Towards Social Justice to end Economic Apartheid and Poverty South Africa

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CONTENTS

PART I. MAIN BODY 1.

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

reserved

3 all-rights-

Neoliberalism and Economic Justice in South Africa: Revisiting the Debate on Economic Apartheid 2.

4

Neoliberalism and the Political Economy of the 'New' South Africa

69

Neoliberalism and the Political Economy of the ‘New’ South Africa

69

3. Overcoming apartheid's legacy: the ascendancy of neoliberalim in South Africa's anti-poor strategy

119

4.

174

Marikana, turning point in South African history

5.

New Chapter

175

6.

Extra Chapter

176

This is a Subtitle The Contributing Author

reserved

all-rights-

PART II. PART 1 7. Nelson Mandela and the politics of South Africa's unfinished liberation

181

PART III. PART 2 8.

Constitutionalism as a Barrier to the Resolution of Widespread Community Rebellions in South Africa

185

PART I

MAIN BODY

1.

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

4

Economic Apartheid

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

Geoffrey E. Schneider gschnedr@bucknell.edu

Bucknell

University

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

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

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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

Review of Social Economy

ISSN 0034 6764 print /ISSN 1470–1162 online © 2003 The Association for Social Economics http://www.tandf.co.uk/ journals DOI: 10.1080/0034676032000050257 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

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Economic Apartheid

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 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 of widespread unrest brought on by the continued presence of economic inequality along racial

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

7

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 of 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 black South Africans, who have so far been admirably patient as they wait for substantive

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Economic Apartheid

economic changes, have legitimate claims for redistribution, restitution and reparations.

This paper will document 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 that this stance is based fundamentally 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

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

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generations of neoliberal economists were unable to do under apartheid, but so far these policies have failed to benefit most black South Africans.

1 For a comprehensive study of the debate over the relationship capitalism and apartheid, see Schneider (1997).

2 See, for instance, Moll (1991).

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

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Economic Apartheid

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 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

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

11

African case. “The chief 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 of production. This belief was not based on empirical observation (and has been contradicted by both liberal and non-liberal scholarship), but instead was a product 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).

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Economic Apartheid

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 elimi- nation 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

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

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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.

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.

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Economic Apartheid

Hutt’s nearly complete absolution of business owners’ responsibility for apartheid and his opposition to the redistribution of assets caused a good deal of criticism from many groups, including the Black Consciousness Movement and the neo-Marxists.

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.

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

15

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 owners and white farmers had in establishing apartheid and the benefits which these groups received as a result of apartheid.

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).

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

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Economic Apartheid

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 that economic growth helped to undermine apartheid by expanding opportunities for blacks and forcing businesses to circumvent apartheid labor restrictions in order 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.

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

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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).

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

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Economic Apartheid

Year

1950–1960 1960–1965 1965–1970 1970–1975 1975–1980 1980–1

Low income

3.8

4.1

4.7

3.8

4.3

5.8

Middle income

4.8

5.3

6.3

6.0

4.8

1.6

High income 4.2 (OECD)

5.3

4.8

3.2

3.3

2.4

Sub-Saharan 3.5 Africa

5.2

4.8

4.4

3.2

1.1

World

–

–

5.3

3.6

3.6

2.4

South Africa

4.5

6.5

5.8

4.1

2.9

1.1

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

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

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

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country—including my own” (de Klerk 1999: xviii–ix).

The militant struggle of anti-apartheid activists, including strikes and boycotts, clearly was one of the factors contributing to the erosion of apartheid.

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 of 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 the shortage of skilled labor and the cost of maintaining

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Economic Apartheid

the elaborate apartheid apparatus (Lipton 1985: 7).

Thus businesses were not affected uniformly by apartheid.

Labor-intensive industries tended to support apartheid while capital- intensive 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 increased due to the skilled labor shortage and political unrest, there was little reason for any businessperson to continue their support for the apartheid govern- ment. “The rising political costs of apartheid were to be seen in the radicalization of young blacks, who were turning to Marxism and particularly black conscious- ness, 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

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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” 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?”

(Lipton 1985: 281).12 Thus economic factors dominated ethnic factors when the two conflicted.13 This conclusion is strikingly similar to that of Hutt, who believed that economic factors are the sole reason for discrimination. 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

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Economic Apartheid

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 post- apartheid 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.

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

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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: 1) the free market is efficient; 2) free markets inhibit racism and help blacks in South Africa; 3) 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.

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Economic Apartheid

1) The most consistent principle present in all neoliberal work is the notion that the free market is efficient. For example, Archer (1987: 348) argued that the fear of failure 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 effi- ciency.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,

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this argument obscures the fact that blacks in South Africa fare very poorly when other factors, such as life expectancy, rates of adult 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 crit- icized for acquiescing to the demands of organized black labor and various tribal interests.

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.

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 effi- ciently is difficult, especially given the vast state apparatus that

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Economic Apartheid

exists in South Africa. Since “the technical problems of coordinating an economy are … formidable,” Archer (1987: 344) agued that the ANC should choose a decentral- ization of authority, devolution of decisionmaking, 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 of 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

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

27

White

Colored Asian Black

Life expectancy at birth (years)

69.5

58.6

65.5

58.5

Rates of adult literacy (percent)

99.3

84.5

92.4

67.0

Infant mortality (Deaths per 1,000 live births)

13.2

57.5

17.4

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.

(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

28

Economic Apartheid

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 produce. While the argument that apartheid eventually became inefficient has some merit, it is difficult to disentangle this effect from other factors responsible for 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

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

29

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.

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

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Economic Apartheid

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-Marxist argument that the redistribution of wealth accumulated under apartheid is a moral imperative necessary to restore South African wealth to the once-oppressed part of 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 neo- Marxists 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

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

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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 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.

20 It is interesting to note here that most of the liberals and neoliberals have been of English background.

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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.

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)

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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

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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, 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

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distributive justice.

Cooper (1991a: 67) maintains that conservative politics is responsible for 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 justice assert that economic growth is more important. For Archer (1987: 349) the key strategic question for the ANC is “What economic arrangements will best 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

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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 decen- tralized 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 unreg- ulated markets and property rights.

Political liberals making up the reformist wing 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.

22 Melck (1991) responds that welfare economics is

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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.

These characteristics of neoliberal thought in South Africa have carried over into current debates over redistribution.

The more dogmatic libertarians argue against 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

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more investment, and measures to restore investor confidence through the stabi- lization 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 of land reform. Under apartheid, blacks were forcibly removed from their 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

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to agriculture, farming ability, potential 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 not 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.�

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.

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 land.

The owner will either use the land productively or she/he will sell it or rent 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.

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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 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.24 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 little entrepreneurial

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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.

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).

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-

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opted in addition to compromising agricultural efficiency.

But it is unlikely that there will be significant marketbased 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).

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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.

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 other consumer goods” (P. Moll 1991: 81). 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 (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

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in a nation in which black demand has been systematically undermined, something Hutt alluded to in 1964.

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).

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.

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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

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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 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 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.

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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,

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South African business had set about the process of diluting the RDP, while overseas agencies such as the 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 uni- polar world of seemingly all-powerful market forces, even by the time of the ANC- led 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.

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.

Despite some rumblings of dissent, the ANC’s partners in the GNU, COSATU and the SACP, initially went along

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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. 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

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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).

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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 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), where 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

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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. 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 job 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

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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 a decline in income� (Barrell 2000).28

In fact, the poorest 40 percent of black 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).

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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 post- apartheid South Africa than the quiet, smooth bureaucrats of the World Bank.”

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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 of 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) main- tained a regressive Value Added Tax on basic goods while giving tax breaks to the rich, (4) facilitated capital flight and exchange rate instability through financial 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 (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 of 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.

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.

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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.

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 of 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.

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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 of all citizens.

Until recently, the ANC-led government had legitimacy due to the 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 black 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 “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

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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 as shown in this paper. In addition, I would like to thank an anonymous referee for providing extremely helpful suggestions.

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Cooper, J. H. (1991a) “Distributive Justice, Welfare Economics and Liberalism,” South African Journal of Economics 59(1): 58–71.

Cooper, J. H. (1991b) “Distributive Justice, Welfare Economics and Liberalism: A Reply,” South African Journal of Economics 59(2): 191–195.

Crawford, N. and Klotz, A. (eds) (1999) How Sanctions Work: Lessons from South Africa, New York: St. Martin’s Press.

Darity, W. Jr. and Nembhard, J. (2000) “Racial and Ethnic Economic Inequality: The International Record,” American Economic Review 90(2): 308–311. de Klerk, F. W. (1999) The Last Trek – A New Beginning, New York: St. Martin’s Press.

Dickie-Clark, H. (1979) “On the Liberal Definition of the South African Situation,” in Pierre L. van den Berghe (ed.)

The Liberal Dilemma in South Africa, New York: St. Martin’s Press: 48–55.

