Does the ANC intend to continue the government’s conservative economic policy direction, or even worse, double down and move its economic policies rightwards?
Read Part One here and Part Two here.
If so, the ANC will condemn itself to irrelevance, and disappear as a serious political force. This is the lesson of history. While some may welcome this, we need to think carefully about what the alternative is, and what the impact of the ANC’s decline will be on society.
To understand the reality of the stark choice facing the ANC, we only need to look at the history of the decline of national liberation parties which have lost touch with the people, as well as recent experiences of centrist and previous social democratic parties who have abandoned redistributive economic policies, and embraced neoliberalism.
The former have lost their mantle of liberation movements, and been reduced to the status of minor political players. The latter have been wiped out in many countries in Europe and elsewhere, and are increasingly being replaced by a wave of economic conservatism and right-wing populism.
Despite all the signs being there for some time, there were two major “shocks” in these elections: the collapse in support for the ANC and the collapse in voter turnout, reflecting widespread disillusionment with our democracy.
What lies at the root of the shock election results and the ANC’s dismal performance? Fundamentally, the results are about the failure of the past three decades of economic policies, which have not succeeded in structurally transforming the economy, but instead have deepened inequalities and unemployment, and failed to address poverty and hunger in society.
Periods of modest improvement (such as the mid-2000s) were achieved despite these policies, and indeed because of their partial relaxation. Although successive ANC governments have conscientiously implemented the economic policies advised by financial institutions and markets, particularly on macroeconomic policies, these policies have failed on all significant social and economic metrics, and plunged us into a low growth trap.
The stayaway can be understood as a protest vote, but also reflects a level of alienation and disillusionment with democracy that is troubling.
The devastating social legacy that has resulted is reflected not only in the collapse of the ANC’s electoral support, but also the mass stayaway of the ANC’s traditional constituency from the elections. This is not surprising given crises facing potential voters, such as persistent, structural youth unemployment, the gender-based violence “epidemic” facing women and girls, collapsing infrastructure and public services, and growing hunger and poverty. The crises in society have affected all strata, particularly working-class and middle-class black voters, among whom the stayaway figures were highest.
Our democracy is in crisis
The figures are shocking: only 40% of eligible voters voted (versus 86% in 1994), or only 16.2 million out of 40 million potential voters actually cast their vote. Further, between four and five million voters who previously voted for the ANC failed to vote for them in this election. While some of these voted for ANC breakaways, particularly the MK party, many of them simply stayed away.
The stayaway can be understood as a protest vote, but also reflects a level of alienation and disillusionment with democracy that is troubling, especially when coupled with a survey that found a clear majority of adults would support authoritarian rule, if it delivered people’s needs.
https://public.flourish.studio/visualisation/18162132/
According to an article in Daily Maverick, a 2023 HSRC survey of voters found that political discontent and disillusionment “emerged as the main reason for electoral abstention”. When asked what their main reason would be for not voting if the national elections were held tomorrow, 81% had responded, “disillusionment”. Trust in political parties was at 17%.
Professor Schulz-Herzenberg states in the article: “We are suffering from a massive trust deficit when it comes to politicians and political parties, and therefore our low turnout levels are not a function of complacency or satisfaction – they are a function of a disconnect in representation and accountability”.
This also suggests that an increasingly large number of people feel that none of the parties represents their interests, and there is therefore a vacuum in political representation, particularly by parties of the left and working class.
This simply means that our political system is progressively losing legitimacy. It doesn’t take an expert to work out that the vast majority of people did not participate in elections, because they see no prospect of improvement in their lives with stagnant wages, rising cost of living, rising unemployment, and rising hunger and rising poverty, and without a viable political alternative they trust.
These trends raise critical questions about the future of our democracy, as well as social cohesion, and development. The underlying crises giving rise to these trends mean that without a change in direction, particularly on economic policy, this trajectory will deepen. We therefore need a decisive shift, not only to address socioeconomic conditions, but also to build and deepen our democracy.
