The 1994 unwritten social compact: Why the ANC made mistakes early on and still struggles to correct its course

It’s widely agreed that ANC negotiators mostly outmanoeuvred the apartheid government and got their way in the political talks in 1994, but what about the economic negotiations? 

Populists from Winnie Mandela to Carl Niehaus and Julius Malema blame Nelson Mandela. Mandela, it is now suggested, sold out, maybe even in late-night secret meetings in smoke-filled rooms with Johann Rupert and Harry Oppenheimer.

This claim doesn’t stand up to a careful look at the ANC economic policy teams and their conflicts at the time. I tried to get to the bottom of this story in some articles in the Mail & Guardian in 1998 after I left government. I made a little progress, but the battles inside the ANC were too raw to get a clear-eyed view. 

Since then, some left-leaning economists have conducted the research and concluded that the “secret sell-out” thesis doesn’t stand up. What emerged instead was that ANC leaders were overwhelmed with multiple demands on their time: trying to rebuild the party organisation from scratch, grappling with a Soviet collapse that for some, turned their world upside down, and fearful of what an open ideological debate would do to the ANC’s “big tent” unity so vital to the stability of the newly revived party.

China and Vietnam

There was another major underappreciated factor – the moderating effect on Mandela’s economic thinking of Chinese and Vietnamese leaders. With the Soviet Union gone, the remaining Communist power was China, and China was more than a decade into ideological reforms that would provide the greatest economic boost in history.

Deng Xiaoping began China’s reforms in 1979. They were already producing results, but it would take a while for the world to grasp their scale and significance. In South Africa, in the ANC, the still anti-China Communist Party, Cosatu and other anti-apartheid groups, very few had been exposed to China’s change in thinking, which involved a pragmatic, at times wholesale, shedding of old Stalinist certainties.

Mandela did have one “secret meeting” that confirmed for him the world had changed, and it happened in that bastion of capitalism, Davos. The man who persuaded him that it was safe to resist the left was Chinese Premier Li Peng.

“Madiba had some very interesting meetings in Davos in 1992 with the leaders of the Chinese and Vietnamese communist parties,” Tito Mboweni recalled. “They told him, frankly, as follows: ‘We are currently striving to privatise state enterprises and invite them into our economies. We are communist party governments. You are a national liberation movement. Why are you talking about nationalisation?’ It was those decisive moments which made him think about the need for our movement to seriously rethink the issue.”

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Mosiuoa Lekota has confirmed the influence of Li Peng on Mandela’s thinking.

Li Peng’s points chimed with pressure that the ANC received from business, foreign diplomats and investors, and the multilateral institutions. But the second powerful influence came later when the ANC economics team was overwhelmed by the late apartheid technocrats at Treasury, the SA Reserve Bank and the Council of Economic Advisers, led by finance minister Derek Keyes. 

What South Africa is paying for now is the failure of the ANC and its allies, including within the universities, to open up debate on how massively socialist countries were reversing their ideology to work with the private sector, even while calling it “socialism with Chinese characteristics”. 

A dearth of economic expertise

When Mandela left prison, he was acutely aware that the ANC was light on economic expertise. Within six months of his release, he told a meeting in Canada that the anti-apartheid movement urgently needed a better understanding of South African economic policy issues. As a result, a team of Canadian and African economists was established and concluded that the ANC knowledge and intellectual capacity was “undeveloped and uncoordinated”. They recommended a Macroeconomic Research Group (Merg) to provide research and training. 

The ANC appointed as coordinator of Merg Vella Pillay, a London-based South African economist and a long-time South African communist. But what many did not appreciate was that he had clashed with the SACP because his career was with the Bank of China, where he was already a senior economist, and he was fully aware of the changes in Chinese policy and ideology. 

At one stage, the SACP, which was allied with the Soviet Union, had demanded that he leave the Chinese bank and he had refused. While his document used France and Korea as models, the Soviet Union, for obvious reasons, did not appear as a model.