The Economist (2001) “Over the Rainbow: Non-blacks see Mandela’s vision dim,” 358(821): S14–S15.

Gerson, J. (1993) “Should the State Attempt to Reshape South Africa’s Corporate and Financial Structures?” in M. Lipton and C. Simkins (eds) State and Market in PostApartheid South Africa, Boulder, CO: Westview Press: 161–202.

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Gevisser, M. (1997) “Ending Economic Apartheid,” The Nation, September 29: 24–6. Hofmeyr, J. F. (1993) “African Wage Movements in the 1980s,” South African Journal of Economics 61(4): 266–280.

Hoernlé, R. F. A. (1939) South African Native Policy and the Liberal Spirit, Lovedale: Lovedale Press.

Horwitz, Ralph. (1967) The Political Economy of South Africa, New York: Praeger. Hughes, Kenneth. (1993) “False Antithesis: The Dispute about the Market and the State,” in M. Lipton and C. Simkins (eds) State and Market in Post-Apartheid South Africa, Boulder, CO: Westview Press: 35–80.

Hutt, W. H. (1964) The Economics of the Colour Bar, London: Deutsch.

Hutt, W. H. (1986) “The Principle of Social Justice,” in Morgan O. Reynolds (ed.)

W. H. Hutt: An Economist for the Long Run, Chicago: Gateway: 53–86.

Johnstone, F. (1970) “White Prosperity and White Supremacy in South Africa Today,” African Affairs 69(275): 124–140.

Johnstone, F. (1976) Class, Race and Gold, London: Routledge and Kegan Paul.

Kantor, B. S. and Kenny, H. F. (1976) “The Poverty of Neo-

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Marxism: the case of South Africa,” Journal of Southern African Studies 3(1): 20–40.

Lachman, D. (1992) “Economic Challenges Facing South Africa,” Finance and Development 29(2): 6–9.

Legassick, M. (1975) “South Africa: Forced Labor, Industrialization, and Racial Differentiation,” in R. Harris (ed.) The Political Economy of Africa, Cambridge, MA: Schenkman: 229–270.

Legassick, M. (1976) “Race, Industrialization and Social Change in South Africa: The Case of R. F. A. Hoernlé,” African Affairs 75(299): 224–239.

Legassick, M. and Wolpe, H. (1976) “The Bantustans and Capital Accumulation in South Africa,” Review of African Political Economy 7: 87–107.

Lewis, S. R. (1990) The Economics of Apartheid, New York: Council on Foreign Relations Press.

Lipton, M. (1979) “The Debate About South Africa: NeoMarxists and Neo-Liberals,” African Affairs 78: 57–80.

Lipton, M. (1985) Capitalism and Apartheid, South Africa, 1910–84, Totawa: Rowman & Allanheld.

Lipton, M. (1993) “Restructuring Agriculture,” in M. Lipton and

South African

C. Simkins (eds) State and Market in Post-Apartheid South Africa, Boulder, CO: Westview Press: 359–408.

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Lipton, M. and Simkins, C. (1993) “Introduction,” in M. Lipton and C. Simkins (eds) State and Market in PostApartheid South Africa, Boulder, CO: Westview Press: 1–34.

Louw, L. and Kendall, F. (1986) South Africa: The Solution, Bisho, Ciskei: Amagi Publications.

Maykuth, A. (1996) “South Africa hit by one day strike,” Philadelphia Inquirer, May 1: A2.

McGrath, M. (1990) “Economic Distribution, and Social Change,” in

Growth,

Income

N. Nattrass and E. Ardington (eds) The Political Economy of South Africa, Cape Town: Oxford University Press: 88–106.

Melck, A. (1991) “Distributive Justice, Welfare Economics and Liberalism: Comment,” South African Journal of Economics 59(2): 187–190.

Moll, P. G. (1991) The Johannesburg: Skotaville.

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Debate,

Moll, T. (1990) “From Booster to Brake? Apartheid and Economic Growth in Comparative Perspective,” in N. Nattrass and E. Ardington (eds) The Political Economy of South Africa, Cape Town: Oxford University Press: 73–87.

Moll, T. (1991) “Growth Through Redistribution: A Dangerous Fantasy?” South African Journal of Economics 59(3): 313–330.

Moll, T. (1993) “Macroeconomic Policy in Turbulent

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Times,” in M. Lipton and C. Simkins (eds) State and Market in Post-Apartheid South Africa, Boulder, CO: Westview Press: 235–270.

Nattrass, J. (1987) “Political Change and Capitalism in South Africa,” in J. Butler, R. Elphick, and D. Welsh (eds) Democratic Liberalism in South Africa, Middletown: Wesleyan University Press: 353–362.

Nevin, T. (2000) “The Zimbabwe Factor,” African Business June 2000: 10–14. Nieuwenhuysen, J. P. (1965) “Review of The Economics of the Colour Bar,” South African Journal of Economics 33: 164–165.

O’Dowd, M. (1974) “South Africa in the Light of the Stages of Economic Growth,” in A. Leftwich (ed.) South Africa: Economic Growth and Political Change, New York: St. Martin’s Press: 29–43.

O’Meara, D. (1983) Volkskapitalisme: Class, capital and ideology in the development of Afrikaner nationalism, 1934–1948, London: Cambridge University Press.

Porter, G. and Phillips-Howard, K. (1997) “Agricultural Issues in the Former Homelands of South Africa: the Transkei,” Review of African Political Economy 72: 185–202.

Reekie, W. D. (1993) “Should South African Parastatals be Privatised?” in M. Lipton and C. Simkins (eds) State

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and Market in Post-Apartheid South Africa, Boulder, CO: Westview Press: 129–160.

Rich, P. B. (1984) White Power and the liberal conscience, Manchester, UK: Manchester University Press.

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Some Themes From the Economic Debate,” in Pierre Hugo (ed.) Redistribution and Affirmative Action, Halfway House, SA: Southern Book Publishers: 120–142.

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Wolpe, H. (1972) “Capitalism and Cheap Labor-power in South Africa: From Segregation to Apartheid,” Economy and Society 1(4): 425–456.

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World Bank (1998) World Development Indicators 1998 CDRom, Washington: World Bank.

2.

NEOLIBERALISM AND THE POLITICAL ECONOMY OF THE 'NEW' SOUTH AFRICA

New Political Economy, Vol. 5, No. 1, 2000

Neoliberalism and the Political Economy of the ‘New’ South Africa

PAUL WILLIAMS & IAN TAYLOR

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South Africa’s relatively smooth transition from the institutionalised racism of apartheid to a universally franchised democracy was, from any perspective, remarkable. Even the most astute political pundits would have struggled to predict the process which would see Nelson Mandela and the African National Congress (ANC) dominate a Government of National Unity (GNU) less than a decade after the traumas of the states of emergency of the 1980s.1 In this sense, much has changed in the ‘new’ South Africa. However, this article is more concerned with what has stayed the same and why.

We believe that the economic continuities evident in socalled post-apartheid South Africa are just as interesting , and perhaps even more fundamental, than the more celebrated and obvious constitutional changes. The article examines one significant part of the process that altered the economic trajectory of the ANC from being broadly social democratic, to the conservative, neoliberal position it advances today. In particular, our interest lies in understanding how the ANC’s definition of what constituted ‘good’ economic policy underwent a dramatic transformation from the promises articulated during the liberation struggle, to the policies pursued via the GNU. We believe that the international discourse of neoliberalism has played a crucial, and often underestimated, role in this process. After outlining what

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we mean by neoliberalism, the article charts the major shifts in the ANC’s economic policy and offers an explanation of how these shifts occurred, with particular reference to the role that the neoliberal discourse played in delegitimising alternatives and stifling debate during the transition.

Defining neoliberalism

Neoliberalism as an ideology did not emerge from a historical or political vacuum. The neoliberal point of view had to be actively disseminated by an array of social forces, institutions and intellectual agents. By the early 1980s, as Roger Tooze has argued, neoliberalism had achieved ‘a special status in society: it [was] taken to represent the reality of the global economy, against which other views … [were] judged and evaluated’.2 But this had not always been the case.

