Daily Maverick
Dailymaverick logo

South Africa

South Africa

From the ashes of neoliberalism, a capitalism with a human face might emerge (Part Three)

From the ashes of neoliberalism, a capitalism with a human face might emerge (Part Three)
Jeff Rudin
By Jeff Rudin
31 Jul 2024
Facebook
1
Under the Government of National Unity, some new investment can reasonably be expected. The world, including South Africa, is flush with idle capital, but in the highly competitive market for investment, South Africa does not rank very high.

This is Part Three of a four-part series. Read Part One here and Part Two here.

“There has been no concerted attempt to re-engineer our society to one with a shared national psyche of common purpose and greater good — nation-building and social cohesion. This must be driven by and through individuals who see themselves as patriots, active, meaningful, equal and integrated members of a diverse society… The primary objective today is still to uplift the quality of life of all South Africans, especially the poor.”

So writes Bonang Mohale, Chancellor of the University of the Free State, former president of Business Unity South Africa (Busa), Professor of Practice at the Johannesburg Business School in the College of Business and Economics, and chairperson of the Bidvest Group, ArcelorMittal and SBV Services.

The inescapable problem with Mohale’s sentiments is their incompatibility with the only means he recognises for reaching those inspiring objectives. Their unrealisability begins with him seeing the means as technical ones, as required for “re-engineering”. Being so embedded in business, he is evidently blind to the challenge being a political one. “Economics,” as noted Cambridge economist Ha-Joon Chang so pithily says, “is a political argument.” (Economics: The User’s Guide, Penguin Books, 2014, p451.)

It is Mohale’s focus on “especially the poor” that makes practicable a short critique of neoliberalism. It additionally explains why the Government of National Unity’s (GNU) continuation and further consolidation of neoliberalism can be short-lived only. What follows from the GNU’s inability to maintain the growth said to be the condition for reducing poverty, unemployment and inequality will be addressed in due course. What is first required is an explication of neoliberalism and its consequences.

Nothing uniquely South African in the challenges we face


We are prone to thinking that South Africa is alone – or almost alone – in the multitude of challenges we face. Things like poverty, unemployment, inequality, energy and food insecurities, inadequate housing and unacceptable health and education systems would be common items on most lists about South Africa.

These features, however, characterise not only the whole of Africa, but also developed countries. They all have long histories, but it is their modern form that are of immediate relevance for understanding much of the contemporary world. This form is neoliberalism.

 The essentials of neoliberalism


It is here that we face a conundrum and it’s when I draw on George Monbiot, the often unparalleled British journalist, author, environmental and political activist:

“The ideology that dominates our lives has, for most of us, no name… Even if you… have heard the term before, (you) will struggle to define it… Its anonymity is both a symptom and cause of its power. It has played a major role in a remarkable variety of crises: the financial meltdown of 2007‑8, the offshoring of wealth and power… the slow collapse of public health and education, resurgent child poverty, the epidemic of loneliness, the collapse of ecosystems, the rise of Donald Trump. But we respond to these crises as if they emerge in isolation, apparently unaware that they have all been either catalysed or exacerbated by the same coherent philosophy; a philosophy that has — or had — a name. What greater power can there be than to operate namelessly? …The anonymity of neoliberalism is fiercely guarded. Those who are influenced by (its theoreticians) tend to reject the term, maintaining — with some justice — that it is used today only pejoratively. But they offer us no substitute.”

Profit-maximising markets have long pre-dated neoliberalism. Not since the 18th and earlyish part of the 19th centuries in Britain, when the economic meaning of liberal was unrestrained business, has the market enjoyed anything approaching such liberal freedoms – hence the “neoliberalism” that, like its predecessor, appropriately first emerged in Britain in 1979.

For present purposes it must suffice to say that the neoliberal pre-eminence of the market means a state that has handed over much of its functions and services to the private sector, via privatisation or outsourcing. Governments still retain the essential neoliberal function of reducing regulations designed to protect the public – now mostly dismissed as red tape – while additionally reducing corporate and high-income taxes.

The final but no less important function of the neoliberal government is to maintain business-friendly fiscal prudence. (For elaboration of neoliberalism see a previous Daily Maverick article of mine.)

There is no equity in the wealth neoliberalism guarantees.


The restraints on this article necessitate restricting this section to one issue only: austerity as a global feature of neoliberal fiscal disciples.

