Economic apartheid by Institute for Economic and Social Upliftment

Neoliberalism and Economic Justice in South Africa: Revisiting the Debate on Economic Apartheid.

Geoffrey E. Schneider

REVIEW OF SOCIAL ECONOMY, VOL. LXI, NO. 1, MARCH 2003

Neoliberalism and Economic Justice in South Africa: Revisiting g the Debate on Economic Apartheid Geoffrey E. Schneider Bucknell University gschnedr@bucknell.edu

Abstract Although the political environment in South Africa is vastly improved, economic apartheid still exists: the economic divisions along racial lines created by apartheid are still in place today. Despite these divisions, neoliberal economists continue to press for a largely unregulated market system, which is unlikely to improve the lives of most black South Africans. This paper documents the role neoliberal economic theory has played and is continuing to play in frustrating and opposing fundamental change in the distribution of land, income and assets in South Africa. Neoliberal policies stem from an ideological attachment to free markets, rather than a substantive analysis of how market forces play out in an unequal society like that in South Africa. By choosing to focus on narrowly defined economic criteria such as GDP growth and allocative efficiency, neoliberal economists marginalize the vast problems created by inequality and poverty and thus overlook the potential benefits of a redistributive strategy. Neoliberal economic policies have been installed in South Africa by the ANC via GEAR and other policy initiatives, but these policies have made little progress in solving South Africa’s economic problems. Keywords:

Apartheid, neoliberalism, economic theory, South Africa

INTRODUCTION How many times has the liberation movement worked together with workers and at the moment of victory betrayed the workers? There are many examples of that in the world. It is only if workers strengthen their organization before and after liberation that you can win. If you relax your vigilance you will ﬁnd that your sacriﬁces have

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been in vain. You just support the ANC only as far as it delivers the goods. If the ANC government does not deliver the goods, you must do to it what you have done to the apartheid regime. (Nelson Mandela, address to the Congress of South African Trade Unions 1993)

A debate raged in the 1970s about the relationship between capitalism, racial inequality, and apartheid.1 One of the most provocative salvos in that debate came from Kantor and Kenny, in their 1976 article “The Poverty of Neo-Marxism.” In this article, Kantor and Kenny (1976: 39) argued that “industrialization has certain inevitable consequences. … There will have to be increased physical and social mobility for blacks, employment will to an increasing extent have to be based on achievement and not inherited status, and so on.” In other words, market pressures will inevitably erode the racial inequalities that exist in South Africa. With the advent of neoliberal economic policies in South Africa, courtesy of the African National Congress (ANC), it is a particularly important time to assess neoliberal theories and policies. Despite recent political improvements, South Africa is still in danger off widespread unrest brought on by the continued presence of economic inequality along racial lines. This inequality was created under apartheid, which amounted to a system of racial capitalism under which black economic activity was severely restricted and black wages were kept artiﬁcially low while white workers and white businesses prospered. Although apartheid-era laws limiting black mobility and black voting rights have been removed, “economic” apartheid is being perpetuated in part through neoliberal economic policies. The ideology of apartheid, which kept the races separate and unequal, is being replaced by the ideology of the market, which is helping to preserve that inequality. South African neoliberal economists are using abstract economic theory to justify the preservation off economic apartheid. Neoliberals dismiss suggestions for the redistribution of land, income and assets as a “dangerous fantasy,” and Africans are being told over and over again that South Africa is not rich enough to support widespread redistribution and an expansion of basic services to all citizens.2 Yet Y et black South Africans, who have so far been admirably patient as they waitt for substantive economic changes, have legitimate claims for redistribution, restitution and reparations. This paper will documentt the role neoliberal economic theory has played and is continuing to play in opposing the redistribution of land, income and assets in South Africa. I argue thatt this stance is based fundamentally

1 For a comprehensive study of the debate over the relationship capitalism and apartheid, see Schneider (1997). 2 See, for instance, Moll (1991).

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on ideology and not on substantive analysis, stemming in particular from neoliberal economists’ penchant to ignore the problems created by inequality and their pursuit of narrowly defined economic goals and criteria. By ignoring the social costs of inequality, in particular the instability created by an economy which does not effectively serve the majority of the population, neoliberal economists abstract from reality and ignore the economic benefits that could stem from developing an economy from the bottom up. In the first part of this paper I document early (neo)liberalism in South Africa and its somewhat ambiguous attitudes towards redistribution and affirmative action. Subsequently, I survey current neoliberal attitudes in South Africa, analyzing the role neoliberal economic theory is playing in opposing the substantial redistribution of land, assets and income in contemporary South Africa. The ANC has successfully brought comprehensive neoliberal economic policy to South Africa, something generations of neoliberal economists were unable to do underr apartheid, bbutt so far these policies have failed to benefit most black South Africans. EARLY LIBERALISM IN SOUTH AFRICA Prior to 1970, South African liberals generally opposed apartheid but had somewhat ambiguous attitudes towards racial segregation. In the 1930s and 1940s, many South African liberals, including R. F. A. Hoernlé, the director of the South African Institute of Race Relations and a leading liberal philosopher, viewed racial separation as a possible solution to South Africa’s racial problems.3 Many also advocated gradually phasing in voting and economic rights as blacks became detribalized, instead of supporting full rights for blacks. Martin Legassick (1976: 237) concludes that “liberals acted to reproduce the particular racially differentiated structures of South African capitalism.” Hence the neo-Marxist criticism that liberals generally supported the status quo in South Africa, whereas “it was the Communist Party and African nationalist organizations which were the most articulate exponents of democratization” (Legassick 1976: 239). Thus from its early foundations, South African liberalism was paternalistic, segregationist, and somewhat ambiguous towards expanding rights to Africans. W. H. HUTT AND THE INDUSTRIALIZATION THESIS W. H. Hutt, an influential and polemical South African liberal, was quite critical of apartheid. As an economic libertarian with absolute faith in the powers of the free market, Hutt’s solutions to apartheid evolved along lines that were unacceptable to 3 See Rich (1984) for a detailed discussion of liberal views on segregationism.