Paul Williams & Ian Taylor, c/o Department of International Politics, University of Wales, Aberystwyth, Ceredigion SY23 3DA, Wales, UK. ISSN 1356-3467 /00/010021-20 Ó 2000 Taylor & Francis Ltd 21

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After the devastation wrought by World War II, ‘embedded liberalism’ represented the orthodox stance in Western economic debates.3 Indeed, during the late 1960s, proponents of neoliberalism were still derided as ‘stupid’ and in danger of leading society down the ‘road to reaction’.4 In short, neoliberalism as a project had to be actively promoted by an array of actors in specific historical contexts. In this sense, its rise to dominance was neither natural nor inevitable. We label this discourse neoliberal to emphasise how the contemporary articulation of this orthodoxy shows a blatant disregard for the traumatic social consequences which arise from the imposition of unfettered market-logic to the international realm. By contrast, the classical liberal theorists such as Adam Smith exhibited a concern for the well-being of society as a whole which is lacking from the chief exponents of neoliberalism. Today’s disciples of this discourse seem happy to live in what J.K. Galbraith called a ‘culture of contentment’ in which those at the top of the social ladder ignore those at the bottom and spend their leisure-time justifying the growing inequalities and demonising the poor as ignorant, lazy and criminally motivated.5 The wider objective of the neoliberal project is to engineer a stable environment in which internationally mobile capital can reproduce and which significantly constrains the possibilitie s of collective action in the global political economy. In the South African context, neoliberalism became increasingly influential in ANC pro- nouncements, such as the 1990 Discussion Document on Economic Policy; the 1992 draft policy guidelines; and both the 1994 Reconstruction and Develop- ment (RDP) and the 1996 Growth, Employment

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and Redistribution (GEAR) programmes. Part of this article will chart the shifts in ANC economic policy, broadly from the Freedom Charter to the RDP and GEAR.

The configuration of neoliberalism currently dominating the theory and much of the practice of the global political economy is based on a number of assumptions, many of which have their origins in liberal political economy and have been transposed to the international realm. Since the end of the Cold War these assumption s have come to define the rules of what is now often perceived to be ‘the only game in town’ as far as paths to economic growth and development are concerned. Although alternatives have been proposed, such as UNICEF’s notion of ‘adjustment with a human face’ or, in the African context, the African Alternative to Structural Adjustment Programmes, they have failed to materialise in any significant form. The central questions for this discussion are how and why neoliberal interests and practices have prevailed in South Africa and particularly within the ANC. So what assumption s underpin the neoliberal position?

First, neoliberal political economy ‘demands nothing less than the institutiona l separation of society into an economic and political sphere’.6 This forms part of what Karl Pola´nyi called the ‘economistic fallacy’ whereby this separation of spheres is assumed to be common to all societies regardless of their historical context. Crucially, this separation is not neutral: economic activity is viewed

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as conforming to an inherent rationality which distinguishe s it from the (inherently irrational) political sphere. From this perspective, liberals can claim that problems defined as ‘economic’ can be solved by ‘experts’ through the application of a socially-neutral, technical rationality. This leads quickly to the assumption that economic motivation is the dominant driving force behind all human activity.

Secondly, economics, with its supposedly inherent rationality, should govern the irrational processes of political decision making. This normative claim rests on the liberal belief that a long-term harmony of interests is implicit in economic activity within the framework of a free market. Any subsequent ‘policy prescrip- tions’ will therefore inevitably emphasise market solutions to relieve the head- ache of (re)distribution problems. Witness the ‘one-size-fits-all’ approach to adjustment programmes: reduce public investment and current expenditure (including wages), devalue the currency and curtail inflationary tendencies. For liberals, the market (if left free from unnecessary state/political/irrational intervention) represents the primary mechanism to resolve policy problems at both the domestic and international level. However, the political consequence of such prescriptions is to privilege the desire for maintaining the smooth and efficient running of the status quo over claims for redistributive justice. In practice, this often goes hand in hand with policies designed to maintain a system of law and order based

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on the protection of the rights of the property-owning individual. As is implicit above, neoliberal political economy also proposes that ‘a natural community of interests would be brought about by the operation of free markets’.7 This allows for the reconciliation (defined as ‘natural’ and non- coercive) of the individual to the nation and the nation to mankind. As David Ricardo famously declared:

Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employment as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole.8

Thus, by pursuing one’s own advantage everyone, given time, would benefit absolutely—although the benefits would not be distributed equally throughout society. In addition, in the international realm such a ‘harmony of interests’ represents a necessary element for long-term peace between nations.

Finally, neoliberalism, with its focus on ‘economic man’, a rational egoist constantly seeking to optimise his position, ultimately stresses that the natural size for an efficient economic community is the global market.

National governments have their uses, but should not be allowed to impose rigid boundaries around economic

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activity. Within the framework of a free market, government should play the crucial but limited functions of providing security from external threats and ensuring law and order at home. Nevertheless, the irrationalities of government intervention constitute the main source of anxiety for liberals. John Gray’s comments are typical of this view:

Every governmental intervention has real costs, and there is strong evidence to suggest that the vagaries of governmental policy constitute the chief source of economic disturbance in recent decades. It is a general truth … that the imperfections of the market are never sufficient to justify intervention.9 In short, the larger the sphere of market relations and the less state/political interference, the better.

Our claim is that this neoliberal ideology (supported of course by considerable material interests) has played a necessary but not sufficient role in the dramatic about-face in the ANC’s definition of what constitutes ‘good’ economic policy. The ANC’s acceptance of neoliberalism, we believe, reflects not only a highly selective reading of the empirical evidence concerning the ‘success’ of numerous neoliberalinspired development projects emanating from the international financial institutions (IFIs), in particular the World Bank, but also a failure to acknowledge the amount of ‘theory’ implicit in their own position. The result is a deeply political policy, portrayed as solely ‘economic’, which has enormous repercussions for the whole of South African society but most notably the richest and poorest elements. It is to

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how the ANC’s economic thinking came to embody neoliberal principles and how this has been translated into policy objectives that we now turn.

The early phase of ANC economic policy

At the time of the ANC’s unbanning in 1990, the organisation had no clearly formulated political and economic policies. Instead, the organisation had relied on an emotional attachment to the principles of the 1955 Freedom Charter with its vague but prominent redistributionist slogans:

The People shall share in the country’s wealth!

• The national wealth of our country, the heritage of all South Africans, shall be restored to the people; • The mineral wealth beneath the soil, the banks and monopoly industry shall be transferred to the ownership of the people as a whole; • All other industries and trade shall be controlled to assist the well-being of the people; • All people shall have equal rights to trade where they choose, to manufacture and to enter all trades, crafts and professions.10

On paper, at least for most of the struggle, the ANC (encouraged by its strategic ally, the South African

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Communist Party (SACP)) was committed to a mixture of dirigisme and socialist reform of the economy via nationalisation of the mines, banks and monopoly industries. However, the exact manner and policies by which the ANC was to pursue this were never formally enunciated. The reasons behind this lay primarily in the diverse membership profile of the movement. As Murray suggested:

Its purposefully vague anti-capitalist rhetoric gave the ANC leadership considerable ideological leeway successfully to stitch together a loosely defined coalition of interest groups that included workers and aspirant entrepreneurs, Christians and Communists, and the unemployed and middle class, around a shared objective of dismantling apartheid .11

Getting ready to govern

The first concerted effort to fill this gap in ANC policy came at the Harare Conference in April–May 1990. This was followed by a draft ANC Economic Manifesto (prepared for but not adopted by the 1991 National Conference) and the ANC’s Ready to Govern document of May 1992. Central to this was a basic commitment to the restructuring of society and a dynamic role for the state in the economy. However, the document continued the ANC’s track-record of vague statements on economics, to the extent that its readers could infer ‘anything from

Neoliberalism and the Political Economy of the 'New' South 79 Africa

extensive state intervention to conventional marketdriven struc- tural adjustment’.12 Nevertheless, the document did call for the unbundling of the four massive corporations that dominated the South African economy and a rejec- tion of capital’s familiar demands for low labour costs. Simultaneously, labour was accorded a pivotal role in the planning and execution of industrial policy. In a rejection of economic ‘trickle-down’ thinking, the document’s central message was ‘growth through redistribution ’. The assumption was that growth would be promoted by meeting ‘the basic needs of the majority through a redistribution of income which would increase employment, demand and production’.13 Such a strategy clearly demonstrated the residual influence of socialist ideas within the alliance at this juncture. This was partly because the document appeared early on in the transition process before the ideological onslaught from neoliberal intellectuals began significantly to influence the decisionmaking elite within the ANC. However, this breathing space for ideas outside of neoliberal strictures would not last long.

Indeed, the prescriptions of the document, in particular its ‘growth through redistribution ’ agenda, were immediately attacked by a disparate array of pro-business elements in the media and various ‘independent’ policy think-tanks and economists. These attacks ‘ranged from consternation about the “socialist” undertones of the document to a more sophisticated set of objections to its alleged overtones of macro-economic populism’.14 At

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the same time, the pro- business media ran a string of hysterical articles warning about the ‘foolishness’ of redistributing wealth from the massively privileged to the chronically disad- vantaged. The Financial Mail, for example, warned:

There will be a massive loss of jobs, shops will empty of goods, housing will fall into ruin, disease and misery will predominate— Comrade Nelson, like Comrade Nyerere of Tanzania, will say: ‘Sorry, we made a mistake. We’ve redistributed all we have’.15

However, such criticism generally lacked detailed analysis of what ‘growth through redistribution ’ could mean and instead simply dismissed alternatives to neoliberalism as nonsensical. These scare-mongering tactics coincided with a remarkable project to ‘educate’ the ANC elite and the public about the foolishness of nonneoliberal approaches to the economy. As the Financial Mail put it,

‘the ANC is muddled and confused. It needs to be guided and educated—taught to face harsh economic reality and the need to modify the expectations of its cadres’.16

Under the weight of this intellectual onslaught, the ANC’s economic thinking increasingly came to bear the hallmarks of

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neoliberalism. In particular, promotion of macro-economic stability (through fiscal and monetary stringency, deregulation, privatisation and export-led growth strategies) was pushed closer to the top of its agenda.17

Preventing an alternative?

