More active policy and less macro-economic theology is the only way to get South Africa on to agrowth path, argues the SACP’s Jeremy Cronin
A friend in the finance ministry of a West African state once described a visit from the International Monetary Fund (IMF). Meeting with the ministry, the IMF official hauled out his lap-top and proceeded to interrogate. Growth rate? Budget deficit? Percentage budget spent on education and health? Inflation? The official tapped in the replies, pressed Ctrl-F2, and then dictated what the country’s new macro- economic targets should be.
Welcome to the age of macro-economic theology!
This past week marked the first anniversary of government’s macro-economic strategy, growth, employment and redistribution (Gear). But the story of Gear goes back more than a year.
The African National Congress (ANC)- alliance, for obvious reasons, found itself in the first years of this decade without very much by way of elaborated economic policy. Upon its legal return to South Africa, the ANC set up a Department of Economic Policy. The ANC also helped facilitate the launch of a non-governmental organisation (NGO), the Macro-Economic Research Group (Merg).
Elsewhere in the alliance there were other economic-policy oriented NGOs – notably those associated with the Congress of South African Trade Unions (Cosatu). But Merg was the only place where any real macro- economic capacity was located. The other collectives tended to be swamped by conference circuit demands or driven by the sectoral concerns of Cosatu affiliates and other mass democratic formations.
In December 1993, Merg unveiled an extensive policy document, Making Democracy Work. It focused on macro-economic policy and was considerably different in orientation to the subsequent Gear. The Merg document had some influence upon the original Reconstruction and Development Programme (RDP), but it was an influence that was watered down by other, implicit, macro-economic assumptions.
With time, the Merg perspective was more or less displaced, at least in government circles. Why? One explanation for its marginalisation was that Merg had tended to rely on outstanding but distant, British- based academics. They were not around to defend their perspectives in the cut-and- thrust of local politics.
The Merg document was not necessarily omniscient, but it got lost, and not as a result of a broad-ranging debate within the ANC-alliance on macro-economics. It is precisely the absence of such a debate that is currently one major factor bedevilling Gear within the alliance.
The original RDP document was weak on macro-economic policy.
Immediately after April 1994, those who were less than happy with an ANC-led government and its RDP focused on its fuzzy macro-economics. “The RDP is all very well”, we were told, “but where is the arithmetic?”
An RDP Green Paper (which disappeared as quickly as it arrived in 1994) was the first unambiguous attempt by economists, then based at the Development Bank of Southern Africa, to encase the RDP within a neo-liberal macro-economic strait-jacket. The RDP White Paper was less crude but, compared with the base document, reflected a shift to a more export-led growth and trickle-down development approach.
But it still tried to hold on to the key social and developmental objectives of the RDP. The subsequent National Growth and Development Strategy had a similar character. Both documents sparked little enthusiasm. Many of us were worried that they watered down the RDP. Big business circles felt that a clear, neo-liberal macro-economic commitment was being encumbered by the simultaneous reiteration of RDP objectives.
Against this background, a technical team was assembled in December 1995 to prepare Gear. Between mid-January and mid-February the rand lost more than 20% in value against a basket of foreign currencies. Those who wanted a “clear” (that is, their own) macro-economic policy to be anointed as official used the rand’s decline to intensify pressure.
So it was that, one year ago, Gear came to be unveiled. It was declared “non- negotiable” by Finance Minister Trevor Manuel and his director general. Both its content and the tough “non-negotiability” stand pleased business circles.
The main features of Gear are well enough known and require little elaboration. They include a core commitment to drastic budget deficit reduction. The actual percentage budget deficit (a projected 4% for this year) is not high by international standards. However, interest on the deficit, given our extremely high interest rates, places a terrible burden on government resources. Are there alternatives to Gear’s stringent budget cutting? Macro-economists aligned to the National Institute for Economic Policy (the successor to Merg) argue for a more relaxed attitude to the deficit, believing that stringency will kill the goose.
Others have said we should simply renounce this “apartheid” debt.
That seems attractive, but it is a debt owed largely to domestic pension funds. Renunciation has implications that cannot be ignored. What about focusing more on interest rates, and less on the Budget itself? This is, partly, what Gear recommends, but given Reserve Bank Governor Chris Stals’s sado-monetarist grip on interest rates, early prospects of relief look dim.
Another major plank of Gear is the restructuring of state assets.
On this score, Gear is ambiguous. It commits itself to the government/unions National Framework Agreement of February 1996 (with its prioritisation of service delivery and job creation) on the one hand. On the other, there is a great deal of rhetorical enthusiasm for privatisation.
On financial policies, Gear repeats a fairly conventional monetarist list of priorities. It is strong on trade liberalisation, with some ameliorating if vague commitments to retraining workers. The final chapter, the most ambiguous of all, is devoted to a national social accord that seems to involve a wage and price restraint trade-off.
It would be unfair to draw easy conclusions after just one year of Gear. But there are indicators that cannot be ignored.
On the deficit, this year’s Budget is on track for the envisaged 4% target, although last year’s budgeted 5,1% was not met (it was 5,6%). Growth was projected to be 2,9% this year. It is now likely to be less than 2,5%, with agriculture being blamed. While mere quantitative growth should not be over-fetishised, the centrality of growth to Gear should make this slowing down worrisome for its proponents.
But it is job creation that is of greatest concern. Gear projected a modest 1,3% increase in jobs over the past year. The figure appears to be a 1,3% loss.
Those of us who are not fans should not, however, assume that partial failures will lead, automatically, to a progressive revision of Gear. Business is already arguing that we have not yet applied enough austerity.
So how do we go forward?
In the SACP we are arguing that we need to proceed on three fronts. In the first place, it is important to buttress those features that are positive – like the commitment to to a three-fold increase in parastatal investment.
But we cannot just jive within the constraints of Gear; a thorough-going review of macro-economic policy is required.
Above all, however, we need to move out of Gear, out of an over-absorption in macro- economic theology, to other critical but neglected areas of economic policy. In particular, a great deal more attention must be paid to a coherent industrial policy.
Macro-economic policy needs to be subservient to this.
There is not a single example this century of a Third World society breaking out of under-development by simply sending market- friendly macro-economic signals into the ether. A coherent, public-sector led industrial strategy that draws in, and does not crowd out, private sector investment is the way in which to move out of Gear, and into real growth and development.
Jeremy Conrin is deputy general secretary of the South African Communist Party
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