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most blacks in South Africa.4 For example, Hutt viewed apartheid as inefficient and anti-capitalist.5 The discrimination inherent in apartheid was an attempt on the part of white labor to preserve economic privileges; the fact that discrimination occurred along racial lines was incidental to the South African case. “The chieff source of color discrimination is, I suggest, to be found in the natural determination to defend economic privilege, non-Whites simply happening to be the essentially underprivileged groups in South Africa” (Hutt 1964: 27). To Hutt, capitalists must have generally opposed apartheid because legally enforced discrimination created a shortage of black skilled labor and increased the costs off production. This belief was not based on empirical observation (and has been contradicted by both liberal and non-liberal scholarship), but instead was a productt of his ideological views about the functioning of markets. Hutt’s faith in the redistributive powers of the free market led him to conclude that no redistribution of any kind was necessary in South Africa: all that was necessary was the elimination of apartheid restrictions and the free market would tend to equalize incomes. Eliminating minimum wages and freeing up labor markets (to allow blacks to enter reserved professions) would cause privileged, white workers’ wages to fall, while Africans who previously were excluded from work would now find work and see higher incomes (Hutt 1986a). Hutt’s belief in consumer sovereignty, where consumers buy a product for the best value, regardless of who produces it, and producer sovereignty, where rivalrous competition prevents racism because firms must produce at least cost, allows him to conclude that “competition is essentially an equalitarian force” because it hinders discrimination (Hutt 1964: 175). Hutt thought that the elimination of apartheid restrictions would benefit black South Africans more than other groups since, as the cheapest laborers, they should be the first hired after the restrictive apartheid labor laws were repealed.6 4 There are two strains of liberalism in South Africa. A conservative, libertarian strain is prevalent in parts of the business community and in certain academic circles. A moderate, reformist strain of liberalism also exists in many universities, basing its intellectual foundations on the work of Rawls and Sen instead of Hutt and Friedman. 5 In much of the pre-1980 literature on South Africa there is a tendency to lump all capitalists into one or a few groups. While this is an oversimplification, to convey a sense of the kind of scholarship that South African economists engaged in I have used the term capital as it was used by South African authors. 6 In order for this analysis to hold, Hutt must be assuming that no significant human capital differences exist between races or that human capital differences will be eliminated rapidly. Given the vast differences in access to education, this seems unrealistic in anything but the extremely long run. Data from South Africa suggest that the black share of income has increased somewhat since 1970, but also that wage gaps within the black community have increased (see Sherer 2000). This implies that some blacks indeed benefited from the relaxation of apartheid, but others have not yet profited and may not for some time. Further, it implies that Hutt’s analysis is incorrect, or at best incomplete, in that the blacks with the most human capital have benefited most, while those at the very bottom have benefited least.

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Since competition was an equalitarian force to Hutt, he opposed any restrictions to competition, including labor unions. Instead of improving the lot of blacks, Hutt believed labor unions increased wages for the few but hurt blacks as a group due to higher business costs and decreased hiring. “Virtually the only legislative provisions which have facilitated the rise of the Africans in the economic sphere have been those which have prohibited or otherwise hindered their right to strike” (Hutt 1964: 108).7 This view was particularly unattractive to black Africans who thought organization along union lines was their only hope to wring concessions from the government. Many liberals also found Hutt’s views too extreme.8 Yet views very similar to Hutt’s on the functioning of markets and discrimination, state instrumentalism, and capitalism and apartheid pervade much of the libertarian camp of modern South African neoliberalism. Hutt’s nearly complete absolution of business owners’ responsibility forr apartheid and his opposition to the redistribution of assets caused a good deal off criticism from many groups, including the Black Consciousness Movement and the neo-Marxists. N Neo-Marxists were especially effective in criticizing Hutt and other liberals as apologists for the status quo, and in the process they struck a chord with black nationalist movements seeking to eliminate apartheid.9 The effectiveness of the neo-Marxist critique caused significant changes in liberal thought in South Africa. “Liberal scholars, responding to the neo-Marxist critique, have slowly begun to refurbish their traditional conceptual tools, making, in the process, significant acknowledgments of the usefulness of class perspectives” (Welsh 1987: 185). One of the most obvious results has been that neoliberals admit the culpability of some capitalists in apartheid’s exploitation and recognize the benefits that affirmative action and limited redistribution might have on a polarized society like that in South Africa. Nevertheless, contemporary neoliberals in South Africa still believe fundamentally in the free functioning of markets as the key to economic development and to helping black South Africans. MERLE LIPTON’S NEOLIBERAL VIEW OF APARTHEID Merle Lipton, a contemporary neoliberal economist, attempted the same kind of comprehensive analysis of apartheid that Hutt undertook, and she corroborated many of Hutt’s findings. Yet she explicitly acknowledged the hand that mine 7 There is a long tradition in the literature on apartheid of using the word “African” when referring to black South Africans. This stems from the apartheid-era government’s racial classifications and not from any bias on the part of the authors. 8 For instance, see Nieuwenhuysen (1965), Lipton (1985) and Butler and Schreuder (1987). 9 The neo-Marxist critique began around 1970. See especially Johnstone (1970), Wolpe (1970) and Legassick (1975). On the connection between neo-Marxists and black nationalism, see van den Berghe (1979: 2).

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owners and white farmers had in establishing apartheid and the benefits which these groups received as a result of apartheid. According to Lipton, apartheid was functional for white agriculture and mining because it created large supplies of cheap, unskilled labor. The abundance of unskilled labor was beneficial for many businesses until rapid growth in the South African economy in the 1960s and 1970s resulted in the increasing prominence of manufacturing and services, sectors more dependent on skilled labor. Technological advances in mining and agriculture increased the need for skilled labor in these sectors as well. As the importance of skilled labor grew, apartheid restrictions which prevented blacks from working in skilled jobs became increasingly costly to businesses. Thus Lipton confirmed Hutt’s thesis that apartheid was costly to virtually all businesses, while admitting that apartheid was once beneficial for some of them. Lipton also agreed with Hutt’s contention that economic growth was the primary factor contributing to the erosion of apartheid. Hutt (1964: 82) argued thatt economic growth helped to undermine apartheid by expanding opportunities for blacks and forcing businesses to circumvent apartheid labor restrictions in orderr to increase output. Lipton (1985: 310) concurred, adding that growth strengthened black workers as well as capital-intensive employers who needed skilled labor, two groups that were pressing for change. It is certainly reasonable to argue that economic growth undermined certain apartheid policies, including pass laws and influx control, as blacks flocked to the cities and employers circumvented labor restrictions.10 However, it is quite another matter to argue that apartheid was inefficient and uneconomic. When the path of erosion of apartheid from 1970 is compared with GDP growth rates, a different picture emerges. As Table 1 below indicates, South Africa’s economic growth rates were high in the 1950s and 1960s under severe repression, while growth rates slipped in the late 1970s and 1980s when apartheid was being eroded. Furthermore, the fact that economic growth was high in South Africa throughout the 1960s and early 1970s despite apartheid restrictions demonstrates that apartheid could not have been too costly and restrictive for businesses. In addition, the relaxation of specific apartheid policies is different from the destruction of economic apartheid. If the goal of whites was to preserve their high standard of living, then allowing some apartheid policies to lapse in order to preserve economic growth while allocating greater rights to blacks to quell unrest are rational actions taken in an effort to preserve the economic status of whites. Thus, the move away from apartheid and toward a free market philosophy can be seen as an effort to preserve economic apartheid instead of as part of the elimination of apartheid.