A number of factors militated against the introduction of a viable non-neoliberal approach.

First, the collapse of the Soviet economies threw many socialist intellectuals into a state of conceptual and practical disarray and strengthened the hand of those who argued that there was ‘no alternative’ to neoliberal capitalism. Second, there was the more pragmatic question of resources. In the face of a well-funded array of pro-neoliberal groups in civil society, the ANC’s economic strategists were swamped by this ideological tidal wave.

As Karl von Holdt remarked:

How big is the ANC Economics Department? Very, very small and very new in a lot of ways. And yet you’ve got the captains of industry, with their think tanks that have got a whole lot of policy studies coming out. That can be quite seductive.18

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At the same time, the representatives of big business continued their educational ‘charm offensive’ on the ANC elite in general, and Mandela in particular, to ‘correct’ any remaining heresy. This process was helped

by Mandela’s eagerness to mix with the privileged elite, in particular the so-called Brenthurst group, an informal association of monopoly capitalists meeting under the aegis of Anglo– American magnate, Harry Oppenheimer. This was a reflection, perhaps, of the petit bourgeois aspirations that many ANC leaders have long held. As Waldmeir observed:

[Mandela] constantly sought the views of international business– men and bankers on South Africa’s future and he cultivated close relationships with top local businessmen—he spent holidays with the head of one of the country’s leading mining families [and] entertained at the home of one of Johannesburg ’s most osten- tatious businessmen … where guests were met in the driveway with champagne on silver salvers. [He also] dined regularly with Anglo patriarch Harry Oppenheimer.19

Dinner apparently got results, as a satisfied Oppenheimer explained:

‘when you talked [to Mandela] about the future of the country, particularly on the economic side, he said a great many things that seemed to me very silly, but he says many of them less now’.20

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Such sentiments were echoed by another analysis:

‘the close-knit circle of associates together with their coterie of supporters in the media and academia now pride themselves on having “weaned off” the ANC of its past economic fantasies … and generally “saved the country” from becoming another Bosnia’.21

Tactically, this offensive was designed to bolster the hegemony of neoliberal ideas in South Africa through consensual means. However, coercion was not ruled out by the establishment. For example, the then Finance Minster Derek Keys gave ANC economics head Trevor Manuel a briefing on the economy, and Manuel repeated it to Mandela.

‘And I got frightened’, Mandela recalls. ‘Before Trevor finished, I said to him, “Now what does this mean as far as negotiations are concerned? Because it appears to me that if we allow the situation to continue … the economy is going to be destroyed” ’.22

Such assertions were given added credibility in light of the dramatic increase in South Africa’s budget deficit under the stewardship of the National Party (NP).23

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Not only had the 1980s witnessed massive spending in the defence and ‘sanctions-busting ’ industries, but corruption had become endemic.24 The national debt was further aggravated between 1990 and 1994 with the NP’s indulgence in reckless spending and practices of personal enrichment, particularly through inflated contributions to civil servants’ pension funds. In addition, the scramble for state funds by various homeland bureaucrats during this period only compounded the situation. Whatever motives lay behind the deficit, the deteriorating situation severely circumscribed any future ANC government’s room for manoeuvre as further spending, in order to redistribute wealth for example, would have led to inflation and unacceptable debt. Moreover, by maintaining most of the old apartheid bureaucrats, not only did the GNU continually receive ‘economic [advice] almost exactly the same as under the National Party regime’,25 but upon leaving the public service, these individuals received substantial golden handshakes.

The ANC and its partners were also constrained by the fiscal and monetary prescriptions of the IFIs. Throughout this period, a deluge of high-profile studies and conferences funded by the World Bank and IMF promoted the neoliberal message.

While the IMF delivered sharp prescriptions about what was ‘reasonable’ and ‘realistic’, the World Bank began discussions with the ANC and its liberation partners. The Bank enjoyed considerable access to the ANC elite and, ‘even by World Bank standards’, its presence in South Africa during this period represented ‘an unusually large … effort’.26

Neoliberalism and the Political Economy of the 'New' South 85 Africa

Consequently, ‘big business, the IMF and the World Bank [became] increasingly influential in the top ranks of the ANC leadership’.27

Indeed, one World Bank representative later boasted that ‘this is the only country in the world where we speak to the opposition’.28

Such activity only confirms the assertion of two Bank officials that one of the organisation’s main tactics was to ‘win access to the most senior policy-makers, thereby permitting the Bank staff to accelerate reform and to influence its character [by securing] a place at the policy table’.29

The Bank’s Reducing Poverty report became the public symbol of this process of coercion and consent—pressurising and ‘trust-building ’—with the ANC elite and its liberation partners. The Report combined elaborate probes of Pretoria’s economic situation ‘with somewhat restrained neoliberal directives that were often offset by incorporating aspects of progressive thinking’.30

Incredibly, the Bank adopted a more progressive perspective than many of the South African ‘captains of industry’, arguing that ‘South Africa’s unequal legacy cannot be reversed solely by market reforms because those disenfranchised by

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apartheid will be unable to obtain the resources necessary to exploit market opportunities’.31

But even this relatively moderate position was unacceptable for some of the South African elite. For example, the National Manpower Commission’s chair, Frans Baker, demanded that ‘employers and unions negotiate wages in the face of the cold winds of international competition’.32 Little concern was devoted to the structural inequalities that labour had historically faced in South Africa.

Manufacturing the future: corporate scenarios

The assault on any lingering socialist tendencies within the ANC continued through a plethora of corporate scenario planning exercises aggressively promoted after 1990.33 The role of such scenarios in moulding future options was quite explicit: to ‘significantly alter the mindsets or paradigms through which decision makers see the world’.34

The first was Nedcor/Old Mutual’s Prospects for a Successful Transition, launched in 1990. Between January 1991 and June 1992 over 45,000 hand- picked South Africans, invariably from the decision-making levels of society and the ANC, attended the presentation of the Prospects.35

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This scenario was quickly followed by Sanlam’s Platform for Investment and the more eclectic Mont Fleur Scenarios.

Simultaneously, other documents, such as the South African Chamber of Business’ Economic Options for South Africa, were aggressively advertised as offering ‘realistic’ blueprints of South Africa’s future. These supposedly ‘diverse’ scenarios—which in practice differed only superficially—were coordinated by a close-knit circle of managers and corporate strategists. As Robin Lee observed, ‘Wack and Newland were both part of the Sunter exercise, while Wack was also a member of the Nedcor/Old Mutual team—and the present scenario planner at Shell, Adam Kahane, was the facilitator of Mont Fleur’.36

The multiple linkages between the organisers supports the assertion that ‘debates’ over the terms of South Africa’s economic strategy were (and remain) carefully concocted by selected representatives. As Susan George explains:

There has been a concerted effort, an extremely well-funded ideological effort, to make [neoliberalism] and all that goes with it seem beneficent and necessary. You fund people to create an ideological climate which becomes the life support system for the doctrine…. You create the colloquia and the symposia, open to the press that you sponsor. And they all write [in] journals that you also fund, and from there they get on the editorial pages and on the air. Pretty soon you have those three-man … pseudo debates on television between the raving radical right, the extreme right and the right

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of centre…. Anyone who thinks differently … must make apologies for his or her beliefs.37

This ideological bombardment from neoliberal management gurus was also replicated by the business press which continued its savaging of any non- neoliberal messages from the ANC.

Despite such pressures it would be incorrect to describe every element of the ANC as passive observers in this process of deradicalisation. For example, any progressive economic policies were increasingly qualified with strong caveats (such as the need to protect property rights and privatisation) designed to reassure big business. Furthermore, as the negotiation process wore on, such caveats were put in place with only the barest level of consultation between the ANC elite, its membership and political allies.38

Capital had long demanded such guarantees as a foundation for post-apartheid South Africa and this was reflected in the appeal made by the South African Chamber of Business for a constitutional bill of rights, described as ‘a way of protecting the minority’s privileges rather than enlarging the freedom of the majority’.39 In his study of South Africa’s transition to democracy, Adam Habib agrees, arguing that one of the outcomes of the transition had been to bring about: the ANC’s commitment to manage, and to locate its programme of economic reconstruction within the

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framework of, a market economy. This commitment was captured in a range of clauses in the Bill of Rights, which recognised the rights of individuals to own property and accumulate capital, and to dispense with these as they please.