The emergence of right-wing populism
The multiple socioeconomic crises in South Africa are giving rise to pathologies that mirror those of other societies facing deep economic and social stress. The country, which has a strong tradition of progressive left working-class activism, is now seeing the alarming emergence of right-wing populist elements. This is both reflected in majority black political parties, such as MK, ActionSA and the Patriotic Alliance, as well as within parties, including the ANC, which is experiencing a rise in xenophobia.
The disturbing shift to ethnic chauvinism and quasi-feudalism, xenophobia, misogyny and other right-wing populist pathologies is a challenge for all progressives, and a symptom of deep socioeconomic stresses in the country. But such trends are not unique to South Africa. The answer to such developments is not to condemn the “backwardness” of ordinary people supporting such views, but to advance coherent alternatives, on issues such as employment, immigration and other questions which lie at the root of people’s attraction to such ideas. Second, to implement economic policies which combat the social stress people are experiencing, and which offer real improvements in their lives, in employment, income, living standards, and so forth.
Recently, renowned progressive economists gathered for a Berlin Summit to address the question of alternatives to right-wing populism, and issued a declaration setting out some of these. They state:
“Liberal democracies are today confronted with a wave of popular distrust in their ability to serve the majority of their citizens and solve the multiple crises that threaten our future. This threatens to lead us into a world of dangerous populist policies exploiting the anger without addressing the real risks, ranging from climate change to unbearable inequalities, or major global conflicts. To avert major damages to humanity and the planet, we must urgently get to the root causes of people’s resentment.”
What are the key elements of the ANC’s economic legacy?
“(The South African government) is paralysed by caution.”
This statement by renowned economist Professor Ha-Joon Chang succinctly sums up the democratic government’s posture on economic policy after 1994.
Fear of international markets in an era of hyper-globalisation, and the rolling back of the state’s role in the economy, led in significant part to the displacement of the ANC’s social democratic economic development programme (the RDP), and the introduction of a conservative World Bank-inspired macroeconomic programme (GEAR) in 1996. Without going into the history of economic policymaking in South Africa, this essentially, with minor modifications, laid the basis for the government’s economic policy stance over the past 30 years.
Over the past 15 years this conservative fiscal stance has progressively morphed into full-blown austerity, despite denials of its existence by the economic establishment.
National Treasury has since then doggedly and dogmatically pursued this policy paradigm with total commitment, irrespective of changes in international economic thinking, or South African realities. Stripped to its essence, this paradigm entailed reducing the economic role of the state and the public service, liberalisation and deregulation, the achievement of arbitrarily determined macroeconomic targets, such as deficit and debt ratios, and the associated spending cuts.
Contractionary fiscal policies (stagnation or cutting of spending and investment in real per capita terms) were combined with contractionary monetary policies (involving the use of high real interest rates) leading to the choking of economic activity and the suppression of growth. This has led to what economists call procyclical economic policies which deepen economic contractions. This has been the general trend, but of course there have been some periods of limited deviation from the strict application of this economic paradigm, often as a result of resistance (such as from organised labour) and as a result of contestation within the governing party and the state.
There was a period in the early 2000s, after the formal ending of the GEAR programme, of mildly expansionary macroeconomic policies – the relaxation of monetary policy combined with a moderately expansionary fiscal policy – which allowed for greater growth and employment, although at too low a level, and insufficiently inclusive, to address our structural crises, or reduce inequality.
The commodities boom played a significant role in this, but such a boom by itself is not enough to produce these results without supportive macro policies – as we saw in 2021-23 where a commodities boom was not accompanied by similar results, because of procyclical macroeconomic policies which deepened economic stagnation.
Over the past 15 years this conservative fiscal stance has progressively morphed into full-blown austerity, despite denials of its existence by the economic establishment. Even the cautious Public Economy Project at Wits, led by the former head of Treasury’s budget office, has argued that there have been three phases of austerity, and characterises the latest phase as “permanent”.
This fiscal stance driven by Treasury has been compounded by an equally contractionary stance driven by the SA Reserve Bank. The use of high real interest rates, while beneficial to the financial sector and financial speculators, has been devastating for the real economy, making it too expensive for businesses and individuals to borrow and invest in productive capacity or small businesses. This has had an extremely negative effect on investment, economic development and employment.
The result of this economic policy is the highest unemployment rate globally.