10 This fact is acknowledged by F. W. de Klerk (1999: 73).

3.8 4.8 4.2 3.5 – 4.5

1950–1960 4.1 5.3 5.3 5.2 – 6.5

1960–1965 4.7 6.3 4.8 4.8 5.3 5.8

3.8 6.0 3.2 4.4 3.6 4.1

4.3 4.8 3.3 3.2 3.6 2.9

5.8 1.6 2.4 1.1 2.4 1.1

5.9 2.0 3.4 2.5 3.4 1.8

7.4 0.9 1.9 2.1 2.2 1.2

1965–1970 1970–1975 1975–1980 1980–1985 1985–1990 1990–1996

Sources: World Bank (1998) and Reserve Bank of South Africa. South Africa also is included in the middle-income group.

Low income Middle income High income (OECD) Sub-Saharan Africa World South Africa

Year

Table 1: Annual Growth in Real GDP, South Africa and the rest of the world (%)

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Lipton also discounted the role played by the black resistance and international sanctions in the collapse of apartheid. While market forces no doubt played some role in undermining certain apartheid restrictions, Lipton’s exaggeration of the role of markets in eroding apartheid demonstrates the ideological character of her work. F. W. de Klerk (1999) acknowledged that slow growth and mounting unrest reinforced pressures for reform coming from within the Afrikaner community. Such reform pressures were muted when the apartheid economy was performing well. De Klerk himself admits his support for grand apartheid “until I finally concluded … that, if pursued, it would bring disaster to all the peoples of our country—including my own” (de Klerk 1999: xviii–ix). The militant struggle off anti-apartheid activists, including strikes and boycotts, clearly was one of the factors contributing to the erosion of apartheid. f Similarly, sanctions had a substantial economic effect on South Africa which contributed to reform efforts. It is estimated that sanctions reduced the South African economy’s economic growth by about 1.5 percent per year in the 1980s and early 1990s (de Klerk 1999: 70). Financial sanctions and reductions in direct foreign investment (due to sanctions and domestic unrest) were particularly costly (Carim et al. 1999). A more balanced assessment of the factors behind the erosion of apartheid would include sanctions, external pressures, fissures within the Afrikaner community, intractable economic problems, civil unrest, and the end off the cold war.11 Nevertheless, by acknowledging the benefits of apartheid for some businesses, most notably the advantages of access to cheap, unskilled labor, trade protection and security, Lipton improved on Hutt’s analysis. These benefits were countered by thee shortage of skilled labor and the cost of maintaining the elaborate apartheid apparatus (Lipton 1985: 7). Thus businesses were not affected uniformly by apartheid. Labor-intensive industries tended to support apartheid while capitalintensive and skilled-labor-intensive industries tended to oppose it. Hutt (1964) along with Horwitz (1967) ignored the former in their efforts to paint all capitalists as anti-apartheid reformers. To Hutt, capital opposed apartheid because of its costs; to Lipton (1985: 119–120), business owners supported government efforts to maintain order and lower costs but opposed measures that increased their costs. In order to show that business owners and managers generally came to oppose apartheid, Lipton (1985: 179) argued that “the influence of [political stability] declined as the political costs of apartheid rose and it became a source of tension imperiling the stability it was supposed to protect.” Since apartheid’s costs 11 See Crawford and Klotz (1999) for a comprehensive review of the factors that contributed to the fall of apartheid, especially Neta Crawford’s chapter “Trump Card or Theater?”

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increased due to the skilled labor shortage and political unrest, there was little reason for any businessperson to continue their support for the apartheid government. “The rising political costs of apartheid were to be seen in the radicalization of young blacks, who were turning to Marxism and particularly black consciousness, and in the alienation of the black middle class and elite, whom capitalists regarded as their potential allies” (Lipton 1985: 231). Here Lipton implies that violence on the part of black militants was successful since it raised the political stakes and increased the cost to businesses of supporting the government, although Lipton prefers to credit economic growth with the demise of apartheid. Lipton (1985: 365) then combined elements of Hutt’s analysis with class analysis to conclude that apartheid’s origins can be found in the complex interaction between class interests and racism, reinforced by security factors. It is only when ethnic and class elements combined that discrimination occurred in South Africa. When class and ethnic interests diverged, apartheid was eroded. “[E]conomic growth and “Afrikaners First” policies gradually transformed white labor into a bureaucracy and created a group of Afrikaans urban and mining capitalists, who came to share the interest of other employers in eroding apartheid. These diverging class interests eventually tore apart the nationalist alliance” (Lipton 1985: 281).12 Thus economic factors dominated ethnic factors when the two conﬂicted.13 This conclusion is strikingly similar to that off Hutt, who believed that economic ffactors are the sole reason for discrimination. B But Lipton’s analysis is both more complex and less dogmatic, allowing for a small but independent role for ethnic factors in her analysis. Nevertheless, once again we are left with a neoliberal scholar who concludes that apartheid was inefﬁcient and antithetical to economic growth, despite some inconsistencies with available evidence. This allows Lipton to propose that free markets created by the removal of apartheid restrictions are a viable solution to South Africa’s economic crisis, as opposed to fundamental redistribution of income and assets.

12 Lipton overlooks D. O’Meara’s (1983) cogent analysis of the economic roots of the apartheid movement within the Afrikaner community. O’Meara demonstrates conclusively that apartheid was orchestrated by Afrikaner business and ﬁnancial interests, but the economic interests behind apartheid were masked by the religious and ideological components of the apartheid platform. 13 If white Afrikaners did indeed change classes under apartheid, becoming bureaucrats and capitalists, then white resistance to the 1994 elections in South Africa must have come from the few remaining white laborers and white bureaucrats who feared they would lose their jobs under the postapartheid government. Another possibility is that whites feared the appropriation of land and assets under the new government. Either way, economic factors prompted some whites to oppose the elimination of apartheid and the elections. This contradicts Lipton’s argument that economic factors caused whites to oppose apartheid. Such blanket generalizations are not warranted.