The settlement thus established the parameters of the GNU’s economic programme and conditioned its evolution in a neoliberal direction.40

Indeed, the ANC’s draft policy guidelines of April 1992 made no reference to higher taxation thresholds for the massive corporations, suggested privatising elements of the public sector and ditched calls for a restructuring of the financial sector.

Forging a consensus or manufacturing consent?

Although elements from the left, and the Congress of South African Trade Unions (COSATU) in particular, attempted to stem the drift rightwards, by the time of the 1994 election the Financial Mail could triumphantly claim that macroeconomic policy was tilting ‘in the right direction’, with the ANC adopting ‘a steadily more realistic approach to the economy’.41

Symbolically, the new ANC government retained Derek Keys (an ex-chief executive of Gencor) as Finance Minister. By doing so, Mandela ‘delighted investors, businessmen and White South Africans … Nothing else would have persuaded the outside world—not to mention sceptical South Africans—of

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his commitment to free- market economies and political moderation’.42

Keys’ appointment was certainly interesting for a number of reasons. As a report in the corporate mouthpiece, Business Day, commented approvingly:

We can look with some hope to the evolution in economic thinking in the ANC since the occasion nearly three years ago when Nelson Mandela stepped out of prison and promptly reaffirmed his belief in the nationalisation of the heights of the economy. By contrast … Mandela [has gone] out of his way to assure a large group of foreign (and local) journalists that the ANC was now as business-friendly as any potential foreign investor could reasonably ask. He indicated further that ANC economic thinking was now being infiuenced as much by Finance Minister Derek Keys and by organised business as anyone else.43

When Keys resigned a few months later, Mandela replaced him with another white, conservative banker, Chris Liebenberg, whose 1995 budget spoke ‘volumes about the new-found conservatism of the … government of national unity’.44

Whilst by this stage the ANC had not entirely surrendered to the demands of capital, its economic proposals had taken a definite neoliberal slant. Thus the new government accepted the compulsions of financial and

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monetary ‘discipline’, defended the reorganisation of South African trade policies to foster an export-led growth plan and envisaged a reduced role for the state. Economic regeneration was predicated on sustainable growth via a surge of foreign investment (which never materialised), whilst domestic capital was supposed to intensify its investment, not indulge in off-shore relocation as frequently oc- curred. Ironically, this had been facilitated—at the demand of capital—by the removal of exchange controls. At the same time, the GNU was bombarded with ‘advice’ that it ‘should act decisively to reassure the financial markets rather than concentrate on fulfilling the expectations of its supporters’.45

As Marais highlights, an important factor in shifting ANC policy was the alteration (at the behest of capital) of the terms of the debate from the ideological, where the ANC was at best in a state of confusion, to the technical, where the organisation was most certainly disadvantaged.46

As indicated above, ANC efforts to produce a coherent macroeconomic framework were hampered not least by the lack of attention afforded to bodies such as its Economic Department. Moreover, concentrating on the intricacies of an economic policy was a luxury that an organisation which had been banned and persecuted until very recently could ill afford. This subtle alteration turned out to be crucial in deciding how the economic debate unfolded. The fact is that the ANC and its liberation

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partners were severely constrained in their technical ability to combat the rush of neoliberal ideas that engulfed the movement in the transition period. The situation was not helped by ‘patent abuse of technically rigorous economists at the helm of the ANC’s DEP [Department of Economic Planning]’.47 Consequently:

In terms of the economic debate, the ANC was … clearly on the defensive at the beginning of the negotiation process. It simply did not have a set of new progressive ideas and strategies to counter those neo-liberal ideas so powerfully proposed by the Washington institutions , western governments, local business interests, and the De Klerk regime.48

This factor considerably strengthened the hand of capital and its intellectuals who embarked on a concentrated political struggle to promote the neoliberal principles to which they subscribed. Moreover, it allowed them to dismiss alternative policies on relatively basic, technical grounds. This not only emasculated the progressive wing of the liberation movement, but it also encouraged conservative elements within the ANC who, in tandem with erstwhile ideological partners in the business community, rapidly moved to direct the ANC’s economic policy down more ‘realistic’ paths.49

As Nicholas Oppenheimer later asserted, ‘in a remarkably short time [the ANC] matured into a government which understands and accepts the disciplines of the marketplace’.50

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Prior to this, a holding action centred around the RDP had temporarily placated many left-wing critics and postponed a wholesale swing to neoliberalism. This temporary alternative reflected the ambiguities and tensions in the ANC’s stance as it struggled to reconcile disagreements within the alliance.

The Reconstruction and Development Programme: neoliberalism in waiting?

Although it represented the socioeconomic platform upon which the ANC fought the elections, a White Paper on the RDP indicating how the government would translate these vague proposals into policy only appeared on 23 November 1994.

However, previous drafts of the White Paper had emerged—and were heavily criticised by COSATU—from August onwards. The RDP was largely the brainchild of social democratic forces within COSATU, particularly the National Union of Metalworkers, which became increasingly disgruntled as more and more of the progressive content of the document was watered down with each new draft.51

Eventually, those alienated elements agreed to publish the seventh draft as the White Paper in the (vain) hope that publication would prevent any further dilution of the document.52 This formative process clearly reflected the ongoing tensions within the GNU exacerbated by the pressures of capital. The Base Document (February 1994)

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had been widely interpreted as a compromise by the ANC elite to keep COSATU and the SACP onboard during the immediate pre-election period. Indeed, the South African labour movement had ‘made its entry into the Tripartite Alliance contingent upon the ANC and SACP adopting [the RDP] as the basis of all subsequent development policy’.53 Yet, after the elections, the ANC was constitutionall y obliged to share office with the NP and absorb pressure from both domestic and international capital to dilute the RDP. Acceptance of the programme was made easier by its vagueness and lack of concrete proposals. The result was a compromised document from a compromised administration, desperate to reconcile the multiple voices in South Africa’s domestic polity with the mantras of globally- orientated capital.

Hence the RDP has been seen as a ‘very significant compromise to the neo-liberal “trickle down” policy preferences of the old regime’.54 For example, eliminating calls for nationalisation , even as a policy option, whilst pushing for privatisation and ‘fiscal discipline’, was just one way the White Paper had changed from the initial Base Document. Whereas the Base Document had viewed fiscal discipline as a means to achieve development, the White Paper saw fiscal disciplin e as an objective in its own right, irrespective of its effect on development. The White Paper also differed from the Base Document over the state’s role in the economy. In accordance with the dictates of neoliberalism , the White Paper reduced the state’s role to a ‘neutral’ source of management. The

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business community predictably welcomed the programme (while expressing concern at the cost) as a great deal of its enthusiasm was based on ‘expectations of major new business opportunities’ in the various expansion schemes promised by the RDP.55 However, a more sophisticated interpretation might see capital’s support for the programme arising from its perception that the RDP was based ‘on the balance of evidence’ that would ‘guide the decision for or against economic policy measures’.56 The key question thus became: who decides what constitutes the balance of evidence? It was quite apparent that capital’s intellec- tuals had lost no time in persuading the government which factors counted as ‘evidence’ and which should be dismissed as mere anomalies.

The RDP’s weaknesses were increasingly evident in ‘the disjunction between the RDP as an economic programme and other aspects of economic policy’.57 In particular, the contradictions that the RDP engendered made its place within the wider economic framework ‘unclear [and] at worst … potentially antithetical’.58 The fact that the RDP could be seen as arguing for the creation of an ‘enabling environment’ through macroeconomic balance and ‘sound fiscal policy’ compounded this ‘cocktail of confusion’.59 Moreover, the palpable lack of delivery on the ground proved a major embarrassment to the government and it became a relatively simple exercise for critics (from both left and right) to point to such failures as evidence of the inherent ‘unworkability’ of the RDP.

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Indeed, the business community increasingly bemoaned the government’s lack of a clear macroeconomic blueprint and continued its campaign for an all-out neoliberal programme.