“End Austerity: A global report on budget cuts and harmful social reforms in 2022-25” found that 85% of the world’s population is living in the grip of austerity. This means the more than 6.3 billion people affected by austerity are confronted with multiple and compounding crises – from health, energy, finance and climate shocks to unaffordable living costs.

Drawing on Isabel Ortiz and Matthew Cummins’ review of the report, expenditure projections by the International Monetary Fund of 189 countries until 2025 shows that 143 countries – 49 developed countries, including Britain, and 94 developing ones – are implementing budget cuts. These cuts undermine the capacity of governments to provide education, healthcare, social protection and other public services.

A long list of austerity measures is being considered or already implemented by governments worldwide: targeting and rationalising social protection (in 120 countries); cutting or capping the public sector wage bill (in 91 countries); eliminating subsidies (in 80 countries); privatising public services/reform of state-owned enterprises (in 79 countries); pension reforms (in 74 countries); labour flexibilisation reforms (in 60 countries); reducing employers’ social security contributions (in 47 countries); and cutting health expenditures (in at least 16 countries).

In parallel, detrimental social impact measures to raise revenues in the short term include strengthening public-private partnerships (PPPs) (in 55 countries) and increasing fees/tariffs for public services (in 28 countries).

The report also details nine financing alternatives, available even in the poorest countries, that have been approved by the UN and international financial institutions, together with those already implemented by governments worldwide.

The specificities of South African neoliberalism


The neoliberal GNU will introduce (or at least seek to introduce) further changes. The most likely ones will advantage the already privileged and disadvantage both the poor and the middle class (more on the latter, in due course).

To reassure the market and encourage growth via both local and foreign investment, the following is relevant. They include some drawn from the End Austerity report, in which South Africa figures prominently:

  • Child Support Grant – only 71% of those eligible receive the grant (Table 3, p37).

  • Old Age Grant – only 84.8% of those eligible receive the grant (Table 3, p37).

  • South Africa is among the countries the International Monetary Fund urges to cut or cap the public sector wage bill (p40).

  • The International Monetary Fund’s country report on South Africa advises reducing food subsidies, agricultural subsidies, fuel, electricity, gas and tertiary education (pp.43-4).

  • The International Monetary Fund advises further privatisation of public services or state-owned enterprises (Box 9, p47).

  • It also advises the privatisation of energy, including street lighting, power distribution, gas and oil (Table 6, p48).

  • To undertake labour flexibilisation reforms (Box 14, p56), and to increase fees/tariffs for services (Box 22, p67).

  • From Annex 2: Main austerity measures in 172 countries, 2020-2022, we further learn that South Africa’s main measures are social protection; wage bill cuts/caps; eliminating subsidies; privatisation of public services/SOEs; labour flexibilisation; containing health expenditure; and fees/tariffs for public services/SOEs (p97).


In addition to all the above is the growing campaign, initiated by Minister of Mineral Resources and Energy, Gwede Mantashe, who, prior to the GNU Cabinet was also responsible for energy, to regulate environmental groups challenging oil and gas investors, as the Mail & Guardian reports.

We should expect at least some of these recommended measures to be implemented in some form or other. This will be beneficial to those protected from austerity and will come with some increased capital inflows and increased local investment. The GDP will grow as a consequence of both, which, in turn, will result in the already horrendous employment metrics growing at a slower rate than would otherwise be the case. 

Foretelling the immediate future is made easy by what is already known about South African neoliberalism and austerity; about the bounty enjoyed by the “we” and the burdens heaped on the “them” (the we/them dichotomy is explained in Part 1). What cannot be predicted is the duration of the “immediate future”.

The cost of living is already unbearable to increasing numbers. So, too, is unemployment, even though Tim Cohen, the editor of Business Maverick, would like us to accept that it is not nearly as bad as official statistics – and, I may add, our own eyes – tell us, in his article headlined: “Are we ready for a big debate about South Africa’s unemployment rate?”

As a consequence of the scope-enforced limitations on this article, a narrow focus on just electricity and food serves to exemplify how much worse conditions are most likely to get in many related areas. President Cyril Ramaphosa’s speech when opening the 7th Parliament will also be covered, for what was not said is more important than what he chose to say.

Electricity


South Africa’s economic gap between the rich and poor is worsening, as Stephen Grootes points out. Electricity, already unaffordable to many South Africans – around 50% of households are energy poor, despite a household electrification rate of 86% – is guaranteed to cost even more.