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AN OVERVIEW OF NEOLIBERAL ATTITUDES EXISTING PRIOR TO MANDELA’S RELEASE Neoliberals such as Lipton preserved many of the basic tenets of the libertarianism espoused by Hutt. Some liberals such as U.S. economist Walter Williams (1982, 1989) echoed virtually all of Hutt’s arguments.14 Most South African liberals preserved some of Hutt’s analysis and discarded the most polemical. The aspects of Hutt’s analysis almost universally present in neoliberalism include the following: 11) the free market is efficient; 2) free markets inhibit racism and help blacks in South Africa; 33) the state is an instrument used to benefit the groups who control it; 4) growth undermines racial discrimination; 5) economic factors outweigh other factors like security and racism; 6) some of apartheid’s measures may have been based upon good intentions; and 7) most business people did not support apartheid and they were not primarily responsible for its installation. These tenets are given fuller discussion in what follows below. 1) The most consistent principle present in all neoliberal work is the notion that thee free f market is efficient. For example,, Archer (1987: 348) argued that the fear off ffailure and of individual material and moral loss is necessary for efficiency. Even those neoliberals who admit that a democratic socialist government might be good for South Africa want to preserve some aspects of a market system due to its efficiency.15 “Markets are integral to a redistributive strategy, on grounds of their efficiency and consistency with ends broadly socialist. Market instruments do not imply embodiment in market-driven private-property systems” (Archer 1987: 348). However, a frequently cited corollary to the neoliberal argument that markets are efficient is that the removal of market restrictions will generate growth and improve equality, making government redistribution less essential (Simkins 1987: 235). 2) Neoliberals also believe that, via competition, free markets inhibit racism and help blacks in South Africa. Like Hutt, neoliberals believe the “discipline of the market” limits discrimination (Bromberger and Hughes 1987: 213). According to this line of argument, blacks have benefited tremendously from capitalism in South Africa (as evidenced by the higher standard of living for South African blacks when compared with other blacks in southern Africa), and now that apartheid restrictions have been eliminated they will benefit even more. However, by focusing on income alone, this argument obscures the fact that blacks in South

14 Williams even agrees with some of Hutt’s more radical ideas, such as the notion that minimum wage laws in South Africa hurt Africans the most. Representatives of the IMF recently echoed this argument. 15 Efficiency in the South African neoliberal context refers to allocative efficiency, not other measures of efficiency such as Keynesian and Schumpeterian.

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Africa fare very poorly when other factors, such as life expectancy, rates of adultt literacy, and infant mortality, are considered, as Table 2 below demonstrates. 3) In keeping with neoliberal interest group theory, the state is viewed as an instrument used to benefit the groups that control it. For example, Jill Nattrass (1987: 354) argued that “It is virtually certain that people who find they have political power but lack economic muscle will use the former to seek to gain the latter.” Neoliberals accused the National Party of catering to white labor, white agriculture and Afrikaners during the apartheid era. Similarly, the ANC is criticized for acquiescing to the demands of organized black labor and various tribal interests. According to liberals from Hutt to the present, the only way to prevent such abuses is to limit the power of the state.16 Furthermore, running a country efficiently is difficult, especially given the vast state apparatus that exists in South Africa. Since “the technical problems of coordinating an economy are … formidable,” Archer (1987: 344) agued that the ANC should choose a decentralization of authority, devolution of decision-making, legitimation of enterprising activity, and equilibration of social need with availability through the market mechanism. In other words, the ANC-led government should abandon any notion of nationalization, redistribution and the expansion of the state for the wonders off the market. As we will see below, this is exactly what the ANC did. 4) Like Lipton and Hutt, neoliberals contended that it was the pressures created by economic growth that destroyed apartheid, and that growth tends to undermine racial discrimination by increasing the demand for black labor and providing more opportunities for blacks.17 5) Similarly, although neoliberals are not as preoccupied with economic factors as Hutt, they generally conclude that economic factors outweigh other Table 2: Selected Social Indicators in South Africa in the 1980s

Life expectancy at birth (years) Rates of adult literacy (percent) Infant mortality (Deaths per 1,000 live births)

White

Colored

Asian

Black

69.5 99.3 13.2

58.6 84.5 57.5

65.5 92.4 17.4

58.5 67.0 57.4

Source: Lachman (1992).

16 Evidently working on ways to insure an effective state apparatus is inconceivable or impossible. 17 See T. Moll (1991) and Louw and Kendall (1986) for examples of the argument that growth will help end racial disparities better than attempts at redistribution.

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(racial/ethnic) factors. In order to argue that whites discarded apartheid willingly, neoliberals must prove apartheid lowered prosperity, and that prosperity and an uncertain future was more acceptable to whites than the racism and security provided by apartheid. Hutt and Lipton devoted many pages to the argument that apartheid reduced prosperity due to labor market restrictions, despite the extraordinary growth South Africa experienced from 1950 to 1975 under apartheid. Correspondingly, Bromberger (1974: 104) argued that whites would “trade security for increased prosperity on the margin.” And Lipton and Hutt both argued that racism was an attempt to preserve economic privilege. By placing prosperity above other interests, neoliberals were able to conclude that whites must have discarded the apartheid system because it reduced affluence below the level that a free market system would Whilee the argument that apartheid eventually became inefficient has some produce. W merit, it is difficult to disentangle this effect from other factors responsible forr declining white affluence in the latter stages of apartheid, including black militancy and international sanctions (see p. 30 above).18 6) Neoliberals also claimed that some of apartheid’s measures might have been based on good intentions. Not all of apartheid’s policies were intentionally racist. Bromberger and Hughes (1987: 209) argued that if seizures of land, pass laws and influx controls are ignored, African reserves (Bantustans) could be justified as a device to slow the transition to a modern economy. Such views are similar to the paternalistic attitudes of early South African liberals. However, Burawoy (1981) counters that the transition to a modern economy had already occurred by the 1940s, making the creation of the reserves under apartheid an act of repression instead of a paternalistic attempt to preserve native culture. Along similar lines, Michael O’Dowd (1974: 34) believed that South Africa was not particularly unequal or unjust for its level of development: “Injustice of the kind which exists in South Africa is not merely normal in a developing economy, it is absolutely universal and if not inevitable has certainly never yet been avoided.” O’Dowd’s argument is unconvincing, however, given that in 1975 the Gini coefficient for South Africa was measured at 0.68, which was higher than the Gini coefficient for any economy for which household income data was available.19 Under apartheid, South Africa was the most unequal society on earth.

18 In most neoliberal theory on this topic, black militancy and sanctions are viewed as factors that prolonged apartheid by reducing economic growth, thereby mitigating certain pressures for change (such as urbanization and increasing black incomes). However, if unrest and sanctions are viewed as additional inefﬁciencies created by apartheid, neoliberal theory would be better able to explain the demise of apartheid during the slump from 1975–1994 when the South African economy shrank by 0.6 percent. 19 Typically, western economies have Gini coefﬁcients ranging from 0.31 to 0.40.