This was symbolised by the South Africa Foundation ’s (SAF) publication of a rabidly orthodox economic strategy entitled Growth for All, to which Mandela was treated to a private presentation prior to its release.60 Representing a consortium of 50 of South Africa’s most powerful corporations, the document endorsed capital’s call for a wholesale embrace of neoliberalism by the GNU. The probusiness media saw the SAF document as an opportunity to blackmail the government into embracing the neoliberal position of the SAF, asserting that, ‘if government reacts negatively, it will draw attention to its qualified endorsement of market-oriented economics. That in turn will discourage investment, undermine the Rand and lock this economy into a low-growth trap’.61

Coincidentally, the document was released at a time when the South African economy was in a state of flux. The Rand was in free-fall (losing 25 per cent between February and July); interest rates remained high; whilst the trade account of the balance of payments moved in a highly erratic fashion. At the same time, the foreign exchange reserves were being steadily depleted until, by mid 1996, they were equivalent to only 5 weeks’ import cover. As Michie and Padayachee remarked, ‘these factors and pressures all served to focus attention on the appropriateness or otherwise of the government’s macroeconomic policy’ and further undermined the RDP.62

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Indeed, the Financial Mail claimed that such failings in the economy were due to the failure of the RDP.63 Not surprisingly, the programme was hastily abandoned in ‘a panic response to the … exchange rate instability and a lame succumbing to the policy dictates and ideological pressures of the international financial institutions ’.64

The Growth, Employment and Redistribution Programme: neoliberalism triumphant

In February 1996 Thabo Mbeki, then Mandela’s deputypresident , announced a new strategy for the nation’s economic development. Although the govern- ment continued to pay lip-service to the RDP, its office was closed (28 March 1996) and its nominal head—Jay Naidoo—was reassigned. This was rapidly followed in June by the government’s hasty release of its new macroeconomic strategy, the GEAR programme.65 This document ambitiously claimed it would increase annual growth by an average of 4.2 per cent, create 1.35 million jobs by 2000, boost exports by an average 8.4 per cent per annum and improve social structure. To date, it has failed even on its own terms.66 The new policy’s adoption derived from a coalescence of factors which has been summarised as follows:

The ANC, pressured by advisers from the old regime,

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economists from the World Bank and IMF [and] experts from the business community … stepped back from the RDP’s emphasis on social spending … and instead adopted a neo-liberal economic export strategy which emphasised free markets, fiscal discipline and building business confidence, even if that meant ‘downsizing’ to be competitive in the global economy.67

In an attempt at stifling genuine debate, the government’s Finance Minister, Trevor Manuel, immediately declared GEAR ‘non-negotiable’ in its broad outline—a move applauded by investors, both local and foreign, but which those on the left saw as ‘utter arrogance’.68

Indeed, contrary to previous assurances and continuing its tendency to eschew genuine consultation, the government did not submit the programme for prior consideration by NEDLAC (the business/labour/government national economic and labour council). Incredibly, as Mandela later admitted, even senior ANC leaders were not informed of its contents.69

‘Produced in great secrecy by a small team of technical experts’,70 GEAR was modelled on a South African Reserve Bank econometric model (used by the Bank during the late apartheid years) and was ostensibly ‘consistent with the results obtained using models of the Development Bank of Southern Africa, the Bureau for Economic Research and the World Bank’.71

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This alone invited criticism, but was further exacerbated by the fact that ‘the main model used … [w]as never … made public and thus [w]as never … the subject of an independent and rigorous debate by professional economists’.72

The document did, however, exhibit a ‘commitment to conservative fiscal policies, trade liberalisation and a shift from consumption to investment spending’.73

GEAR thus fitted neatly into the so-called inter- national consensus around ‘good’ economic policy elucidated by such neo- liberal gurus as Standard Bank’s Conrad Strauss.74

Whilst the new framework stunned many on the left within the ANC alliance, it offered conclusive proof that the neoliberal path to development was finally entrenched in government thinking. 75

Although the government had appeared sensitive to accusations that its policies constituted neoliberal monetarism, a 1996 document openly admitted that ‘certain measures in GEAR are similar to many neoliberal packages’.76

According to one analysis, ‘to all intents and purposes, the policy that almost replaced the sacred Freedom Charter [i.e. the RDP] in its vision of a more equal and progressive order has now been shelved [and a] Thatcherite discourse of fiscal discipline and market forces has taken over’.77

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Mandela himself later admitted that people ‘can say [our policy] is Thatcherite, but for this country, privatisation is the fundamental policy of our government’.78

Although GEAR was justified as a continuation of the RDP by other means, the RDP is only referred to in the GEAR policy document on four occasions.79

Furthermore, in contrast to the RDP, GEAR explicitly posited ‘redistribution as a by product of growth instead of an integral part of its economic strategy’.80

It was not surprising therefore that, upon reflection, GEAR was denounced as ‘a recourse to the policy goals and instruments of the past apartheid regime’,81 which shared many of the ideological commitments of the SAF document.82

Such criticism stemmed primarily from the economic methods chosen to deliver GEAR’s ambitious promises. GEAR privileged the position of mobile capital (both foreign and domestic) within South Africa and relied on it to empower the disadvantaged through increased private investment. This dynamism was to be achieved by cutting state spending in an attempt to lower the budget deficit to 3 per cent by 2000; maintaining a low inflation rate; reducing corporate taxes; phasing out the remaining exchange controls; promoting wage demand restraints by labour; creating a more ‘flexible’ labour

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market; and pushing for the privatisation of state assets. The model was based on ‘a set of orthodox, outward-oriented, investor-friendly stabilisation and adjustment policies’, which reflected the concerns and aspirations of the neoliberal elite within South Africa.83

In so doing, GEAR adopted ‘market reaction (for example, in the foreign exchange market) and notions of business confidence’ as the yardstick ‘to assess government’s performance’, further strengthening the hand of the outwardly-linked classes in the country.84

This fraction of capital and its allies fell over itself in praising GEAR as ‘investor friendly’ and ‘responding to many of the concerns expressed by business’.85

As a Financial Times writer asserted, with GEAR ‘the ANC emerged with as powerful a commitment to budgetary discipline and fiscal conservatism as White South Africa could have wished’.86

Such a situation was due in large part to the international discourse of neoliberalism which helped create a climate wherein, if the ANC ‘come out and say: “Our first obligation is to our people”, there [would] be some very heavy choking’ by capital.87

Hence, an ostensible liberation movement that had struggled

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under the banner of socialism now saw as its priority the soothing of international capital’s demands as the only, and for some the best, way forward. Moreover, with the NP’s departure from the GNU in June 1996, the argument that conservative, non-ANC elements were responsible for the organisation’s economic direction proved false: GEAR was ultimately a product of the ANC elite. The scrapping of the RDP and the adoption of GEAR finally saw neoliberalism triumphant.

Explaining the shift

Why the ANC changed its macroeconomic stance during the transition has often been reduced to the simplistic view that the movement simply ‘woke up’ to economic ‘realities’ and subsequently ditched its socialist pretensions in favour of neoliberalism. Obviously, the ANC was faced with the appalling socio- economic legacies of apartheid which undoubtedly deepened during the last years of NP rule. Chronic unemployment, low levels of investment, high public debt, a low human capital base situated within a brutalised society and an unstable currency all acted to restrict the ANC’s room for manoeuvre. As noted above, the ANC’s predicament was further compounded by inheriting an inefficient and often intransigent civil service whose aspirations were in the main unsympathetic to the new dispensation’s political project.

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Nevertheless, whilst acting as powerful constraints on any redistributionis t proposals, such factors alone cannot account for the ANC’s ‘ideological quantum leap’. As Terreblanche suggested:

In an attempt to solve this riddle one can either blame it on the imperatives of the South African situation after decades of apartheid, or we can blame it as the outcome of an intense ideological ‘power struggle’ behind the scenes in which pressure groups on the right of the ideological spectrum emerged as ideological conquerors in June 1996 … the quantum leap [was] the outcome of the ideological ‘power struggle’, although the hard reality of the South African situation also played a minor role.88

Undoubtedly, the ANC’s ideological incoherence over ‘economic’ policy did not help in this struggle. However, for an organisation ‘whose raison d’eˆtre before 1990 was liberation from apartheid, it was perhaps not surprising that formulat- ing [an] economic strategy was not a priority’.89 In the face of a well-funded and co-ordinated onslaught from neoliberal intellectuals and institutions , the ANC’s pro-redistributio n cadres were marginalised.

In sum, the ANC’s ideological quantum leap resulted from a number of contributory factors. We will focus on: the ANC’s relationship with the IFIs, on the one hand, and the old apartheid structures, on the other; and the process of dispute within the Tripartite alliance itself.

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Undoubtedly, the structural context within which any economic restructuring would necessarily have to take place weighed heavily upon the ANC’s shoul- ders, with the IFIs pushing a rigidly neoliberal line. For example, Mandela’s attempts to address the issue of social transformation in his presidential address were derided as ‘antiquated Marxist gibberish’ by one set of respected international observers.90 The IFIs have provided what Michel Camdessus, Managing Director of the IMF, has referred to as a ‘permanent discipline’, pushing states in the direction of economic liberalisation . In addition, two members of the 15-person technical committee that compiled the GEAR document were from the World Bank and were in a strategic position to convince the other team members of the virtues of the so-called Washington consensus.91 That said, and as noted above, some internal voices in South Africa’s debate were often more fanatically neoliberal than representatives of the IFIs themselves.

The fact is that, despite this process of structural conditioning , a number of prominent ANC intellectuals, in particular Thabo Mbeki, Trevor Manuel and Tito Mboweni, played an important role in shaping the terrain of debate. In short, specific decisions were taken which could have been made differently. For instance, these individuals could have been more sympathetic to the proposals of COSATU and the SACP as outlined in the preliminary drafts of the RDP; or paid closer attention to the recent observation of the senior vice-president of

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the World Bank, Joseph Stiglitz, that the policies of the Washington consensus were too anti-state. This is not to say that following these suggestions would have been free from costs or would have offered an ideal solution to the grievances of South Africa’s impoverished majority; rather it highlights that neoliberal prescription s were but one imperfect option among many.

