous short term capital, to ensure that capital inflows take the forms of long term productive investment, nor indeed to retain the substantial savings that South Africa generates from within, due to its rich endowments and capable workforce. It speaks instead of ë[a]dditional and larger purchases of foreign currency flowing into South Africa Ö in order to counter appreciation of the rand as requiredí, proposing to use some of these towards an ëAfrican development fundí. And in the same section it also speaks of ë[g]reater restraint in fiscal policy to slow inflationí with ëreal growth in expenditure of just over 2% a year for the next few yearsí. This is meant to counteract easy monetary policy. These two policies make nonsense of much of the rest of the document. While all the rest of its bold proposals conjure up a vast state and social effort to ensure that the South African economy actually works for its people, that project will remain hostage to the whims of capital thanks to the lack of capital controls and the commitment to fiscal moderation. Capital is to remain free to enter and leave South Africa at will. Moreover, South Africa it to engage in the costly policy of defending itself against the appreciation of the rand, and of course, the possibility of large and sudden outflows, by building up its reserves ñ essentially piles of idle capital which could otherwise be usefully invested in its economy. This policy is also likely to make nonsense of all the talk of a ëcompetitiveí value for the Rand given that typically inflows of capital will require a considerable overvaluation of the countryís currency. Finally, of course, inflows of capital will also require fiscal austerity when, in fact, what South Africans need is a considerable expansion of state spending. Thus NGP promises to limit expenditure growth at 2 per cent per year for the foreseeable future when it should plan massive investments to reduce unemployment and increase economic activity and productivity. With the freedom and privileges granted to capital by these policies, it will retain the whip hand in negotiations with labour and will ensure that NPGís call for wage moderation and equity to control prices will actually amount to wage restraint. The NPG still seeks to resolve developmentís basic requirement ñ investment ñ by asking people to decrease their aspirations or living standards. The hope that investment will come if belts are tightened sufficiently usually remains vain. Instead, the NPG needs other means to ensure that capital invests in the nation. Very traditional developmental instruments, visible in the policies of all the fastest growing nations, are available to achieve this. These include capital controls, state-led investment, a national public utility banking system under clear state and popular control with a regulatory requirement to invest in the nation and in local communities, preferential treatment for national investors, and compulsory retention of resource rents under pain of nationalization. They work! What will not work is a social compact, or some kind of self-restraint of workers, in order to secure investment. No experience of this nature has worked. The British social contract of the 1970s led to stagnation and an ignominious IMF bailout, Italyís social compact has left its economy crippled. The 1960s onslaught on US wages signaled the beginning of its decline. In countless third world countries under the dreaded Structural Adjustment Programmes of the 1980s and 1990s, wage reductions not only alienated the working population but depressed vital domestic demand and did nothing to help growth. No wonder they are known as the ëlost decadesí of development. There is no guarantee whatsoever that because capital can make profit at the expense of its employees, it will be invested productively. Those who think so confuse the profit motive with the investment motive. The investment motive requires long-term confidence in, and a readiness to subject ones resources to the growth of the nation, which only a vigorous state-led national policy can secure. Contrary to the idea that state investment ëcrowds outí private investment, in reality, private investment usually ëcrowds iní around public investment. A high wage economy will create the basis for high value added industry as the leader of growth ñ as was the case in America in its heyday. A low wage economy leads to the humiliation of the nation and the destruction of its primary wealth-creating resource, namely, its people. What South Africa requires is not wage restraint but a living wage: a recognized income based on social justice below which nobody should fall. The best industries will willingly pay this because they will make their profits by harnessing the skills and talent of the workforce. The worst will go the wall, which is where they belong. A business that cannot secure the living standards of its workers is not a viable business and should not be expected to survive. John Maynard Keynes long recognized that the day would come when a more or less comprehensive socialization of investment would be the only way to ensure it in requisite amounts. In the context of the crisis of neoliberalism, this recognition is now dawning in the most unexpected quarters. In a statement of November 15th in the face of unrelenting transport chaos in London, the cityís Conservative Mayorís office stated that the Mayor had ëput an end to the Public Private Partnership that has caused huge disruption and has been able to secure unprecedented levels of investment, despite the toughest of economic backgrounds, which will remedy these problems, add 30% capacity to the Tube and protect the economic prosperity of the capital.í Even the Conservative government of London recognizes that a partnership with capital requires capital to toe the line. That is what is missing from Mr Patelís otherwise inspiring proposals. The real challenge is political. If the ANC really wishes to take the next step in the emancipation of South Africaís Black majority it must forge a mass movement capable of acting as a counterweight to the power South Africaís still predominantly White capitalist class which, moreover, unsatisfied with the ANC governmentís loyal pursuit of neoliberalism at the expense of South Africaís people, has also turned itself into a foreign capitalist class by moving company headquarters to London and New York since Apartheid ended. The goals of the NPG are certainly laudable but they cannot be achieved by surrendering all freedoms to capital. As Mr Patel himself points out, the end of Apartheid took the share of wages in national income from 50% in 1994 to just over 45% in 2009, while the share of profits increased correspondingly. One would have expected the opposite. A reversal is long overdue. The government can only counter the political power of capital in South Africa if it mobilizes the myriad discontents that daily register their presence in assorted demonstrations and actions across the country into a coherent political force. It is not clear whether the ANC is capable of doing this, but Mr Patel belongs to that historic organization and to its government and they are as well placed to achieve this than any other political force. The first task is to enter a proper dialogue with a movement that has been driven into civil opposition by the insatiable demands of capital, with the aim of a partnership for national transformation that starts from human development and the needs of the poorest and most deprived sections of South African society. This will be the beginning of the democratic developmental state which is the only solution to South Africaís increasingly urgent developmental needs. Waiting for capital to bring development will only prolong the gathering crisis which is everyday making the ANC less capable of rising to the real political challenge it faces. Radhika Desai and Alan Freeman Wednesday, November 24, 2010
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