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7) Generally, liberals place most of the blame for apartheid on Afrikaners, especially those Afrikaners making up white labor, white agriculture and the National Party.20 According to neoliberals, most business owners did not support apartheid, and they were not primarily responsible for its installation. Yet Johnstone (1976) and O’Meara (1983) clearly document the connections between racist government policies and segments of the English and Afrikaner business community, especially mining magnates. This then leads to the neo-Marxistt argument that the redistribution of wealth accumulated under apartheid is a moral imperative necessary to restore South African wealth to the once-oppressed part off the population. While neoliberals did preserve many of Hutt’s ideas, they also adapted their position in response to the neo-Marxist critique. Allegations of the mutually supportive roles of white domination and capitalism were ﬁrst enunciated by neoMarxists around 1970, after the strong economic growth of the 1960s (Bromberger and Hughes 1987: 222–223). Neo-Marxists argued that the system of racial capitalism in South Africa actually generated prosperity for whites and poverty for blacks. The underdevelopment of the African reserves was a key condition of the development of mining and agriculture in South Africa, and all sectors of the economy depended on the exploitation and cheap labor provided by apartheid (Wolpe 1972). Under apartheid, the market directly and indirectly biased economic processes towards whites, and because of biased processes, inequality in South Africa increased over time. The goal of apartheid was white economic supremacy, and growth simply reinforced inequality by generating more wealth and power for whites (Johnstone 1976: 136). Neoliberals dismissed these arguments, preferring the standard liberal claims that growth eroded apartheid and that the state and white labor promoted apartheid while most business people did not. Terence Moll (1990) even attempted to prove that South Africa’s spectacular economic growth under apartheid was not particularly unusual by comparing South Africa to other developing countries.21 Other neoliberals such as Bromberger (1974, 1977) and Lipton (1985) argued that South Africa’s growth would have been even higher without apartheid, although

20 It is interesting to note here that most of the liberals and neoliberals have been of English background. Instead of blaming English capitalists for apartheid, as the Marxists do, they blame Afrikaners for almost all of apartheid’s ills. Neoliberals like Lipton are less likely to place all of the blame on Afrikaners, but still generally conclude that Afrikaner labor and agriculture were the sectors primarily responsible for apartheid. 21 It is clear from table one that South Africa’s economic growth was extremely strong during the implementation of apartheid in the 1950s and 1960s, so it is difﬁcult to maintain that apartheid slowed economic growth under all circumstances.

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this argument is impossible to substantiate and is based entirely on the ideological assumption that unregulated market forces invariably generate greater growth than regulated markets. In spite of their disagreement over the relationship between apartheid and growth, the neo-Marxists influenced other neoliberal views. Most notably, the solutions that neoliberals propose to the problems created by apartheid take into account black aspirations more than ever before. Initially, neoliberals attempted to identify exactly why blacks and Afrikaners had rejected liberalism in South Africa. Dickie-Clark (1979: 50) proposed four main reasons: 1) exploitation was too easy and too profitable for whites to be interested in liberalism; 2) the non-violent emphasis of liberals did not attract blacks; 3) the liberal abhorrence of communism prevented ties with the ANC because the ANC welcomed communists; and 4) liberalism’s support of qualified franchise as a transitional step towards full democracy and lack of support for boycotts and passive resistance further alienated blacks. In order to become more relevant in the debate on South Africa’s future, neoliberals began to address black demands more directly. For example, the neoliberal response to black demands for redistribution and justice was a concentrated effort to lower black expectations and to promote the market system as an alternative to socialism under which blacks would be better off. Archer (1987), Nattrass (1987) and Simkins (1987) all argued that South Africa could not possibly afford all of the things the ANC wanted in the Freedom Charter. “Extensive recourse to the tax-transfer mechanism is not possible unless there is fat in the system. To be more egalitarian under capitalism, you must be rich first” (Archer 1987: 338). While rich by African standards, neoliberals did not believe South Africa was rich enough to consider extensive transfers. Meanwhile, neoliberals promoted the efficiency of capitalism and decentralization while denigrating socialism and central planning. But just in case the postapartheid government eventually chose a socialist system, neoliberals argued that the preservation of some market mechanisms was necessary to make a democratic economy viable. “One does not have to buy the ideological baggage of idealized markets, private property, and adherence to individualist goals: … a price system and some market institutions are necessary for efficient allocation” (Archer 1987: 345). The key is making a distinction between the allocative and distributive functions of the market system (Archer 1987: 348). Neoliberal support of market socialism should in no way be confused with wholehearted advocacy of such a system. Neoliberals still favor capitalism and private ownership because they tend to “foster the liberal values of freedom, equality, prosperity and justice” (Butler et al. 1987: 7). But while capitalism is viewed as the best means to achieve the wealth necessary for a just society, 36

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laissez-faire capitalism is not the central neoliberal value, nor is the rule of law designed to perpetuate the status quo (Butler et al. 1987: 13). One of the most striking results of the neo-Marxist critique is the increasing emphasis on distributive justice found in reformist neoliberalism. Cooper (1991a) argues that welfare economics and libertarianism is dominated by a Paretian dogma which ignores distributive justice.22 Neoliberals who accept social justice as an important goal acknowledge the usefulness of afﬁrmative action and the redistribution of land and assets in improving distributive justice. Cooper (1991a: 67) maintains that conservative politics is responsible forr the “ideology of the market being developed to take the place of apartheid ideology.” The libertarianism of Hutt has been co-opted by Afrikaners and business interests, causing problems for reformist neoliberals in the process. Expressing his disagreement with libertarianism in the South African context, Cooper (1991a: 64) argues that “acceptance of Paretianism and the free market philosophy implies support for the distributional status quo. This inherent conservatism is incompatible with liberal principles… .” However, some neoliberals who acknowledge the importance of distributive jjustice ustice assert that economic growth is more important. F For Archer (1987: 349) the key strategic question for the ANC is “What economic arrangements will bestt allow the pursuit of equity without jeopardizing long-term growth?” Growth and efﬁciency take priority over distributive justice. Another trend in neoliberalism is the shift away from individualism toward a more explicit recognition of group rights. Dickie-Clark (1979: 52) argued that neoliberals tend to overemphasize individualism to such an extent that “liberalism has come to regard as universal certain human needs and characteristics which, in fact, are displayed only by the ‘detribalized’.” The movement away from individualism is especially apparent in several proposals that called for a decentralized government as the only governmental structure that adequately addresses group rights. Decentralized governments were advocated by libertarians such as Louw and Kendall (1986) as well as Afrikaner and Zulu leaders who wanted autonomy from the central government during the negotiations preceding the 1994 elections. Meanwhile, other neoliberals advocated quite different types of governmental arrangements. Political conservatives, following Hutt’s proposals, wanted unregulated markets and property rights. Political liberals making up the reformist wing

22 Melck (1991) responds that welfare economics is static and theoretically neutral. The free market approach relies on growth to make everyone better off. Cooper (1991b) replies that we should not put efﬁciency and growth above equity, and that the distribution of the gains from growth will be unequal.