In relation to the old apartheid structures, we have already noted how the NP’s recklessness contributed to a huge increase in the national debt prior to the GNU assuming office. Clearly, this unwelcome inheritance severely circum- scribed the new government’s ability to fulfil numerous promises made during the struggle. Indeed, even if the ANC had vigorously embarked upon a programme of genuine socioeconomic transformation, they would have found themselves in command of a state which lacked the resources and capacity to implement such a process. However, this is only half the story.

Another crucial, but often neglected, component of the old apartheid structure was the white (both English and Afrikaner) business sector. South Africa’s major corporations, which had undergone only superficial alteration during the transition, and the associated business press were also very effective in pressurising socialist elements within the ANC to conform to neoliberal principles. In addition, the business sector played an important role in facilitating and funding the negotiation process itself and was keen to ensure that a break with apartheid did not threaten its

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ability to profit from a severely exploitative labour system.

In relation to ‘economic’ policy, therefore, South Africa’s major corporations were (and largely remain) forces for continuity rather than change.

The process of dispute within South Africa, and within the Tripartite alliance in particular, was perhaps most notable for the way in which appeals to neoliberalism were assumed to trump all other considerations and perspectives. The disputes occurred in an intellectual climate where neoliberalism was taken to represent the ‘gold standard’ against which rival perspectives were judged. In short, the agents of neoliberalism successfully managed to conceal the (considerable) ideological content of their position, portraying it instead as the only sensible and socially-neutral policy option. This process stymied genuine debate by delegitimising (and often ridiculing) alternative positions. Manuel’s presentation of GEAR as ‘non-negotiable’ is a case in point. However, the ideological struggle that took place within South Africa was never just about winning intellectual arguments; rather it represented a conflict of interests in which the powerful social, political and corporate proponents of neoliberalism effectively steamrollered a somewhat confused and incoherent opposition. Compromise, it appeared, was out of the question.

Finally, although very much implicit in our analysis, there is a need briefly to ask what the costs of neoliberalism are for South Africa. First and foremost, adoption of neoliberal principles

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has exacerbated inequality and increased the concentration of wealth in the hands of the privileged few.92

Apart from the ethically odious (and increasingly dangerous) prospect of living in one of the world’s most unequal economies, such a polarised environment is fertile ground for social and political instability which will ultimately repel the very ‘investors’ GEAR was designed to attract.

Second, by pursuing a neoliberal agenda with scant regard for its tradition of democratic consultation, the ANC is in danger of alienating its traditional constituencies of COSATU and SACP members. While a ‘workerist’ alternative to the ANC remains unlikely, the potentially damaging effects of a fractured alliance should not be dismissed out of hand. In addition, South Africans of all persuasions should look to the horrendous tearing of the social fabric that has occurred elsewhere, not only in Africa but also in Latin America and eastern Europe, where neoliberal prescriptions have undoubtedly aggravated contradictions within these societies. In South Africa, evidence is already apparent that the GNU’s fiscal policies have constructed ‘an economy which goes nowhere in terms of conditions of life for the greater majority of people’.93

Conclusion

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The shift in the ANC’s macroeconomic policy clearly demonstrates that debates about economics can never be separated from politics. ‘Economics’ is not an inherently rational, technical process: it is a social activity in which various interests compete to determine who gets what, when and how on a global scale. In our opinion, such attempts to remove the ‘politics’ from political economy should be viewed with profound distrust.

Backed by a daunting array of material and financial interests both inside and outside South Africa, successive groups of intellectuals (some of whom held ANC membership) successfully persuaded the ANC elite of neoliberalism’s merits. In particular, neoliberalism was portrayed as ‘the only game in town’, discrediting alternatives before they even reached the negotiating table. The result has been a dramatic about-face in the ANC’s economic thinking, whereby the redistribution of apartheid ’s considerable inequities is no longer the primary goal.

Instead, ‘good’ economic policy fetishises transnational capital in an effort to make South Africa ‘competitive’ in the global market-place. In practice, this has meant competing with other destitute regions to provide the cheapest and most ‘flexible’ labour-force.

In sum, there is considerable cause to regret the current shape of South Africa’s transition . As always, it is the poorest who have suffered the most. GEAR has done little to address the chronic unemployment that plagues black South Africans

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and even less to redistribute the profits of apartheid . In this sense, GEAR has failed even on its own terms. Only when the ANC is able to concentrate its efforts on the eradication of poverty and confront the question of redistribution headon will a genuine transition occur. While the ANC may be all geared up for the journey ahead, unfortunately it is heading in the wrong direction.

Notes

The authors would like to thank Anthony Payne, Philip Nel, Peter Vale and the anonymous reviewers for their constructive advice.

1. As late as July 1989 some prominent academics remained convinced that ‘it is unlikely that the ANC will gain (any form of) power by 1992 or 2000. However, by 2010 and 2020 the ANC might share some power as a coalition partner’. W. J. Breytenbach, The ANC: Future Prognosis (University of Stellenbosch: Institute for Futures Research, 1989), p. vi.

2. Roger Tooze, ‘Conceptualizing the global economy’, in: Anthony McGrew, Paul Lewis et al., Global Politics: Globalization and the Nation-State (Polity Press, 1993), p.

235.

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3.

John Gerard Ruggie, ‘International Regimes, Transactions and Change: Embedded Liberalism in the Postwar Economic Order’, International Organization, Vol. 36, No. 2 (1982), pp. 379–415.

4. See Herman Finer, Road to Reaction (Quadrangle Books, 1963), p. 67.

5. J.K. Galbraith, The Culture of Contentment (SinclairStevenson, 1992).

6. Karl Pola´nyi, The Great Transformation: The Political and Economic Origins of Our Time (Beacon Press, 1957), p.

71.

7. James Mayall, ‘The liberal economy’, in: James Mayall (Ed.), The Community of States: A Study in International Political Theory (George Allen & Unwin, 1982), p. 97.

8. Cited in ibid., p. 98. Emphasis added.

9. John Gray, Liberalism (Open University Press, 1986), p.

71. Emphasis added.

10. Cited in ‘The Freedom Charter’, Third World Quarterly, Vol. 9, No. 2 (1987), p. 673.

11. Martin Murray, Revolution Deferred: The Painful Birth of Post-apartheid South Africa (Verso, 1994), p. 18.

12. Nicoli Nattrass, ‘Politics and Economics in ANC Economic Policy’, African Affairs, Vol. 93, No. 372 (1994), p. 6.

13. Matthew Kentridge, Turning the Tanker: The Economic

Neoliberalism and the Political Economy of the 'New' South 111 Africa

Debate in South Africa (Johannesburg : Centre for Policy Studies, 1993), p. 6.

14. Hein Marais, South Africa: Limits to Change—The Political Economy of Transformation (Zed, 1998), p. 148.

15. Financial Mail (Johannesburg), 18 October 1991.

16. Financial Mail (Johannesburg), cited in Patrick Bond, Commanding Heights and Community Control: New Economics for a New South Africa (Ravan Press, 1991), p.

60.

17. Marais, South Africa: Limits to Change, pp. 149–50.

18. Karl von Holdt, quoted in ‘Strategy and Tactics: Karl von Holdt and Devan Pillay’, in: Alex Callinocos (Ed.), Between Apartheid and Capitalism: Conversations with South African Socialists (Bookmarks, 1992), p. 57.

19. Patti Waldmeir, Anatomy of a Miracle (Penguin, 1997), p. 256.

20. Ibid.

21. Heribert Adam, Frederik van Zyl Slabbert & Kogila Moodley, Comrades in Business: Post-Liberation Politics in South Africa (Tafelberg, 1997), p. 171.

22. Waldmeir, Anatomy of a Miracle, p. 213.

23. The budget deficit rose from 0.9 per cent of GDP in 1989–90 to 10.8 per cent in 1993–94. This directly contributed to the stock of governmen t debt rising from approximatel y R100 billion to R250 billion. See Gavan

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Duffy, cited in ‘On Macro-economic Policy’ at http://www.aidc.org.za/themba/on_macro_ eco_pol.html.

Interestingly, this increase in debt of R150 billion could have covered expenditure for essential services in South Africa for nearly twenty years. Business Day (Johannesburg) estimated it would require R90 billion for ten years. 15 September 1998.

24. Most of this paragraph is based on the authors’ interview with Professor Sampie Terreblanche, 15 July 1999, Stellenbosch, South Africa.

25. Philip Dexter, ‘The RDP’, South African Labour Bulletin (September 1995), p. 58.

26. Economic Trends, internal memorandum (1991), cited in Vishnu Padayachee, ‘The evolution of South Africa’s international financial relations and policy: 1985–1995’, in: Jonathan Michie & Vishnu Paday- achee (Eds), The Political Economy of South Africa’s Transition (Dryden Press, 1997), p. 30.

