Neoliberalism has intensified poverty, unemployment, inequality, corruption and austerity

By Jeff Rudin

14 May 2024

Part 2 of a three-part series. Read Part 1 here.

In Part 1, it was shown that the enticement of a better future was constrained by all the political parties/independents contesting the impending election, they being substantially wedded to the same macroeconomic policies of the previous 30 years.

This is to say, the same policies that have given rise to such widespread and desperate hope for a better future, and which remain unchallenged.

Moreover, these policies remain nameless among those standing for election, mainstream economists and the media. I gave these policies a name and outlined their main 14 features in Part 1.

Space does not allow for the elaboration of all 14 features of neoliberalism. At best, it allows for truncated comments on some of them.

To make what follows more South African-specific, I shall seek to demonstrate the connections between neoliberalism and the five challenges recognised by all parliamentary parties: poverty, unemployment, inequality, corruption, and, more recently, austerity.

All are inherent to capitalism – neoliberalism simply makes them worse.

Inequality

Neoliberalism’s exacerbation of inequality is global.

Forbes magazine provides the details in its 2024 list of global billionaires.

The combined wealth of the 2,781 billionaires is $14.3-trillion (or R268.5-trillion on 29 April 2024).

By contrast, the top 1% of Americans have a collective wealth of $44.6-trillion.

Moreover, the concentration of inequality is such that the 14 people in the $100-billion or more group (0.5% of the total billionaires) hold 14% of all billionaire wealth.

All global billionaires collectively pay only the equivalent of up to 0.5% of their wealth in personal income tax. G20 ministers are now calling for a 2% tax on these billionaires to raise £250-billion a year.

While only six of the billionaires are South African, this is the world’s most unequal country, where the top 10% own about 85% of total wealth and the top 0.1% own close to one-third.

Notwithstanding its alliance with the South African Communist Party and Cosatu, the ANC has sought to be as business-friendly as possible since 1994.

Neoliberalism’s contribution to this includes major tax reductions for the rich; extensive deregulation of restrictions inherited from apartheid, including most of those applying to the free flow of capital; and those covered below by both unemployment and poverty.

Unemployment

The market, having been made king, orphaned the meeting of urgent, post-apartheid societal needs. The replacement of the Reconstruction and Development Programme (RDP) by Growth, Employment and Redistribution (Gear) policies in 1996 provided an official date for this.

Nelson Mandela’s speech at Davos in early 1992 heralded this change.

Eskom’s crisis and the national plague of load shedding originated in the government’s delayed building of the extra power it knew would be needed by 2008 because it had set aside this building to private capital. But private capital wasn’t interested, as electricity was then too cheap to be sufficiently profitable.

Unemployment, however, could have been all but wiped out (except in the long run) by building homes, schools, hospitals, clinics and a publicly run and owned transport system, along with the universal provision of piped water consistent with the dignity guaranteed by our Constitution.

The provision of electricity, although omitted from the Constitution, was part of government policy.

The neoliberal primacy of the market made all this impossible.

Capital exists to maximise itself rather than what it considers to be welfare. Moreover, a balanced national budget – if not one with a surplus – is a neoliberal shibboleth.

A budget deficit, integral to any development aimed at meeting urgent needs, would mean planned and sustainable debt. But there’s no such thing as progressive debt to neoliberalism.

Any debt means the government might not be able to meet all its interest and other financial obligations, especially to foreign investors.

Learning from South Africa’s major capitalists who quickly moved their capital abroad rather than investing in South African production, foreign capital is mainly in shares and bonds.

As an inducement to foreign capitalists, successive South African governments maintained high interest rates.

The huge amounts of capital available in highly competitive free markets are heaven to investors, who are indifferent to where they invest or in what they invest, provided only that it is likely to maximise their profit.

South African investors are often accused of being on an “investment strike”. This is misleading.

Like investors everywhere, South African ones don’t invest heavily in South African production because of the low demand – not need – of the local population.

Hence, the neoliberal priority is given to what is supposed to be export-led growth. Exports certainly benefit the exporters, but this has nothing to do with meeting desperate home needs.

Importers also have the freedom to import anything they think will maximise their profits. Hence the huge amount and variety of goods that could be made in South Africa with South African labour are instead imported from countries with even cheaper labour than South Africa’s already cheap labour.