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of neoliberalism in South Africa instead emphasized limited redistribution, moderate affirmative action, and a regulated market system. The only common aspects of the neoliberal proposals for post-apartheid South Africa seem to be the advocacy of freedom, democracy, and market mechanisms. These characteristics of neoliberal thought in South Africa have carried over into current debates over redistribution. The more dogmatic libertarians argue againstt extensive redistribution and emphasize the growth and efficiency of market-based solutions. Other neoliberals want to see redistribution, but only in such a way that does not fundamentally alter property rights and private enterprise. Thus neoliberal economic theorists continue to oppose distributive justice on the grounds of economic efficiency.

NEOLIBERALISM SINCE MANDELA’S RELEASE FROM PRISON Since Nelson Mandela’s release from prison in 1990, neoliberal South African economists have been addressing the concepts of redistribution and affirmative action with increasing urgency. Consistent with previous views, they stress efficiency, stability and incentives, which they argue are necessary for economic growth. Throughout the recent neoliberal literature on South Africa is the call for more investment, and measures to restore investor confidence through the stabilization of property rights, the enforcement of contracts, and the removal of uncertainties (Lipton and Simkins 1993: 29). The role that redistribution plays within the context of these traditional liberal aims varies from individual to individual. One of the most contentious debates in contemporary South Africa surrounds the issue off land reform. Under apartheid, blacks were forcibly removed from theirr land under the various land acts that pushed blacks onto the 14 percent of South Africa defined as black homelands.23 Some black lands were seized as recently as 1984. Due to the legalistic nature of apartheid, in many cases immaculate records were kept detailing which blacks owned land before these removals. Thus substantial restitution of land is possible, but for liberals Baber and Nieuwoudt (1992: 217), “restitution should neither destroy the productive potential of the agricultural sector, nor the ability of the economy to grow. This places a definite limit on the number of possible claims for restitution which could be justly met.” Similarly, resettlement efforts should be targeted at those who have the most potential, based on “their commitment to agriculture, farming ability, potential

23 These land acts include the Natives Land Act of 1913, the Natives Trust and Land Act of 1936, and the Group Areas Act of 1966.

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productivity, and the provision of capital” (Baber and Nieuwoudt 1992: 216). Thus land reform is an explicit goal of South African neoliberals, but it must nott compromise food production, and it should be based on efficiency rather than equity. As Hughes (1993: 70) argued, “In South Africa making non-skilled persons into owners will do little damage if they become mere passive shareholders, but not if they are powerful proprietors.” Given their unabashed support for market-based solutions, the neoliberal argument against the restitution of land to its rightful owners is conspicuously inconsistent. If markets work so wonderfully, it should not matter who owns the The owner will either use the land productively or she/he will sell it or rent land. T it to someone who will, given the incentives provided by a free market in land and agricultural goods. Thus arguing against restitution is implicitly arguing against a market-based solution given the nature of African society, where traditional tenure arrangements and affection for the possession of land might dictate less than optimal land use. Ironically, while neoliberals argue that land should not be redistributed to blacks because it would compromise agricultural efficiency, Lipton (1993: 364) notes that labor-intensive smallholder African agriculture is an efficient and low cost method of providing jobs. Since African smallholders use significantly more labor on smaller plots of land, their yields are often just as efficient as larger, more capital-intensive farms, especially given the large pool of unemployed laborers. Yet in the same article Lipton (1993: 401) advocated redistribution to those who Y wish to farm over restitution to those who were thrown off their land. In order to maintain the legitimacy of property rights and current production levels, Lipton prefers the costs of land redistribution to be borne by the state, and not by those who abided by apartheid laws and benefited from the apartheid system.224 Thus an explicit repudiation of the effectiveness of traditional economic incentives leaves neoliberals to conclude that redistribution will damage efficiency in South Africa and must be done in a way that puts efficiency ahead of justice! The lack of an agricultural tradition within the black community in which surplus food is produced for the market points to a larger flaw in neoliberal analysis. Since black market institutions were suppressed under apartheid, there is

24 In fact, the ANC’s Reconstruction and Development Program (RDP) adopted just such a program. “The RDP committed the ANC to aiming at the transfer of 30 percent of farmland to black smallholders by 1999; principally existing state land at ﬁrst, and then secondly land repossessed from indebted white farmers … rather than through land expropriation” (Porter and Phillips-Howard 1997: 192). But “It is now clear that the national land reform program will take considerable time to implement and that land redistribution across South Africa will be far more restricted than many originally hoped” (Porter and Phillips-Howard 1997: 192).

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little entrepreneurial tradition in much of the black community. To argue that market-based solutions will operate efficiently and effectively in South Africa completely ignores the historical-institutional characteristics of much of the South African economy. Even modest proposals for state-led redistribution are significantly more generous than those proposed by market aficionados, who prefer simply to eliminate subsidies for white agriculture and let blacks freely purchase land from whites in formerly reserved areas. Under this free market approach, the redistribution of land will occur naturally in the absence of restrictive apartheid regulations. The intellectual heirs to W. H. Hutt, businessmen and libertarians argue that state-led redistribution runs the danger of being politically co-opted in addition to compromising agricultural efficiency. But it is unlikely that there will be significant market-based redistribution given existing inequalities of income, opportunity and education, so it is difficult to imagine any significant change in ownership under such a plan any time soon. In the Reconstruction and Development Program (RDP), the ANC (1991, 1992) argued that restitution was necessary in order to establish the legitimacy of property rights and that 30 percent of decent agricultural land should be redistributed within five years of free elections. Meanwhile, other groups such as the Pan Africanist Congress (PAC) and the South African Communist Party (SACP) wanted to go even further, calling for radical redistribution or even expropriation without compensation (Lipton 1993: 364). It is difficult to reconcile the meager white offerings with the opinions of black leaders, and since blacks continue to question the legitimacy of existing property rights, this could be a significant source of future problems for the government and for neoliberal economists.25 Nevertheless, the ANC redistributed less than 1 percent of decent agricultural land in its first term in office, demonstrating the extent to which they have backed off their call for significant redistribution. r Similar debates exist over the minimum wage. As part of their redistribution with growth philosophy, the ANC pushed for a higher minimum wage, hoping that “a new larger market would be created for food, clothes, cars and many otherr consumer goods” (P. Moll 1991: 81). P Peter Moll (1991: 81) counters that this approach “ignores the problem of enforcement and the problem of the slack labor market.” Because of enforcement difficulties, the minimum wage can only be applied to large, formal sector workers, who are already unionized and better off than informal sector workers and rural residents. In addition, Peter Moll 25 Indeed, a poll conducted in 2000 in black South African townships by the Sunday Independent newspaper indicated that 54 percent of residents supported Zimbabwe war veterans’ invasion of white land (Nevin 2000).