South African unemployment (narrow definition) 1994-2022. (www.macrotrends.net)
Budget cutbacks have had multiple impacts contributing to deteriorating public services in critical areas including education, health, social security and policing. Austerity simply means that while historic spending levels are already inadequate, cutbacks result in even less money being spent on every child, every patient, and every community member, leading to a crisis in key public services.
To illustrate the effect of this, an IEJ submission to Parliament on the MTEF in November 2023 points out that in the medium term (over the next three years), the government aims to decrease real spending on basic education and healthcare by R16-billion and R14-billion respectively. This means spending per enrolled pupil will fall, in real terms, from R25,387 in 2022/23 to R23,363 in 2026/27. It also means that while each public healthcare recipient was receiving an average of R5,326 in 2022/23, by 2026/27 this will fall to R4,525 in real terms.
The impact of these cutbacks is also clearly evident in undermining of key public institutions, most recently in the elections with an underresourced Electoral Commission which battled to execute its mandate, the understaffing and resultant undercapacity in the National Prosecuting Authority to fight crime and corruption, and many others. This is in stark contrast to the strong performance of the South African Revenue Service, which is relatively better resourced and thus better able to exercise its mandate. These “savings” therefore come at a huge cost.
It is clear that state capture over the past decade has massively worsened the impact of these misguided policies, but it would be a mistake to think that the hollowing-out of state capacity is only the result of corruption and state capture. The dysfunctionality of state-owned enterprises, while accelerated by state capture, was in part the result of lack of investment in these companies, flowing directly from the macroeconomic stance of the government. The now infamous example of the (since retracted) apology by President Thabo Mbeki for refusing to invest in expanding Eskom’s capacity, and the failed strategy of corporatisation, severely undermined an enterprise then rated as the top electricity utility in the world.
Equally, the impact of developmental policies adopted by the government, particularly since the early 2000s, including expanding social security, activist industrial policy and worker-friendly labour market interventions, has been severely constrained, and often frustrated by the impact of contractionary macro policies, and has led to deep contradictions within the government and ANC policy.
Narratives attempting to justify conservative macroeconomic policy
Attempts to justify austerity economics have been taken to extremes. Some even deny, in the face of all evidence, that austerity exists. Others (the Reserve Bank, Treasury and their associated economists) claim that public spending doesn’t work because it has negative multipliers, meaning in crude terms that it adds less to the economy than the amount spent. This is contradicted both by the evidence and common sense. Research by the IMF and São Paulo University show, for example, that investment in social protection has particularly high economic multipliers in unequal societies such as ours; and recent research on public employment in South Africa also indicated positive impacts. Treasury opposition to public investment strangely contradicts its emphasis on the importance of developing economic infrastructure, but supports its privatisation agenda.
In the face of the extremely damaging effects of these misguided economic policies, Treasury and the economic establishment regularly trot out various mantras in an attempt to justify their stance. Statements about so-called fiscal prudence, lowering or capping debt, reducing consumption, achieving a budget surplus, and so on, often seem to the ordinary person to be attractive and common sense, compared with the economic pressures on households. But the state is not a household.
In reality these economic strategies achieve the opposite of what is claimed by their proponents: they result in reckless cutting of public services; they increase the risk profile of the country because of unsustainable social distress; they reduce growth, and make it more difficult to contain debt:GDP levels; they unnecessarily waste resources on the financial markets, and hollow out the real economy. The list goes on. These policies are a recipe for a downward economic spiral and social instability. This is the reality we have witnessed over the past three decades!
Not only has the ANC government not adopted a socialist policy position on the economy, it has not even advanced a social democratic approach.
Despite the government’s clear track record of economic conservatism over three decades, and despite all evidence to the contrary, much of the financial media has convinced itself that the ANC government has taken radical economic positions.
For example in responding to an article by Duma Gqubule, which says the ANC has betrayed its values and moved too far to the right in terms of economic policy, Tim Cohen claims the government has perpetrated “failed left wing calamities”, bizarrely compares their economic policies to the Chinese cultural revolution, and baldly asserts: “(Gqubule’s claim) is just bonkers. Nobody in mainstream economics – left, right or centre – could ever claim the ANC is economically right-wing.” (Leaving aside the fact that this distorts Gqubule’s position, you can move rightwards from a left position and land in the centre. Cohen advances no evidence for the view that policies of the ANC government have been left wing, as he asserts). His position nevertheless reflects the view of much of the financial commentariat in the mainstream media.
