Howard Barrell
Over a Barrel
In response to the Mail &Guardian’s lead story last Friday predicting a “big bang” in government economic policy in the next six weeks, economist Nico Czypionka told Business Day he thought a “slightly damp fire cracker” was more likely.
He may well be right. How so? Because the government may reason that the less said about its rightward drift on economic policy, the better.
Why? Because an open declaration of the depth of its resolve to privatise, rationalise, downsize and liberalise may provoke an unhelpful response from trade unionists, communists and some in the African National Congress. So much better just to slip things past the awkward squad, if at all possible, with a few pat or ambiguous phrases and empty reassurances.
Government economic measures are unlikely, however, to be any less decisive for the stealth with which they may be implemented. President Thabo Mbeki and much of his Cabinet know full well what the bottom line in South Africa is. It is this: the economy must grow at a rate of at least six or seven percent a year for about the next 12 years if we are to get to grips with unemployment, deliver services to those who most need them and avoid social disintegration.
In today’s world, that entails creating a market-friendly environment. And that, one gathers, is what Mbeki is determined to do. In a different kind of world economy the formula for growth would change. The old era in which intensive state intervention and high deficit spending seemed the solution may even return one day. But there is no sign of it on the horizon now.
Parties of the “soft left” – among which we can include the ANC, Britain’s Labour Party and Germany’s Social Democrats – have developed real aptitude in the business of talking left and doing right. Moreover, they seem able to deliver market policies of a kind that avowedly pro-market parties sometimes cannot. Often this is because left parties have a closer relationship with trade unions, which enables them to calm the unions’ worst fears.
Germany provided a good example of this paradox last year.
German business had complained, with increasing intensity since the mid-1990s, that the economy was being smothered by incestuous relationships between big local corporations and banks.
Huge cross-holdings between them stifled entrepreneurship and staunched liquidity, they said, adding that they wanted to cut free.
So why then did these companies not just sell their stakes in each other? Because, under German law, one company had to pay 50% capital gains tax when selling an equity stake in another. And very few companies were prepared to take that kind of loss.
The conservative government of former chancellor Helmut Kohl hummed and hawed about the problem for years, doing nothing. It feared the response if it gave business a massive tax break. Then, into government came Gerhard Schrder’s left-of-centre Social Democrats.
Two days before Christmas just past, Schrder gave German boardrooms a present they had almost given up hope of getting. They certainly did not expect it from a Social Democrat. Schrder announced the 50% capital gains tax on the sale of company cross-holdings would be scrapped.
“Announced” is perhaps to overstate the act by which the news became available. Rather, the information was buried in a government press release which concentrated on popular measures to reduce individual income taxes.
It took some time for the markets to wake up to the move – which analysts predict will open the way to bold restructuring of German industry from next year. It took several phone calls to the Finance Ministry by excited dealers for confirmation to seep in, and the main Dax index on the Frankfurt Stock Exchange jumped nearly 5% in response.
The Blair government in Britain – notably its Chancellor of the Exchequer, Gordon Brown, reportedly greatly admired by our own Minister of Finance Trevor Manuel, is similarly adept. Tony Blair, however, has far less to worry about from his party’s left wing than Schrder in Germany. Accordingly, he has far less need than Schrder to camouflage his actual intentions. The Labour left had been heavily discredited by the time Blair took over the party.
Those sniping at Mbeki’s and Manuel’s economic policies from the left still have a considerable following in the trade unions, as elsewhere. I doubt, however, that the left’s mass following would prove durable in the event that Mbeki opted boldly to confront his critics and offer them continued partnership (in exchange for their support) or a parting of the ways.
Thus far, Mbeki has held back from issuing such a challenge. Many maintain his political style precludes it; that he prefers to exact gradual attrition against the ideas and strategic positions of his left critics within the ruling tripartite alliance.
I am not sure he will restrain himself in this way for much longer if they don’t roll over.
Like Schrder and Blair, Mbeki’s tactics have centred on a skilful combination of populist intervention in the economy with radical reform. It has been a well-judged formula.
We may now, however, be entering a phase where different tactics are required of him, where he needs to signal a clear and dramatic welcome to those with the means to bring about the economic growth we need.
South Africa has been stealthily walking the walk; we now need to strike out boldly and talk the talk, too.