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(1991: 81–82) argues that in the long run such wage increases will result in less job creation and more capital-intensive production. On the opposite side, trade unions like COSATU argue for a high minimum wage on the grounds of justice and demand-led economic growth in a nation in which black demand has been systematically undermined, something Hutt alluded to in 1964. COSATU also is concerned about certain provisions in the constitution allowing firms to hire replacement workers in place of strikers. In 1996 they went on strike to protest this provision and lobbied for its removal from the constitution that was being negotiated at the time. As COSATU’s deputy secretary Zwelinzima Vavi noted, conservatives and businesses want to “entrench inequality, to entrench the consequences of colonialism” (Maykuth 1996). While critics cite the highly organized nature of South African labor and their relatively high wage rates, it is also important to recognize the “extreme concentration of ownership and the monopolistic and oligopolistic structure of much of the South African economy” (Lipton and Simkins 1993: 29). In fact, the top five conglomerates in South Africa control 80 percent of the companies on the Johannesburg Stock Exchange. This is the byproduct of years of exchange controls which kept money in South Africa, as well as international divestment policies which allowed South African companies to snap up foreign interests (Gerson 1993: 164). Thus in South Africa, the countervailing power of the unions seems essential in promoting the interests of black workers. South Africa’s extreme level of industrial concentration also may warrant significant anti-trust efforts, but the ANC has yet to address this issue substantively. The affirmative action debate centers on the perceived problems with affirmative action in the U.S. and elsewhere. Here again, the arguments are ideological in nature and most neoliberal theorists side with market advocates who say that affirmative action creates inefficiency. Again, as is unique in South Africa, market proponents acknowledge the need for limited affirmative action in the face of black demands, whereas their counterparts in the U.S. want affirmative action abolished completely. For example, Kenneth Hughes (1993: 69) argued that South Africa should use a more moderate form of affirmative action than has been tried in the U.S., using racial criteria only as a tie breaker and making job offers based on individual achievement and potential, not simply racial criteria. He hoped that adding “potential” to the job criteria would correct problems created by poorer black education and opportunity. Regardless, it seems unlikely that neoliberal proposals for very limited affirmative action would alter the opportunities available to blacks significantly. Privatization debates evolve along similar lines. Members of the ANC considered nationalization to be a viable redistributive option until as late as 1991, while market proponents wanted to privatize existing parastatals, although often in 41

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a way that would benefit blacks.26 Blacks could be given shares of the companies, which could then be sold to private investors (Reekie 1993: 130). The ANC also argued originally for a “growth through redistribution” approach which sought to expand the demand side of the economy and to cater to the needs T of the poor. Terence Moll (1991, 1993) responded that this approach was built upon the assumption that spare capacity in the economy can be utilized in response to the increase in demand; thus in the South African case, redistribution might actually increase efficiency. Moll disagreed with this argument, worrying that this approach would lead to unsustainable macroeconomic policies. Instead, he preferred a supply-centered approach that would shift resources, assets and income directly to the poor without increasing government expenditure. In fact, Moll opposed virtually all policies which could stifle the market, with the exception of restrictions on capital flows, which he felt were necessary to stabilize capital markets. Moll’s defense of his stance rested on the performance of similar programs in Latin America, which generated temporary booms but long-term macroeconomic problems. Whether or not a more effective approach could be designed for South Africa remains in question. A redistributive approach that also targeted supply considerations through the promotion of small businesses and the provision of extension services and education could have significant positive effects on the poor and on the development of black-owned business. Furthermore, given the high unemployment rate and recent production cutbacks, it also seems that spare capacity currently does exist in the South African economy. And such reliance on economic growth to end the disparities created by apartheid seems misplaced given that internationally, “Higher rates of economic growth do not correspond neatly with reduced intergroup disparity…” (Darity and Nembhard 2000: 308). THE ANC’S GEAR STRATEGY AND THE WORLD BANK The Government of National Unity’s (GNU) attempts to implement the RDP were opposed from the beginning by neoliberal forces both internationally and within South Africa.27 As Adams (1997: 241) notes, Even before the ANC assumed governmental office, South African business had set about the process of diluting the RDP, while overseas agencies such as the

26 The ANC ofﬁcially moved away from their advocacy of nationalization in 1990. This occurred after the Johannesburg Stock Exchange plummeted in response to a statement by Nelson Mandela that he still considered the nationalization of the mines, banks and monopoly industries a possibility. In 1991, Joe Slovo and the SACP followed suit. 27 The Government of National Unity includes three political groups that worked together to overthrow apartheid: the ANC, the SACP and COSATU.

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International Monetary Fund and the World Bank adopted a “carrot and stick” approach, hinting that if too radical a social policy was adopted by the GNU this would be frowned upon internationally (meaning no loans). As a result, in a unipolar world of seemingly all-powerful market forces, even by the time of the ANCled government’s ﬁrst post-apartheid budget there was a subtle, but nonetheless discernible, shift away from state intervention and towards an RDP driven by private-sector growth.

Despite some rumblings of dissent, the ANC’s partners in the GNU, COSATU and the SACP, initially went along with the movement towards neoliberalism in an effort to promote national unity and to advance the idea that government could work with businesses for the betterment of all. The connection between the GNU and various business interests has grown even closer of late, as evidenced by the ANC’s adoption of GEAR. In June of 1996, the ANC developed the “Growth, Employment and Redistribution” (GEAR) strategy, its first macroeconomic policy paper, to address the South African economy’s macroeconomic problems. T This move was prompted by an alarming collapse in the value of the rand and a decline in investor confidence. According to Gevisser (1997: 24), GEAR “has embraced the market economy as the National Party never did, and the ANC is privatizing the assets that its predecessors so jealously guarded.” GEAR is based on standard neoliberal economic principles, with the key policies being deficit reduction, low inflation, trade liberalization, privatization, tax cuts, and deregulation. Part of the alliance between the GNU and business interests stems, ironically, from an affirmative action program that awards state contracts to companies that either are run by blacks or are in partnership with black entrepreneurs. Gevisser (1997: 25) notes that this program has created a black bourgeoisie that contains many of the leaders of the GNU: Almost every COSATU-affiliated union, and even the Communist Party itself, has set up an investment company. It has been, without a doubt, one of the quietest and most profound revolutions of post-apartheid South Africa: not just that former militants … have become captains of industry, but that the ideology of this transformation is so radical a departure from traditional labor values.