A more accurate and honest reflection is presented by Carol Paton, herself a fierce critic of government policy, who praises the economic conservatism of the ANC in government. She states: “The hallmark of ANC rule for three decades has been pragmatic and orthodox fiscal policy.” And reflects the views of analysts that “the ANC had never embarked on a spending spree in an election year.” She also notes, correctly: “The ANC has a history of taking radical resolutions at its conferences, which the government has repeatedly failed to implement… (Further) “the ANC has for 30 years fielded smart, pragmatic, and authoritative finance ministers (sic). They have been key to steering the ship based on economic orthodoxy.” Nevertheless she worries that recent resolutions of the ANC will lead to a change in direction, and asks: “Can the finance ministry hold off the populists forever?”
Analysts need to challenge how political ideologies and positions are characterised – not only has the ANC government not adopted a socialist policy position on the economy, it has not even advanced a social democratic approach. The DA itself is a market fundamentalist right-wing party, as it has demonstrated in the positions it has taken in the recent elections.
We need to oppose all forms of anti-constitutionalism
Parties of the right, including the DA, claim to be constitutionalists, but their support for the Constitution doesn’t stand scrutiny. As Professor Thuli Madonsela suggested recently, they are in effect economic anti-constitutionalists: They oppose key aspects of the Constitution, including action to redress historical injustices, and most importantly they propose economic policies, and rules (such as fiscal ceilings and binding deficit targets, regardless of economic realities), which make it impossible to give effect to the constitutional requirements on socioeconomic rights.
This raises serious alarm bells around the implications of a party like the DA being in government.
The concerted push to shift the ANC even further rightwards on economic policy will only deepen its crisis.
One only needs to read sections 26 to 29 of the Constitution which require the government to progressively realise everybody’s right to housing, health, food, water, social security and education, to understand that these rights will be positively prevented by the DA’s economic paradigm. Nor indeed can these rights be realised within Treasury’s economic policies which the government has pursued for the past 30 years. The DA and other parties of the right, if given the power, would double down on these policies which go against the spirit of the Constitution.
DA proposals to impose arbitrary macroeconomic targets; to impose a debt ceiling; to cut back current expenditure – all of which they advance as preconditions for participating in a coalition government or GNU – would plunge South Africa into a Greek-type economic crisis, if implemented. It would destroy growth, deepen poverty, slash public services and increase inequality and unemployment, despite DA claims to the contrary. This is the international evidence on the impact of policies they propose.
What are the alternatives?
The concerted push to shift the ANC even further rightwards on economic policy will only deepen its crisis, and decisively destroy its prospects of recovering its previous position as the leading political force in society. More importantly, in the absence of a viable alternative, it would threaten to destabilise society, and give way to chaotic and unpredictable forces which would not be in the interests of ordinary working-class or poor people. We see this spectre unfolding in real time in KwaZulu-Natal and elsewhere.
The current political instability and uncertainty around coalition arrangements make it difficult for the ANC to shift course. But it is absolutely critical for it to do so, if it is to rise to this moment. The historical parallel that comes to mind was the choice that President Lula of Brazil made in his second term, when he was faced with unprecedented political pressure: instead of retreating, he made a decisive shift to embrace developmental economic policies. This is what became known as the Lula Moment.
Central to this shift has to be the realisation that the adoption of appropriate macroeconomic policies is critical if we are to meet these challenges. Protestations by Treasury and the Reserve Bank that they are powerless to make an impact through the use of fiscal and monetary policy instruments, are self-serving, and ring hollow.
There is broad acceptance internationally that these are the most powerful levers in the hands of the state. Coordinated fiscal and monetary policy interventions have been at the core of the highly successful stimulus in the US (“Bidenomics”), which has spurred economic growth and employment on a massive scale; similarly the employment of pro-growth Chinese economic strategies; economic policies being pursued by the current administration in Brazil and so on. But we have a terror of boldness on this front. And we will be told that South Africa is too small an economy, or too dependent to adopt such strategies.