Moreover, when capitalists do invest in production, it is always capital-intensive rather than labour-intensive. The mandate of the South African Reserve Bank is to protect the currency, not promote job creation.

Shedding labour has become relatively easy given both the frequency of economic crises and the decline of trade unions and union membership.

Poverty

Unemployment is a major cause of poverty.

So, too, are the working poor: 54% of full-time employees – 5.5 million workers – earned below the working poor poverty line of R4,125 a month (based on an analysis of dependency ratios and multiple income sources) in 2016.

This eight-year-old statistic merits explanation.

Due to continuing austerity-imposed cuts to its budget, Stats SA has not had the money for poverty statistics. As the then Statistician-General, Risenga Maluleke, informed Parliament in 2020, the last living conditions survey was conducted in 2014/15, with the poverty line also not having been updated since then.

But Stats SA reported that for those still in full-time employment, the total earnings of all employees had declined by R19-billion in March 2017.

Tim Cohen, editor of Business Maverick, states that more than half the South African workforce earns below R3,700 and 4.6 million people don’t even earn R2,500 per month. The monthly grocery bill for a family of five, eating basic food, is roughly R2,500.

These were among the factors that forced the government reluctantly to introduce a national minimum wage (NMW) on 1 January 2019, having first given serious attention to the issue in 1999.

The government’s commitment to the neoliberal version of being business-friendly was the reason for this 20-year delay.

It took the National Economic Development and Labour Council four years to reach an agreement. The fundamental question was deciding what that wage should be.

The National Minimum Wage Commission recommended R3,500 a month, despite the then working poverty line of R4,317. Such were the levels of the working poor that R3,500 still reflected an improvement for 47% of workers.

The government’s then sectoral wage determinations ranged from R1,813 in domestic work to R2,761 in the hospitality industry and R2,844 for contract cleaners (see here).

The first NMW (2019) was R20 an hour or R3,900 a month for those working a 45-hour week. The poorest paid workers, however, got substantially less.

Farm workers received R18 an hour or a maximum of R3,510 a month, while domestic workers got R15 an hour or R2,925 a month.

The government’s workers, those on the Expanded Public Works Programme, received the least: R11 and R2,145 respectively.

Giving some perspective to the government’s poverty numbers is that minimum monthly wages in middle-income countries are on average set at 48% of the average wage. This translates into R4,161 (in April 2015 rands).

And, such is its inequality, South Africa is an upper-middle-income country, with an average monthly earning in 2019 of R22,414 – 48% of this is R10,759.

Despite the consciously low NMW, exemptions are available for employers who can’t afford even the NMW’s poverty levels. In 2019 the exemption level was anything above R3,024.

The respected Pietermaritzburg Economic Justice and Dignity (PEJD) research group provides monthly measures of the government’s success in meeting the neoliberal imperative of maximising the cheapness of labour.

Drawing on its Household Affordability Index April 2024, the current NMW of R4,633.44 means R1,158.36 each in a family of four persons. This is below the poverty line of R1,558 per capita per month. The minimum shortfall in food for such a family is 45%.

After securing transport and electricity, workers are left with R2,046.52. If all of this money was spent on food alone, then for a family of four, it would provide R511.63 per person per month. The Food Poverty Line is R760.

“Set at such a low level,” concludes the PEJD:

“The NMW works to institutionalise the low-baseline wage regime and lock millions of workers into poverty. Small annual increments off such a low wage base, and which do not reflect inflation levels as experienced by workers, nor the actual cost of worker expenses (including not projecting inflation forward for workers in the entire 2024/25 term), means that workers on the NMW are getting poorer and poorer each year.”

The reproduction of poverty extends to more than 50% of our population receiving means-tested, state grants and other benefits, whether or not they are working.

Compare a living wage – income required for a dignified quality of life – of R6,570 a month and the poverty line of R1,558 (in May 2023 prices) per person per month, with the child support grant of R530 in 2024.

Or the Social Relief of Distress Grant (SRD), introduced during Covid and still retained by the heavy pressure organised labour put on the government in an election year.

Read more in Daily Maverick: Elections 2024

The SRD was increased by R20 in 2024 and now stands at the condemning amount of R370 per person a month. (In the US, the federal minimum wage has remained the same since 2009.)