The Merg document was produced with Cosatu input, but by the time it was published, it was already bypassed. It proposed a two-phase post-apartheid recovery to start with government spending up to the limit recommended by the World Bank – 6% of GDP, laying the groundwork for private investors to drive growth in the second phase.

To achieve these aims, it proposed the creation of a slim, professional civil service, and opposed blanket nationalisation, insisting on a case-by-case assessment of enterprises that should be nationalised or privatised. The Merg approach was that states should work with markets instead of against them. And it aligned with the World Bank in calling for 30% of land to be redistributed to black farmers. 

By the time that the document was published in December 1993, Merg had been sidelined, and Mandela was advised, after a political fight within the ANC, to withdraw agreement to write the foreword. The economics team under Thabo Mbeki began discussions with government – without Merg.

It soon became apparent that the apartheid state had overspent to such an extent that the ANC faced a budget deficit that had soared to 9.3%. This was unsustainable, and required urgent surgery. 

Vishnu Padayachee and Robert van Niekerk (in their book Shadow of Liberation) concluded that the ANC team were “vastly outgunned”.

“We see the ANC economic team as being caught off guard by the speed of events, unevenly trained in modern economic theory and policy, somewhat poorly prepared, inexperienced, possibly daunted by the mathematics, the budgeting process and the accounting, as some informants admitted to us without wishing to be identified by name…

“In the end, this led to their being intellectually seduced in comfortable surroundings and eventually outmanoeuvred by the well-resourced apartheid state and by international and local pro-market-friendly actors. 

“These included NP members in negotiations, South African conglomerates and Western governments and agencies. Cosatu may have been better prepared in some ways, but their power was severely limited by the secretive and closed nature of economic policy debates.”

The sidelining of Merg remains a sore point in some tripartite alliance circles. However, tellingly, at the time, Joe Slovo, the SACP general secretary, took no interest in Merg. 

One remaining Merg recommendation continues to resurface – removing the Reserve Bank’s independence and adding employment creation to its mandate.

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A new social compact

Fast-forward 28 years and President Cyril Ramaphosa is struggling to seal a supposed new social compact to reset the unsettled relations with business and labour. But the difference between what may exist on pieces of paper and the reality on the ground are stark.

An obvious block is a draft proposal for business to make “explicit and clear commitments in meeting the R1-trillion investment target”. Organised business could not keep such a promise. It does not control investment decisions. And years of a “cronyism-or-contempt” ANC relationship with business stands in the way of inducing private sector investment.

This problem affects not only major white-owned businesses, but also black entrepreneurs who are not part of the crony capitalist system built by the ANC. The new generation of rising black professionals who want to create their own companies and futures do not see either the ANC or the Ramaphosa government as sympathetic.  

The Rivonia Circle’s Songezo Zibi touches on the core power relationship. Black professionals’ position “becomes more untenable given the informal alliance between the political elite of the ANC, on the one hand, and the older black executive class that owes its prosperity to the prime of the Mandela and Mbeki years, on the other”. These individuals achieved notable wealth through corporate success or business opportunities that came with the BEE deals of the 1990s and the early 2000s, as well as the Employment Equity Act. 

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In Zibi’s words: “Part of what has sustained the dysfunction visited upon the country by the ANC has been the tacit support of these elites through financial support for the ANC, especially ahead of elections within the party and in national elections. They revel in the special access they have to senior ANC politicians, which affords them the status of seeming insiders in its machinations.

“Some donate legitimately in that their donations are earned in the economy, and their donations are a form of buying influence and proximity to power. Others are nothing more than a conduit for money laundering, either into the ANC or to corrupt officials.

“To varying degrees, these elites have become an obstacle in that they have little or no inclination to support alternative paths to change. The shared interests between themselves and ANC elites are too intertwined for them to support and unscrambling of the egg to propel the country forward in the future, although in private their criticism of the ANC is brutal.”

Professor Ben Turok, the late ANC MP and SACP stalwart, independently reached a surprisingly similar conclusion: BEE was intended to “open the way to a bourgeois class. It was never intended that class should be hegemonic.”