This is nonsense.
The ANC is faced with a choice: double down on failed economic policies, or boldly shift direction to embrace developmental economic policies which have a proven track record.
There is the need for a shift which addresses both elements of our current economic crisis, and the associated political economy:
- Developmental interventions which unleash inclusive economic growth and employment;
- Which open avenues for economic activity, currently closed off, that are not dependent on the state for illegitimate economic accumulation.
It is not possible now to go into the type of economic package that is needed. I have set out a proposal on what such a package could look like here.
In brief, it is proposed to introduce a package of economic measures which Stabilise, Stimulate and Structurally Transform the economy in a carefully sequenced manner.
It is important to use fiscal policy to mobilise the resources to introduce high-impact interventions, such as basic income, which stimulate economic activity in depressed communities, and generate broader economic demand and production; critical interventions to fix strategic areas of state capacity; mobilising resources and capacity to repair and defend infrastructure; and so on. This needs to be coupled with a shift in monetary policy to spur investment.
Such interventions should aim to get the wheels of the economy moving and restore confidence. Other interventions will take longer to roll out, including new infrastructure projects, and diversification of the economy.
We need to keep our strategies focused, carefully sequenced and realistic, while ensuring we approach our challenges with the necessary boldness.
Much is made of the economic limitations we face, with some even making the ludicrous claim that “we have run out of money”. There are no doubt serious challenges, but bold and creative thinking will enable us to mobilise resources and make high-impact interventions, with the necessary political will and imagination. The Institute for Economic Justice has outlined proposals to do this, and as a result of these Treasury has inter alia mobilised R150-billion from the GFECRA fund, which it had previously claimed to be unavailable.
The assumption is that business would be opposed to the type of shifts being proposed here. No doubt some sections of business would, but there is a strong business case for these alternative perspectives, including the fact that such an approach would create a large demand stimulus across the economy; build important infrastructure, and state capacity; stabilise society; and generate opportunities to invest in a broader range of productive activities.
Implications for political coalitions
“It’s the economy, stupid” (Bill Clinton’s adviser talking about the 1992 US elections).
In the smoke, mirrors and heat of the current moment, it can easily be lost that the core of coalition discussions is not so much about palace politics and the scramble for positions, but more about South Africa’s economic trajectory, and the type of state we will become.
It is therefore not surprising that key economic actors in the state, organised business, the financial media, and even ratings agencies such as Fitch, are extremely active in trying to influence the negotiations, and jostling for the soul of the South African economy.
It is significant that even the Treasury DG, supposedly an aloof technocrat, above political contestation, has weighed in on the debate, stating: “A balanced macro-fiscal stance becomes more defensible in an uncertain political environment.” This implies that Treasury thinks that the political circumstances of coalition instability will allow them to be more assertive in advancing their policies. This may well be true, and is a matter of serious concern.
Current discussions have raised a multiplicity of political options including the GNU, coalitions or a minority government. Coalition options presented to the public represent two problematic poles:
- Doubling down on failed macroeconomic policies, which will worsen our many socioeconomic crises. This is what the DA proposes, and needs to be rejected, irrespective of whether some type of agreement is reached with them; and
- The threat to reverse attempts to renew the state, and to further entrench parasitic elites feeding from the public trough. This is what the MK party promises, and this must equally be resisted.
It should be common sense that neither of these alternatives are acceptable. We should also acknowledge that there is a connection between these scenarios. They are two sides of the same coin.
To combat these scenarios, any coalition arrangement needs to put in place instruments to advance a new development agenda (such as more focused mandates for the Reserve Bank and Treasury, which require them to focus on development and employment); as well as fighting corruption and state capture (such as drastic minimum sentencing for stealing public resources, and cracking down on both public- and private-sector bad actors).
The trillion-rand question is whether the political arrangements which emerge allow, indeed require, the ANC to steer away from these twin challenges, and whether it can facilitate the emergence of new development policies, stabilise society, combat corruption and rebuild the state.
Any political arrangements that are reached need to be judged on the basis of these criteria. DM
Disclaimer: This series of articles is written in my personal capacity.