Was the most banal political meme ever generated the one James Carville hammered home to Bill Clinton in the 1992 United States presidential campaign: “The economy, stupid”?
The Washington Post‘s Bob Woodward explained one briefing by economists in his book The Agenda: “Clinton’s face turned red with anger and disbelief. ‘You mean to tell me that the success of the programme and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?’ he responded in a half-whisper. Nods from his end of the table. Not a dissent.”
Clinton followed script with a bankers’ agenda and left the world primed for neoliberal public policy, the globalisation of debt and unprecedented financial speculation. As one result, a foreign debt repayment crisis may hit South Africa within a few years. In his new book How Long Will South Africa Survive? Bill Johnson predicts Pretoria’s plea for a Washington financial rescue, and though he misses the vital flaw in the Brics’s two new financial institutions, the new $100-billion emergency bailout fund empowers the International Monetary Fund (IMF) by compelling a partnership-in-austerity lending.
A begging trip to the IMF will happen “within six years”, said economist Chris Hart last week, speaking at the Sandton Collaborative Stakeholder Management meeting. I don’t disagree, given that the $145-billion foreign debt has soared from $25-billion in 1994 and $70-billion in 2010. Why borrow? Mainly to raise hard currency to pay profit, dividend and interest outflows, mainly to companies that were once South African but now reside (financially) in London, Melbourne and New York.
So it is vital to distinguish domestic from foreign debt. Hart claims “South Africa is at the brink of a solvency crisis” and “cannot afford to take on more loans”. While this appears valid in terms of foreign debt, it is not true in local rand currency terms. Indeed, South Africa’s capacity to mop up local funds for public borrowing is much greater than nearly all our peer countries, even the IMF agrees.
The problem is the interest rate that must be paid on such local borrowings. If we had stronger exchange controls, the South African Reserve Bank could set the interest rate for borrowing much lower without fear of a run by fickle financiers. But starting in 1995, the barriers have been whittled down dozens of times.
The IMF as the inevitable denouement
Finance Minister Nhlanhla Nene’s bias was witnessed in his February budget: he allowed individuals to move money offshore much more rapidly, from R4-million in 2014 to R10-million in 2015 and beyond. With such policies, the IMF is the inevitable denouement.
Hart also argued against our allegedly “low interest rates” on the grounds that they “discourage people from saving … the country does not have a savings pool to dip into to invest in business, which is stifling growth”. Nonsense; in reality, South Africa’s real interest rates are higher than nearly all our trading partners, and at 7.5%, the 12-month Johannesburg interbank offer rate is now two percent higher than mid-2013 levels.
The high rates discourage investment. Also, plenty of money is sloshing around in our absurdly speculative financial markets. For example, the JSE rose nearly 20% from October to its recent peak in June. The main money managers, especially insurance companies, pension funds, investment banks and the Public Investment Corporation, continue gambling on a bubbly stock market with diminishing values underpinning it.
The danger was illustrated in China, what with $4-trillion in losses over a recent three-week period as the main stock markets crashed by more than half.
In spite of South Africa’s declining competitiveness and the end of the 2002 to 2014 era of high prices for minerals, an “export-led growth” fantasy continues.
With the price of coal down by a third from the 2008 peak and by half from 2010 levels, and with gold this week down to a low of $1?110 and platinum to $990, more thousands of jobs are threatened by our reliance on mineral exports.
Our vulnerability to the desperate Chinese manufacturing sector was witnessed again this week when, instead of exporting steel to China, the reverse is now responsible for the closure of Evraz Highveld Steel. This temporary shutdown was, the company reported, “primarily as a result of working capital constraints and reduced domestic demand in steel mainly due to a significant increase in Chinese imports”.
The tsunami of Chinese goods, subsidised mainly through its undervalued currency, environmental despoliation, a migrant labour system, and repression of unions, has wiped out local manufacturing jobs since the mid-1990s. It could be reversed with protectionist measures.
These would, ideally, be combined with labour-intensive and ecologically sound incentives for South Africa’s deindustrialised economy to rebuild. The overarching problem remains, though: South African state and corporate elites are wedded to the World Trade Organisation’s liberalising ideology. Those same elites were named the world’s most corrupt corporate crew by PwC in 2014, so it is time to question their values, judgment and freedom to profit from such a stupid economy.
Very low social spending
Their values are evident in Hart’s reported claim that “government has placed too much emphasis on alleviating poverty”. In reality, Statistics South Africa’s revised poverty rate in February unveiled that a shocking 54% of South Africans cannot afford a basic bundle of food plus vital expenditures worth R779 a month. Notwithstanding the 17-million people who receive survival grants, South Africa’s social spending is the fourth lowest among the world’s 40 largest economies, according to the Organisation for Economic Co-operation and Development.
The treasury has plans to cut the ratio lower still, with welfare grants projected to shrink from an anticipated peak of 3% of gross domestic product in 2020 to 2.3% in 2040. Starting along this path, Nene cut the real value of individuals’ grants by 3% in his February budget.
Many economists believe the treasury and the Reserve Bank are fighting the good fight against the allegedly left-led ministries of economic development and trade and industry. The reality is they are caught in the trap of a stupid economy under the influence of those same bond traders and ratings agencies that manipulated Clinton. As a result they pursue dubious policies that are not in the national interest, and that don’t work on their own terms either.
But resistance is rising: a leftist fraction of labour now set free from what they term a “Congress of Sweetheart Trade Unions”; an energetic (albeit chaotic) anti-neoliberal party in Parliament; a truncated black petite bourgeoisie fed up with white corporate power; and a potential United Front to link disparate social movement insurgencies. For three years in a row, the World Economic Forum has named South Africa’s working class the most militant of any country. But will its members find each other, and then find their economic voice?
Patrick Bond is professor of political economy at Wits University and directs the University of KwaZulu-Natal Centre for Civil Society. His new book, co-edited with Ana Garcia, is Brics: An anti-capitalist critique (Jacana). He will be on the M&G Literary Festival panel “It’s the economy, stupid!”, with Herman Mashaba and Greg Mills, chaired by Songezo Zibi, on Saturday August 1 at 11.30am