Margaret Legum
a second look
It is surely time for South Africa to “take its future in its own hands” in the words of the heads of the International Monetary Fund (IMF) and the World Bank during their African visit this month. But in very different ways from those they suggest. We need a new mindset.
The current upheavals on world exchanges are a good opportunity to think afresh. They demonstrate that we are part of an international financial system that makes it literally impossible for any government to control, let alone develop, its own economy. When the rand plunges, most people assume it has something to do with our government’s weakness. In fact it is a function entirely of the response of footloose capital speculating on currencies according to criteria having nothing to do with our own policies, capacities and potential.
South Africa’s headlong rush into global trade and capital markets has put us like many other countries into a vortex over which no one has any control. Even the mighty Americans cannot halt the flight of capital out of the bond market and from one currency into another.
The strength of the dollar, which ruins our own as well as others’ currencies, has nothing to do with the strength of the American economy, which is heading for depression. It is a function of investors’ current illogical idea that the dollar is safe.
It is now five years since George Soros, among others, pointed out that the international global market in capital is inherently unstable. Yet we persist with the idea that subjecting all economies to its vagaries is an inevitable fact of nature, like hurricanes. We are all enjoined progressively to “free” our currencies to allow capital in search of quick profit to come in and out without hindrance and without tax.
We subject governments and businesses that need currency for trade to the hopeless task of speculating on future values. South Africa is especially vulnerable because we obediently allow our currency to be unusually available for speculative purposes.
The negotiations with the European Union and the United States over trade liberalisation similarly suggests our helplessness in creating an economy that would meet the needs of South Africans. We have virtually no clout when it comes to promoting our agricultural interests in competition with those of the EU.
Other African states are tiny ants facing elephants in that process of exchanging advantage over trade under the rules of the World Trade Organisation, dominated of course by the elephants. There is no such thing as an international “level playing field”, advocated in vain by Wolfensohn and Kohler of the Bank and the IMF as an essential ingredient of Africa’s regeneration.
The result is very clear. In the past decade Africa’s share of world trade has fallen from 6% to 2%. Direct aid and investment has also fallen from $32 a head to $19 a head.
The global market has gobbled up Africa’s substance and drained its potential. Of course we blame wars and corrupt governments. But the same process happens in peaceful countries with democratic governments. The wars and civil unrest are most likely to be caused by poverty than the other way round. People fight when resources are scarce. That phenomenon is noted and accepted in Europe, but blamed on Africans in Africa.
Africa should surely now take its future into its own hands; and South Africa is in a good position to give the lead. It may be a small sign of the new mindset that finance director general Maria Ramos has announced a tougher line on exchange control. We must begin unapologetically to put our own interests ahead of those of foreign capital.
The worst effect of the global market is its insistence that all economies starting from whatever point they currently inhabit must compete with all others on price. This means an international race to the bottom in terms of “downsizing” and reducing labour costs, so poverty and unemployment are promoted. Unemployed people are not in a position to take advantage of lower prices to the consumer. Has anyone ever asked our people if they would rather have a job and pay a bit more for their tackies?
South Africa, like all other African countries, has had its industrial base decimated. Our loss of employment since 1990 is an inevitable result of the vain hope that international competitiveness will bring prosperity. Europe and the whole of Asia also suffers jobless growth, the prizes of which go to the owners of capital.
South Africa needs an economy in which our own capital is put to work developing rural and urban economies to meet the needs of the people who live here. Exports are needed only to pay for imports; and we can reduce the need to import if we focus on import substitution.
A study of the Japanese economy shows the success of that strategy. It is worth noting that after 10 years of “stagnation” the Japanese rate of unemployment is 4,9% by coincidence the same figure as the US rate after 10 years of unprecedented “growth”.
The reason is that the Japanese do not sack people when demand declines they take the stress through company profit falls. This is considered a blasphemy in a world in which the shareholder the capital owner is king.
In deciding to give a lead in the direction of national planning and control, South Africa would benefit people throughout the world. The vaunted US “success story” has produced an economy in which annually more of its people fall into poverty, in which 86% of households are indebted beyond their income, in which the real value of wages has fallen in the past 20 years, in which the rate of mental illness and drug addiction is the highest recorded anywhere. It is clear that the unfettered global market in trade and capital suits the US economy better than it does anyone else. But even for the American people the price is high.
A new mindset would see our government promoting local enterprise, local purchasing power and local capital formation rather than wooing foreign investment. It would give its attention to the South African context and enter the global market where and when it suited the goal of promoting South African employment. It would abandon the shibboleth that exports will lead our growth.
When Malaysia defied the world in 1998 to rescue its economy from foreign speculation by promoting its own economy, guess what? Foreign investors lined up to take part. Why? Because direct investors prefer stability to a lottery.
Margaret Legum is a board member of the South African New Economics Foundation