This “labor capitalism” has created some bizarre contradictions. For example, the National Union of Mineworkers was forced to negotiate retrenchments with a mining house that it controlled on behalf of its workers (Gevisser 1997: 26). The recent neoliberalism of the GNU has wormed its way into South Africa through what Patrick Bond (1997) terms a “back-door Structural Adjustment Program.” Before the election of 1994, the ANC was openly hostile to the 43

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neoliberal policies of the IMF and the World Bank. But GEAR was developed with the help of World Bank economists, and the World Bank has been extremely inﬂuential in directing the GNU’s macroeconomic policies: Indeed in both urban and rural South Africa, two major Bank research reports – regarding municipal infrastructure in 1994–5 and economic strategy in 1996 – have generated as much chaos and misery as do Bank loans and formal Structural Adjustment Programs elsewhere in the Third World. This is also true in most areas of South African social policy advice (land reform, housing, education, health, welfare), wheree the Bank has dogmatically recommended market-oriented solutions to problems created both by apartheid and South African capitalism’s extraordinary inequality. (Bond 1997)

For example, with regard to electricity and water projects, the World Bank has advocated the provision of these services only to those who can afford to pay, without regard for “the positive effect of uniform water and electricity standards upon public health, labor productivity, employment or geographical (racial and class) integration. … Since poor people often can’t pay—at free market rates— the Bank’s solution was to deny people access to water-borne sanitation and give them pit latrines instead” (Bond 1997). Rioting broke out in July of 1997 in the black townships near Johannesburg over power and water cuts. Because the poor residents of these townships could not pay their bills, access to electricity and water was reduced. “The catalyst for the ﬁrst South African “IMF riots”—as they are termed elsewhere—was a combination of two policies, urban and macroeconomic, drawn up by Bank advisors…” (Bond 1997). The two policies that led to these riots were 1) the movement to market-based allocation of water and electricity, and 2) the overall contraction of government and tight monetary policy promoted by the World Bank through GEAR. A Along with the rioters, various members of the ANC, SACP and COSATU are increasingly disillusioned with GEAR. COSATU was so upset with GEAR’s effects that they staged a general strike on May 10, 2000 to protest jjob ob losses and rising poverty. Despite the promises of neoliberal economists, GEAR and other neoliberal policies have done little to improve the performance of the South African economy, especially as far as blacks are concerned. The currency stabilized temporarily and investor conﬁdence initially was restored. But interest rates did not fall as predicted, and the Rand faced a renewed exchange crisis in 1998, devaluing 25 percent in less than a month. Although black income as a share of GDP rose from 30% to 36% from 1991 to 1996, “almost all of this increase occurred among the top 10 percent of black earners, while poorer blacks actually experienced

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a decline in income” (Barrell 2000).28 In fact, the poorest 40 percent of blackk households experienced a decline in income of 20 percent during this period, and inequality is increasing in South Africa. Budlender (2000) reports that the Gini coefficient for pay in South Africa increased from 0.73 in 1995 to 0.80 in 1998. In 2000, black average disposable income per person was only 14.9 percent of that of whites (van Wyk 2001). Similarly, in 2000 the official black unemployment rate was 31.6 percent, 4.6 times greater than the white unemployment rate of 6.8 percent.29 Studies indicate that the South African economy shed at least 500,000 jobs from 1994 to 1999 (Saul 2001: 21). A recent paper by Sherer (2000) demonstrates that racial discrimination, which was declining until 1994, has increased since 1995. So neoliberal policies have not eroded discrimination as neoliberals predicted. Meanwhile, government efforts to improve black housing and education, to provide greater access to clean water and health, and to redistribute land have improved the lives of black South Africans, but these programs have been very limited in scope and vast disparities still exist. In 1996, only 27% of blacks had access to clean water compared with 95% of whites (Central Statistical Service of South Africa, 1998), and the ANC’s emphasis on fiscal conservatism has limited the extent to which such services can be expanded. In general, neoliberal policies promoted by the World Bank and adopted by the ANC have helped black elites but have done little for the black majority while largely preserving the status quo. As Patrick Bond (2000: 183–184) observed, “ “Aside perhaps from … Democratic Party politicians, there were probably no more effective advocates for the interests of rich white South Africans in postB apartheid South Africa than the quiet, smooth bureaucrats of the World Bank.” But much of the blame must be placed on the ANC, which (1) stuck firmly with GEAR despite its failure to meet almost all of its targets (most notably growth off GDP, investment, exports, and the protection of the value of the Rand), (2) engaged in draconian fiscal conservatism and cut social programs, thereby hurting the poor, while bending over backwards to repay apartheid-era debt, (3)) maintained a regressive Value Added Tax on basic goods while giving tax breaks to the (4 facilitated capital flight and exchange rate instability through financial rich, (4) market liberalization, (5) allowed the Reserve Bank to keep interest rates high to safe-guard financial markets, without regard to the effects on employment, and

28 When white emigration is factored in the increase in the black share of national income is less impressive. The Economist (2001) reported that 234,000 (mostly white) people emigrated from South Africa from 1989–1997. 29 An expanded unemployment rate that includes anyone who has taken active steps to look for work in the last month stands at 41.2 percent for blacks and 10.1 percent for whites.

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(6) reduced tariffs rapidly, resulting in massive deindustrialization and job loss (Bond 2000: 217–218). A whole host of groups, many that were allied with the ANC during the liberation struggle, are now openly critical of the pace off redistribution and reform. Despite its successes in recent elections, the ANC may be in danger of erosion in its political base if it maintains neoliberal economic policies and continues the slow pace of redistribution. CONCLUSION As this brief survey of liberal and neoliberal economic theory indicates, South African neoliberal economists continue to extol the virtues of the free market, even in the face of the failure of existing market-based policies, based on the supposed efficiency of the market. What is different in South Africa is that, with the ANC in power, free marketeers must address the needs of blacks, something which rarely happens in the United States. The result has been a moderation off neoliberal views that attempts to preserve economic efficiency while proposing limited redistribution. Ironically, the ANC has been able to bring a moderate version of neoliberalism to South Africa where business leaders and neoliberal economists failed for decades.30 The neoliberal approach conveniently places efficiency ahead of justice while simultaneously resting on unconvincing economic theory. The lack of legitimacy reflected in the current distribution of income and assets in South Africa is a real danger to the market in South Africa. True legitimacy comes from the support off all citizens. Until recently, the ANC-led government had legitimacy due to the U reverence and widespread support for Nelson Mandela. It is difficult to imagine that support remaining behind Thabo Mbeki if he continues to promote neoliberal economic policies and if these policies continue to leave most Africans behind. Mbeki himself seems to realize this, referring to a “mounting rage” in the blackk T community in response to the slow pace of change in a 1998 speech (Time International 1998). As Nelson Mandela himself observed, if the ANC does not International “deliver the goods” and eliminate economic apartheid, the people who elected them may eventually abandon them. ACKNOWLEDGEMENTS An earlier draft of this paper was presented at the annual meetings of the Association For Evolutionary Economics in Chicago, Illinois on January 3, 1998. I would like to thank Sandy Darity for his valuable comments on earlier drafts of 30 The transition to neoliberal economic policy began in the 1970s under the National Party, but the ANC has embraced neoliberalism to a much greater degree.

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