Why is this happening?

What Zibi and Turok have brought to light is essentially the unwritten ANC-elite compact – when a businessperson has a problem, who can get to the right person with the clout and commitment to act, and who can’t? It’s not negotiated at Nedlac. In fact, it may not formally be discussed anywhere. But Zibi recognised it because he moves in circles of younger, up-and-coming professionals who see their good ideas laid waste, and Turok saw it when he tried unsuccessfully to promote discussion of the development ideas that he had studied.

Together, Zibi and Turok offer the best explanation that I can find for the constant failure to implement obvious and necessary policy change. 

We have seen the phenomenon recently in the failure to fix public order policing after Marikana; in the job-creating digital migration being seven years behind schedule even though the roadmap was ready in 2002; in the reasons why mining exploration has all but ceased; and in the foot-dragging on the green economy.

The question is: Why? Why has the post-1994 order constructed primarily by the ANC and its allies been so immune to so many voters’ dreams? 

Though many solutions are difficult, many are not. President Ramaphosa’s energy reforms announced recently are constructive, but one is hard put to find one that wasn’t obvious to experts a decade ago. Now we wait to see if they will be effectively implemented.

There is job-creating investment capital available for green energy, for private rail haulage on unused lines, for mining (including “new economy” minerals) if policy instability is ended. Digital migration, a boon to good, new, above-ground, white-collar jobs resulting from faster, cheaper Wi-Fi, was ready to begin in 2002 – 20 years ago – but remains in the starting blocks in 2022. 

What is it about the 1994 order that fed us leaders impervious to obvious solutions? 

After four years of dramatic and obvious policy failures – Eskom, jobs, health, education, policing, a July unrest following a Marikana, we have to admit: government and the ANC do not learn from mistakes timeously. They do not correct errors. It takes ever-escalating rolling blackouts to produce responses a decade behind their time.

We continually agree to give the state tasks it is unable perform. Then we do it again. The minister of energy proposes a second Eskom despite the overwhelming evidence that the state cannot run Eskom 1. Rinse, cycle, repeat. Neither the state nor the ANC has a realistic grasp of its own capacity.

Errors must be corrected

According to the best evidence-led developmental economist I have found, Stefan Dercon, the need to correct errors timeously and to have a realistic appreciation of the actually existing capacity of the state are two of the three core preconditions for rapid job-creating growth. The third precondition is a stable, functioning polity and security system. 

(His latest book, Gambling on Development, draws heavily on the continent he knows best – Africa.) 

Research by Dercon, and by others, has shown that in practice the ideological certainties of both left and right have not necessarily led to rapid job-creating growth. Such growth is possible when state-led, or in a fully privatised economy, with both strong institutions and weak ones, and in both democratic and authoritarian regimes.

None of these is definitive.

The points made earlier are key. What matters most is to have a realistic, practical appreciation of what a particular state can and cannot do, and to make policy decisions informed by that knowledge. 

Performance has to be checked constantly, but errors must be allowed because development is a series of experiments, though the culture must require constant correction of errors. 

To understand capacity and to correct errors requires listening seriously to business and to experts who have no political influence – only relevant expertise – and to distinguish between job-creating growth options and the current practice of self-interested exploitation. 

With such an understanding shaping policy and practice, we would not have missed the three massive trends of the democratic era – the information boom of the 1990s, the China-led resource boom of the 2000s and the green economy boom since then. 

What Zibi and Turok have exposed is, in fact, the real elite compact that has stifled policy innovation and prevented solutions to some of our core dilemmas. 

It may not be written on paper anywhere, or formalised in one of the president’s famous social compacts, but it is no less real and no less destructive to the future of the country, for all that. DM

John Matisonn, a former senior official in the United Nations in Afghanistan, returned to South Africa and wrote Cyril’s Choices, An Agenda for Reform. He is executive director of Ideas for Africa (Pty) Ltd.

Read Part One here.