Municipalities have already imposed their own electricity tariff increases on 1 July 2024. Increases for Johannesburg and eThekwini are 12.74%, with an 11.78% increase in Cape Town. Apart from being less affordable, electricity is to be even less available to increasing numbers as load reduction replaces – or adds to – load shedding.

The situation is far worse in Johannesburg. Here, prepaid meter users – overwhelmingly installed in households in arrears – have now to pay an additional R230 monthly surcharge. This increases costs by 60% (for 200 units/month) and 45% (for 300 units/month).

No less disturbing is that indigent users in households with a monthly income of less than R6,000 a month are supposed to get a basic package of free electricity and are excluded from the R230 surcharge. However, as Chris Yelland, an energy specialist, notes, only 10,979 residents qualify out of a total of about 950,000 eligible people in Johannesburg identified by the National Treasury and for whom an unconditional grant is made from the national government.

This effective stealing from the very poorest is hardly confined to Johannesburg, but is a well-known scandal probably involving most municipalities, as Tracy Ledger alerts in her Daily Maverick article from 2022. (Also see her 2022 book, Hungry for Electricity.)

Responding to public pressure, Johannesburg’s municipality said in the middle of July that it would review its R230 surcharge but that the process would begin only at the end of July and, as Ferial Haffajee observes, it could take months to finalise.

Hunger


What isn’t waiting for finalisation is the reality that, since at least 2022, we’ve known that people have been forced to choose between buying electricity or food. Haffajee brings us this impossible choice with harrowing accounts of what it means to people in July 2024.

This further alerts us to the whole question of appalling levels of food poverty in South Africa amid food plenty for those with money. This can’t be elaborated here, in what is already a four-part article. Another Daily Maverick article, from December 2023, on the political economy enabling South Africa’s hunger crisis, provides the elaboration that can’t be done here.

Despite the above being a recent article, it needs to be brought up to GNU date. The almost brand-new GNU Minister of Agriculture, John Steenhuisen – also the DA leader – was at pains in his mid-July budget speech to emphasise the continuity between himself and his ANC predecessor. He has “no intention of reinventing the wheel” was his theme. His focus would instead be “on accelerating implementation of the objectives of the plan” (the ANC’s Agriculture and Agro-processing Master Plan).

To this end, he was proud to announce the export deals expected to yield bumper harvests for farmers’ finances. These new markets are for fresh beef and lamb in Iran, table grapes and citrus in Vietnam and three new markets for avocados: Japan, China and India. Exporting food while people starve at home is not dissimilar to the export of grain and livestock in what has become known worldwide as the Great Famine of 1845 to 1852. Also known as the Potato Famine, it reduced the Irish population by 20-25% due to one million deaths and mass emigration.

Agriculture is primarily a business that just happens to involve food. The whitewash is that the export of food helps provide South Africa with essential foreign exchange. Making this a convenient fiction is the neoliberal freedom enjoyed by those using the foreign exchange for imports unconnected to any meaningful national interest.

Middle class


For current needs we will mainly go along with the mainstream sociological understanding of a hierarchy of social classes – upper, middle and lower. Lost in the main focus on the rich and poor is the increasing squeeze on the middle class, with the lower middle-class being the most exposed.

Sections of those previously seen as economically secure are now being proletarianised despite their “professional” self-images, as computers take over increasing amounts of their work. This decline of the middle class is a global phenomenon with South African particulars.

Mark Swilling, in his previously mentioned article, tells of a new book, subtitled A Warning to the Global Middle Class by Joel Kotkin. Kotkin – whom Swilling assures us is not from the ideological left – “amasses loads of data to demonstrate that the global middle class is in decline as the “super-rich get richer” while everyone else struggles as AI, robots and other 21st century technology – what Kotlin calls “techno-capitalism” – transform the global economy. 

Most of the increase in global wealth goes to the already super-wealthy. In the US, for instance, where the top 1% captured only 4.9% of income growth during the 1945-73 period, they gobbled most of the additional wealth by the early 1990s, in part as a consequence of the growing concentration of wealth and the magnetic effect it has on newly available capital.

No increase in real incomes


US CEO pay soared an astonishing 1,209.2% from 1978 to 2022, while worker pay increased just 15.3% over the same period. Kotkin provides surveys of middle-class people around the world who no longer think their children will be better off than them. Indeed, between 2005 and 2014, 60% of all households in 25 of the most advanced economies experienced no increase in real incomes. 

