The ANC-led alliance has agreed to focus urgently on aspects of the new growth path (NGP) for which there is already agreement, such as job creation.
The overarching policy that ought to mark a shift to a new development trajectory will be considered in due course. Yet, ideological crosscurrents in the alliance suggest that some would welcome this delay for less than pure reasons.
First, a piecemeal approach legitimises the current macroeconomic framework (which Polokwane rejected) and creates the illusion that it is possible to move towards decent job creation within the current policy straightjacket, in spite of evidence to the contrary since 1996.
Indeed, it was Finance Minister Pravin Gordhan himself who, in his first budget speech, said: “We cannot do the same old things and expect different results.” A piecemeal approach means that changes in macroeconomic policy would be made within the bounds of the current neoliberal paradigm rather than marking a paradigm shift.
Second, since Polokwane, the neoliberal bureaucracy in the treasury has tried to forestall a paradigm shift through drastic and almost irreversible policy changes, such as further exchange-control liberalisation, wage subsidies for employers to create a two-tiered labour market, and so on.
The deeper South Africa’s exposure to the vagaries of international capital markets, the less room there is to implement some of the Polokwane economic resolutions or to break with the current growth path as is proposed in Cosatu’s discussion paper: “A New Growth Path towards Full Employment”.
‘Countercyclical fiscal policy’
In both 2010 and 2011 budget speeches Gordhan espoused a neoliberal macroeconomic framework based on a rigid inflation-targeting regime and fiscal policy intended to keep the deficit below 3%, that is, to achieve a budget surplus in the medium term.
Faced with a growing clamour for a paradigm shift within the alliance, which resonates with international developments, as well as a treasury calling for more of the same, Gordhan proposes a neo-Keynesian “countercyclical fiscal policy”. In reality, this is a rhetorical repackaging of Trevor Manuel’s concept of structural-budget balance or cyclically adjusted budget balance, as introduced in 2007.
This newfangled concept camouflaged continuity with Gear. It sought a surplus budget and a low debt-to-GDP ratio amid high levels of poverty, unemployment and inequality. This continuity is now sugar coated as “countercyclical” fiscal policy. Gordhan did not give a comprehensive explanation of this policy. Certainly, even with the enactment of the Money Bills Amendment Procedure and Related Matters Act it would have been too much to expect Parliament to call for a comprehensive policy presentation backed by empirical and historical evidence.
Hence, treasury could present a budget (to a standing ovation) that seeks to bring the deficit to about 3% in the medium term, even though the economy has scarcely recovered from the job losses of 2009. The corresponding projection of economic growth is just above 4%. Surely this cannot be regarded as the peak of the business cycle, when government could start reducing the deficit, if five million jobs are to be created by 2020? This fiscal policy is fixated on a low budget deficit and debt-to-GDP ratio rather than on employment.
Such policy is at odds with the current international norm, as well as the well-established economic axiom called “Wagner’s Law”, tracking the positive correlation between rising levels of public spending and economic growth. In its recent study of 51 developing economies the International Monetary Fund itself concluded that there is “a long-term relationship between government spending and output consistent with Wagner’s Law”.
Reckless spending
On average, among the developed countries of the Organisation for Economic Cooperation and Development, spending is now at historically high levels of more than 40% of GDP. In South Africa it is kept at about 33%, with a marginal decline of 1% in the medium term. A 2010 Public Service International research paper makes a compelling case, supported by empirical evidence that since 1870 economic growth has gone hand in hand with rising public expenditure.
It also shows that half of all the jobs in the world today are supported by public spending, two-thirds of them in the private sector through contracts and multiplier effects.
It is disingenuous to suggest that the current crises of Greece, Ireland and Britain were created by reckless public spending. The crisis and recession were not caused by increased public spending, huge budget deficits and public debt, but by the financialisation of capital (the increasing abstraction of financial markets from the basic mode of production) that led to the banking crisis. Their recourse to the fiscus in response to the crisis created the existing macroeconomic imbalances in these countries.
In the meantime, in South Africa we are subjected to ideological scaremongering. The claim that “the public service salary bill has doubled over the past five years” is designed to create an impression that public service salaries have risen by 100% in that time. But the minister knows that the budget item called “compensation of employees” is a composite of wage increases, the growth of public service personnel, severance packages, the establishment of a number of new ministries and departments, and so on.
The minister justifies his surplus-oriented fiscal policy by raising fear of alternative approaches. This is illustrated in his comments on measures taken by other countries in response to the current volatility in global capital flows and exchange rates.
Since 1996 the impression has been created that government is faced with a trade-off between service delivery and a bloated public service. The South African Institute of Race Relations duly produced a research report claiming that the size of public service personnel is too big and that an average worker is paid too much compared with the average private sector worker. But the public service is staffed by about 200 000 fewer people compared with 1994, when it disproportionally served the white minority.
The failure of conventional economics to track the simmering crisis that eventually exploded in 2007-2008 calls into question its methods. Unlike the treasury we see the crisis ultimately as a function of long-term stagnation in the economies of the industrialised West. Their declining rate of profit has driven productive investment to the East and fuelled unprecedented levels of the financialisation of capital. In other words, this global capitalist crisis is actually part of an inherent long-term trend embedded in the contradictions of the system itself.
A new developmental trajectory for the global South cannot include measures that further expose our economy to the rampant phenomenon of the financialisation of capital. Treasury must learn from other comparable economies, such as those of the Bric countries. A new growth path must mean a paradigm shift in macroeconomic policy, not just leftward drift within the neoliberal paradigm.
Fikile Majola is general secretary of the National Education Health and Allied Workers’ Union