Recall that many of the political parties mentioned in Part 1 supported the need for an SRD but claimed it was too expensive to sustain.

This claim alone highlights the need for system change. The money is readily available. It is neoliberalism that pushes it beyond the bounds of the thinkable.

Notwithstanding – or because of – the mass poverty covered above, South Africa is still the world’s most unequal society. This alone attests to the abundance of wealth available.

Consider taxation. In an article, “The 2024 election is about the rich stealing from the public”, Sonali Kolhatkar notes:

“Progressive taxation ensures that wealth inequality doesn’t spiral out of control and helps ensure money that’s being sucked upwards, gets redistributed downward. When wealthy elites pay fewer taxes, they are effectively stealing from the public… We ought to think of tax cuts in terms of public revenue theft. When the wealthy win lower taxes, they are stealing money from the… public as a whole.”

As it happens, Kolhatkar was writing about the forthcoming US election, but she could just as easily have been writing about ours.

Far less known than the actual tax cuts given to the already rich, is our government’s self-imposed limit of total taxes being no more than 25% of GDP.

Slightly better known is the profit-shifting by the rich to those countries that are much more appealing to capital because of their low, lax or zero taxes.

Such is the size of these outflows that tax authorities around the world have been seeking international controls on this otherwise free flow of capital. Whether this would be achieved is another matter.

In the meantime, some R100-billion a year leaves South Africa, whether legally or illicitly.

This profit-shifting is so entrenched in economies worldwide that even mainstream economists refer to it as illicit financial flows. Kolhatkar makes no mention of this neoliberal “rich stealing from the public” on an industrial scale.

Corruption

South Africans are united in identifying corruption as the main, if not only, cause of dysfunctional public services.

Paul Hoffman’s advice to “savvy voters” in our May election to vote for the party pledged to be the most “ruthless on corruption” is superfluous.

Probably like most South Africans, Hoffman attributes the failure to address this longstanding plague to an unelaborated lack of political will. We will return to this issue when addressing the alternatives to neoliberalism.

Austerity

Neoliberalism’s almost assured harvest is austerity.

Some 143 countries, covering 85% of the world’s population, are tasting austerity.

Unlike neoliberalism, many people know its name: Austerity.

It is its meaning that remains mostly unknown, especially its causes. A Google definition makes the point:

“Strict economic policies that a government imposes to control growing public debt.”

Why there is a public debt and why it should be of such importance as to necessitate “strict economic policies” depends on who provides the answer: a neoliberal, or a critic of neoliberalism. The limited scope of this article precludes any elaboration, other than to call on George Monbiot:

“The greater the failure, the more extreme (neoliberalism) becomes. Governments use neoliberal crises as both excuse and opportunity to cut taxes, privatise remaining public services, rip holes in the social safety net, deregulate corporations and re-regulate citizens.”

Many of the political party manifestos for our forthcoming election affirm this link between neoliberalism’s failures and its increased endorsement.

Although the term neoliberalism is unknown to most people, many have multiple experiences with it, daily. Graffiti on a building in Woodstock, Cape Town, captures this reality: “We are dying, but they tell us to vote??”

Dying – both literally and figuratively – is no exaggeration after budget cuts to most services. While doctors and nurses are unemployed, health departments face serious doctor and nurse shortages because they can’t be paid.

People are being killed because they are the “collateral damage” of gang warfare in the absence of police who can’t be employed because of budget cuts.

We now know that 21 young people died in an Eastern Cape liquor tavern in part because budgetary cuts meant that only 21 of 60 liquor licence enforcement inspector posts were filled.

Some learners can’t be taught because there’s no money for teachers, alongside unemployed teachers. And there’s what Stephen Grootes calls the “unbearable cost of living” that bewilders him by not being “an obvious election weapon”.

“Fiscal consolidation” – balanced national budgets – is the imperative behind austerity.

Yet, as Thokozile Madonko and Owen Willcox point out, in a December 2023 Amandla! article, 12 successive years – 13, if we include the 2024 Budget – have failed to achieve fiscal consolidation.

Rather than meeting the neoliberal fixation on a low debt-to-GDP ratio, the government is now saying even harsher austerity is required to meet what it claims to be a serious debt crisis, despite the severe social costs involved.

Hence Madonko and Willcox’s stark conclusion: “It is time to try different approaches.” DM

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