Kotkin, Swilling concludes, can therefore easily agree with the conservative economist John Michaelson, whom he quotes: “The economic legacy of the last decade is excessive corporate consolidation, a massive transfer of wealth to the top 1% from the middle class.”

Unemployment among this middle class is now not uncommon. Resentments about their new social position has made some of them ready to be recruited by the right, but not yet the left in any significant numbers. 

As there is no official definition of the middle class, the South African specificities of this class start with their generally accepted salary-based definition. This is between R8,000 to R29,000 per month in 2024. This enormous range reflects more than South African inequality.

Unlike the standard global pattern in which it is the lower levels of the middle class that are most at risk, in South Africa, with its 16-levelled public service pay scale, it is the more than half of these public workers – those in levels 7 to 9 with an average monthly earning of between R27,000 to R38,600 – who are most threatened by the GNU. The pressure to cut the public sector wage bill, which precedes the GNU, is already being ratcheted up, as is detailed in a Mail & Guardian article (from which I’ve drawn heavily for much of this paragraph).

Unemployed doctors are but the latest public victims of health services that, although burdened by vacant posts, can’t afford to employ new medical staff. The entire range of the middle class faces the multiple challenges of the cost of living. (See here, here, here, and here).

The importance of all this will be one of the issues dealt with in Part 4 of this article.

Ramaphosa’s address to the opening of the 7th Parliament


With only two exceptions, there was nothing of special note in Ramaphosa’s hour-long address on 18 July. Both exceptions involve what he didn’t say.

First, although saying a lot about turning GNU South Africa into an infrastructural “construction site”, he was utterly silent about the fact that the financing of these needed and job-creating developments would have to be funded by the private sector. A consequence of Ramaphosa’s GNU-supported consolidation of austerity has made public funding impossible.

Second, and perhaps even more telling, was his failure to say anything about imposing austerity strictures on the upper ranks of the public service, hitherto protected from such nasties. His silence spoke loudly about all ministers and deputy ministers continuing to receive the same outrageous pay and perks as their predecessors, notwithstanding the GNU’s supposed commitment to redress the scourge of poverty, unemployment and equality.

He could have instead announced the need for a new Ministerial Handbook shaped by only some of the austerity imposed on others. And he could have done so with the support of the DA, which, before joining the GNU, attacked the very pay packages they are now receiving.

Having taken the pay cuts consistent with the austerity imposed on the public, other than the higher echelons of the public service, would have brought sustained pressure on these remaining privileged groups to follow the lead of their elected leaders. This would include the 37,839 public sector workers earning more than R1-million a year (according to our National Treasury).

Flush with idle capital


While some new investment can reasonably be expected, it is much more likely that the amounts will not be anywhere near what is needed or be sustained at whatever level they reach. The world, including South Africa, is flush with idle capital. In the highly competitive market for investment, South Africa does not rank very high.

Making matters even worse is that Britain’s new Labour Government has a much better chance of attracting large sums than South Africa. Ongoing South African corruption along with its crime levels – without forgetting an austerity burdened justice system – and the extra costs and burdens of BEE and affirmative action, are disincentives for many would-be investors.

All this leads to an obvious question. How long will the GNU’s honeymoon last? Stephen Grootes says not very long. The more optimistic give it a few years. Few expect the marriage to survive the five years before the next national election. Presidential spokesperson Vincent Magwenya struck a sombre note, with his observation that:

“The reform narrative is going down well, especially now that South Africa appears to have a reform-minded government in the GNU. But investors and ratings agencies know that reforms take time and that the GNU won’t be easy. They will want to see evidence that South Africa can attain and sustain a higher economic growth rate.”

A cycle leading to stagnation


But that “higher economic growth rate” has (avoidably) been made entirely dependent on private investment, and that is the beginning of a cycle leading to stagnation.

The point, however, is that whatever the period turns out to be, it gives what remains of the South African left time to take stock. In many instances this re-evaluation could mean abandoning long-held delusions about the now 30-year-old “new” South Africa. The SACP and Cosatu are unavoidably in this category. The options open to them – and others – will be explored in the final part of this series. These options include plastic surgery to give capitalism an acceptable face. DM

This article is published jointly with the journal Amandla.

Categories:

Tags: