While capitalism invites corruption, neoliberalism guarantees it — mainly via outsourcing

Part 3 of a three-part series. Read Part 1 here and Part 2 here.

Part 2 showed the direct links between neoliberalism and the five plagues confronting today’s South Africa: inequality, unemployment, poverty, corruption and austerity.

Neoliberalism’s damage to democracy

The impending election brings us to an important point in George Monbiot’s previously mentioned article (in Parts 1 and 2) where he notes:

“Perhaps the most dangerous impact of neoliberalism is not the economic crises it has caused, but the political crisis. As the domain of the State is reduced, our ability to change the course of our lives through voting also contracts.”

Having observed that governments lose their “moral authority that arises from the delivery of public services”, and that — quoting Pulitzer-prize winner, Chris Hedges — “‘fascist movements build their base not from the politically active but the politically inactive, the ‘losers’ who feel… they have no voice or role to play in the political establishment”, Monbiot concludes:

“When political debate no longer speaks to us, people become responsive instead to slogans, symbols and sensation. To the admirers of Trump, for example, facts and arguments appear irrelevant.”

Two recent Daily Maverick articles address this political cul de sac with the South African May election in mind. The headlines of both unknowingly speak to Monbiot’s alarm at neoliberalism’s political crisis: The one is Nonkululeko Njilo’s “SA youth ‘not apathetic’ but irked by poor delivery, coalitions, independent candidates — report”. The other is Tamsin Metelerkamp’s “SA youth not apathetic but no longer believe elections are best path to change”.

“The best path to change” evokes US writer, Kathleen Wallace’s horror at there being “no collective concern for the wellbeing of others. It’s more of a ‘thank god, I’m not on the street without a home, instead of … what on Earth is wrong and what can we do to fix this mess?’ It’s very much a nation of traumatised and unmoored individuals. Without a sense of community or the notion that your fellow citizens care if you live or die — it’s a hard thing to begin to feel empathy for others yourself. … Things cannot continue as they are…” (also read here).

Abundant alternatives to neoliberalism

Neoliberalism, as capitalism’s current dominant form, is amendable to reform. This doesn’t apply to capitalism. Capitalism, as the system change needed by climate change, requires replacing, in the view of many, including me.

While capitalism invites corruption, neoliberalism guarantees it. In South Africa, this is mainly via outsourcing, which is a major component of BEE, and what in South Africa passes for transformation. Reducing outsourcing to its barest minimum shrinks corruption to where it is barely recognisable.

Yes, this additionally means reforming municipalities and other State organs, where maximising outsourcing is the standard practice. Starting points for the reform include putting affirmative action to bed after 30 years of abusive appointing of people to posts for which they are not suited. The need for post-aligned appointments is at least now publicly seen as an urgent necessity for restoring the State to some acceptable level of functionality.

Another starting point is the burial of the neoliberal god of full cost recovery imposed on all municipalities and SOEs, especially Eskom. It is common knowledge that municipal debt to Eskom grows exponentially, despite government’s policy and direct intervention in a growing number of municipalities.

Read more in Daily Maverick: The dialectic of democracy: Neoliberal capitalism and its populist backlash

As we have already noted, most South Africans are poor. Yet, almost unbelievably, Treasury expects municipalities to reach an electricity collection rate of 80% from April 2024 and 92% from April 2025!

Nonetheless, Eskom, the victim of the death spiral caused by incoherent government policies, is forced to make its electricity increasingly unaffordable to a growing number of South Africans.

This necessitates adding the user-pays principle to the neoliberal coffin. Turning citizens into customers, while simultaneously expecting municipalities to recover most of their costs via the sale of such necessities as electricity and water to their residents, is to further accelerate the rich privatising their electricity and exacerbating the ability of the poor to pay.

For Eskom, this is a double whammy: it must contend with reduced revenue both to keep going and pay off its huge debts.

There are two remedies to these contradictions, both of which require a larger coffin for neoliberalism.

The first is to make electricity a public good provided free by the State to everyone, or to increase its current amount of means-tested electricity of 50kWh per household to 350kWh. The second is to disrupt the market and the sanctity of private wealth by addressing taxes, tax collection, profit shifting and the national debt.

All these things are possible because South Africa, being a rich country, provides multiple and viable sources of raising money in large amounts. The amount is certainly large enough to finance its long-neglected constitutional duty to meet its S27.2 mandate. Namely:

“The State must take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of each these (constitutional) rights.”

In what follows, I draw heavily on the Alternative Information and Development Centre’s (AIDC) Submission to the Select and Standing Committees on Finance, on the 2023 Medium Term Budget Policy Statement of November 2023. I am part of AIDC.

Taxes

There are a number of tax measures available for immediate implementation, along with others over the medium term to raise more revenue. Immediate measures include reviewing the tax incentives benefiting the affluent and major corporations.

These include (a) the medical aid tax deductions that cost the fiscus R28-billion per year; (b) the 1%-point cut in the corporate income tax rate from 2022 needs reversing; and (c) the “inflationary relief” provided every year to high-income earners needs scrapping.

Together, these measures could raise in excess of R50-billion in forgone revenue for the 2023 financial year. Over the medium term, the progressivity of the South African tax system requires enhancing toward a 32% tax-to-GDP ratio, rather than the prevailing 25% tax-to-GDP ratio as prescribed in Gear. A graduated and small wealth tax of between 3% and 7% could raise R140-billion annually.

Tax evasion

SARS needs to restore the skilled staff it lost during the Zuma years. According to SARS commissioner Edward Kieswetter, this means increased revenue, which begins by restoring the R1-billion cut made in 2014-15.

Moreover, rather than the R20-billion cut to its revenue over the current medium-term expenditure framework, it needs a massive revenue injection if it is to raise additional revenue by stopping the previously mentioned R100-billion that annually leaves South Africa in illicit profit shifting. This would be bad news to the rich, accustomed to neoliberal protection.

South African-owned foreign assets

Neoliberalism’s gift of free capital movement allows R1.957-trillion of South African assets legally to be invested abroad. This doesn’t stop the government from imposing austerity on everyone else at home because of alleged money shortages.

Divestment by foreign investors

Besides the interest and dividends paid to these foreign investors, and, in the absence of any regulations, they have legally divested R1-trillion from South African equities and bonds in the previous decade because other markets are more profitable and/or secure.

Debt

The rationale underlying austerity is that South Africa is facing an imminent debt crisis. Challenging neoliberalism shows that South Africa is in fact facing a growth crisis coupled with a devastating social crisis, not a debt crisis.

There is no scientifically agreed ceiling that debt-to-GDP should not exceed to ensure debt sustainability, without being an impediment to economic development. Indeed, the finance company PSG’s chief investment officer, like many others, has pointed out that South Africa’s debt-to-GDP ratio right now is relatively low. Nonetheless, there is a large neoliberal-caused debt to pay off.

How to pay off the debt and finance real development

Apart from the already mentioned small tax increases on the rich and stopping the illicit annual outflow of up to R1-billion, there is also the wealth and financial transaction tax, the latter being a low 0.25%, even when compared to other countries.

And then there are the trillions of rands available, immediately. For close to a decade, the Government Employee Pension Fund has run with annual surpluses of R50-billion after paying pensions and benefits to its members. Indeed, its beneficiaries enjoy a 6% increase in their pensions, as from 1 April 2024.

Thanks to the billions of rands the government pumped into the GEPF, beginning in the early 1990s to make the GEPF “fully funded”, it was valued at R2.3-trillion in 2022, holds 14% of the Treasury’s and 18% of Eskom’s debt. This public entity is by far the largest single creditor of both Eskom and the government, but it is charging the same interest rates as the financial industry on its lending, now reaching over 12% for long-term borrowing.

Instead of taking even more loans from the World Bank and the IMF, and promising to continue with austerity and privatisation, the government could turn to its own public sector partners for the “concessionary lending” that the government speaks about.

In fact, even a one-year moratorium on the government's contribution to the GEPF would raise an additional R50-billion without putting payments of the pensions at risk.

All of these revenue-raising options, among others, including the R150-billion savings if the government were to cut the legally inflated BEE premiums it pays on procurement contracts, highlight that there is no need for harsh austerity measures.

Conclusion

Alas, since I began this three-part article, the emergence of Jacob Zuma’s MK party has changed the political landscape. Hitherto, we could take comfort in the fact that almost uniquely, South Africa has avoided the emergence of neo-fascism. The nearest we had to that was the EFF, which has struggled to get even 10% of the vote.

Stephen Grootes’ article “The King Am I — MK’s incendiary manifesto manifests grinding contempt for SA’s democracy and Constitution”, alerts us to what might be the end of our innocent days. And the Patriotic Alliance’s manifesto is not much better.

Depending on how well these neo-fascists do in next month’s election, my theme in this series — “A better future stunted by impoverished options” — might need updating. A well-supported Zuma (or PA) option could threaten the “better future” most readers of Daily Maverick seek.

It was, perhaps, only a matter of time before the vacuum created by the absence of any Left in South Africa was filled by the Zumas-in-waiting.

Rather than being anywhere paralysed by this prospect, we ought to be further stimulated by it. Even if only some of you are persuaded by the analysis offered in this article, it means more of us will see the urgency of reforming South Africa by making neoliberalism obsolete here.

But this won’t happen on its own. It needs all of us, in our own ways, to challenge austerity and the neoliberalism from which it emerges. By using our energy and passion, a better future still beckons. As Martin Luther King reminds us in his acceptance of the Nobel Peace Prize in 1964:

“I have the audacity to believe that peoples everywhere can have three meals a day for their bodies, education and culture of their minds, and dignity, equality, and freedom for their spirits. I believe that what self-centred men have torn down, men other-centred can build up.” DM