27. Karl von Holdt, ‘What is the Future for Labour?’, Southern African Labour Bulletin, Vol. 16, No. 8 (1992), p.

34.

28. Isaac Sam, Business Day (Johannesburg), 15 August 1994.

29.

E. Berg & A. Batchelder, Structural Adjustment—Lending a Critical View (World Bank Country Policy Department, 1985).

30. Marais, South Africa: Limits to Change, p. 152.

Neoliberalism and the Political Economy of the 'New' South 113 Africa

31. Business Day (Johannesburg), 15 August 1994.

32. Sunday Times (Johannesburg), 17 July 1994.

33. See Patrick Bond, ‘The making of South Africa’s macro-economi c compromise’, in: Ernest Maganya (Ed.), Development Strategies in South Africa (IFAA, 1996).

34. Robin Lee, ‘Choosing Our Future’, Leadership, Vol. 12, No. 3 (1993), p. 72.

35. ‘Foreword’, Nedcor—Old Mutual Scenarios, South Africa: Prospects for Successful Transition (Juta, 1992).

36. Lee, ‘Choosing Our Future’, p. 73.

37. Susan George, The Debt Boomerang: How Third World Debt Harms Us All (Pluto, 1992), p. 109.

38. See Marais, South Africa: Limits to Change, p. 154; and Tom Lodge, ‘Policy Processes within the African National Congress and the Tripartite Alliance’, Politikon, Vol. 26, No. 1 (1999), pp. 5–32.

39.

Sammy Adelman, ‘Capitalising on a New Constitution’, Work in Progress, No. 68 (August 1990), p.

34.

40. Adam Habib, ‘Defeat in Victory: A Macro-study of the Transition to Democracy in South Africa’ (PhD dissertation in progress, City University of New York, 1996), p. 101. Cited in Michie & Padayachee, The Political Economy of South Africa’s Transition, p. 230. Emphasis added.

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41. Financial Mail (Johannesburg), 4 November 1994.

42. Financial Times (London), 7 May 1994.

43. Business Day (Johannesburg), 13 January 1993.

Emphasis added.

44. Weekly Mail and Guardian (Johannesburg), 17 March 1995.

45. Financial Mail (Johannesburg), 9 September 1994.

46. Marais, South Africa: Limits to Change, p. 158. 47.

Ibid., p. 158.

48. Jonathan Michie & Vishnu Padayachee, ‘The South African policy debate resumes’, in: Michie & Padayachee, The Political Economy of South Africa’s Transition, p. 228.

49. Marais, South Africa: Limits to Change, p. 158.

50. Nicholas Oppenheimer, deputy chairman of AngloAmerican Corporation and De Beers, London, 10 December 1996, cited on South Africa Foundation web page at http://www.safoundation.org.za /psae- con.html.

51. The Labour Left Collective, COSATU, the SACP and the ANC: The Parting of the Ways? (Read, Act & Struggle Series, No. 1, August 1998), p. 11.

52. For a more detailed discussion of the RDP’s genesis, see Lodge, ‘Policy Processes within the African National Congress and the Tripartite Alliance’.

53.

David Ginsburg, ‘The Democratisation of South

Neoliberalism and the Political Economy of the 'New' South 115 Africa

Africa: Transition Theory Tested’, Transformation, No. 29 (1996), p. 87.

54. Ashgar Adelzadeh & Vishnu Padayachee, ‘The RDP White Paper: The Reconstruction of a Development Vision?’, Transformation, No. 25 (1994).

55. Jesmond Blumenfeld, ‘From Icon to Scapegoat: The Experience of South Africa’s Reconstruction and Development Programme’, Development Policy Review, Vol. 15, No. 1 (March 1997), p. 76.

56. White Paper on Reconstruction and Development: Government’s Strategy for Fundamental Transform- ation (Government of the Republic of South Africa, 1994).

57. Blumenfeld, ‘From Icon to Scapegoat’, p. 69.

58. Ibid.

59. Nicoli Nattrass, ‘The RDP White Paper: A Cocktail of Confusion’, Indicator SA, Vol. 12, No. 1 (1994), p. 36.

60. See South Africa Foundation, Growth for All: An Economic Strategy for South Africa (South Africa Foundation, 1996).

61. Financial Mail (Johannesburg), 8 March 1996.

62. Michie & Padayachee, ‘The South African policy debate resumes’, in: Michie & Padayachee, The Political Economy of South Africa’s Transition, p. 224.

1. Financial Mail (Johannesburg), 6 October 1995.

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2. Ashgar Adelzadeh, ‘From the RDP to GEAR: The Gradual Embracing of Neo-liberalism in Economic Policy’, Transformation, No. 31 (1996), p. 67.

3. ‘Growth, Employment and Redistribution: A Macroeconomic Strategy’, unpublished, 1996. For the rather limited official debate that greeted GEAR’s arrival, see Debates of the National Assembly, 14 June 1996, Cols. 3041–3099.

4. For a discussion, see Jesmond Blumenfeld, Assessing South Africa’s Growth Strategy (Briefing No. 49: RIIA, 1998).

5. Nancy Murray, ‘Somewhere Over The Rainbow: A Journey to the New South Africa’, Race and Class, Vol. 38, No. 3 (1997), p. 5.

6. First vice-president of COSATU, Connie September , cited in Umsebenzi (July 1998), p. 2.

7. SouthScan , Vol. 12, No. 34 (19 September 1997).

8. Jeremy Cronin, ‘Why the SACP Rejects GEAR’, Weekly Mail and Guardian (Johannesburg), 10–16 July 1998.

9. Growth, Employment and Redistribution: A Macroeconomic Strategy (1996), appendix, p. 10.

10. Adelzadeh, ‘From the RDP to GEAR’, p. 68.

11. Business Day (Johannesburg), 30 October 1998.

12. See Conrad Strauss, chairman of Standard Bank, London, 10 December 1996, cited on South Africa Foundation web page at http://www.safoundation.org.za /psaecon.html.

13. See Anthony Leysens & Lisa Thompson, ‘A Paper

Neoliberalism and the Political Economy of the 'New' South 117 Africa

Tiger? Political Implications of an Export-Led Growth Strategy for South Africa’, South African Journal of International Affairs, Vol. 1, No. 2 (1994), p.

56.

14. Quoted in Rob Davies, ‘Engaging with Gear’, mimeo, 1997, p. 3, cited in Marais, South Africa: Limits to Change, p. 161.

15. Heribert et al., Comrades in Business, p. 161.

16. Nelson Mandela interview with John Pilger, cited in John Pilger, Hidden Agendas (Vintage, 1998), p. 606.

17. For such a justification, see Thabo Mbeki’s statement to the National Assembly in Debates of the National Assembly, 14 June 1996, Cols. 3041–3045.

18. James Heintz, National Labour and Economic Development Institute, ‘GEAR: A Labour Perspective’ at http://www.und.ac.za/und/indic/archives/ indicator/spring97/HEINZ5.html.

19. National Institute for Economic Policy, From the RDP to GEAR: The Gradual Embracing of Neo-liberal- ism in Economic Policy (NIEP, 1996), p. 2.

20. Nicoli Nattrass, ‘Gambling on Investment: Competing Economic Strategies in South Africa’, Transform- ation, No. 31 (1996), p. 26.

21. Nattrass, ‘Gambling on Investment’, p. 29.

22. Simon Roberts, ‘Monetary Policy within Macroeconomic Policy: An Appraisal in the Context of Reconstruction and Development’, Transformation, No. 32 (1997), p. 68.

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23. Business Times (Johannesburg), 16 June 1996.

24. Waldmeir, Anatomy of a Miracle, pp. 257–8.

25. Nico Czypionka, economic consultant, in Cape Times (Cape Town), 30 October 1998.

26. S.J. Terreblanche, ‘The Ideological Journey of South Africa: From the RDP to the GEAR Macro-economi c Plan’, paper for the conference Transforming Public Life: Religion in the Making of Cultural Values and Public Policy, Cape Town, 16 February 1999, p. 10.

27. Alan Ward, ‘Changes in the political economy of the new South Africa’, in: Francis Toase & Edmund Yorke (Eds), The New South Africa: Prospects for International and Domestic Security (Macmillan, 1998), p. 38.

28. The Independent (London), 18 December 1997, cited in Lodge, ‘Policy Processes within the African National Congress and the Tripartite Alliance’, p. 27.

29. Of the other committee members, three were from the Developmen t Bank of South Africa, two from South Africa’s Reserve Bank and one from each of the Departments of Trade and Industry and Finance.

See Terreblanche, ‘The Ideological Journey’, p. 16.

30. See the results from the latest ‘Gini co-efficients’ from Wharton Economic Forecasting Associates, Sunday Times (Johannesburg), 11 July 1999, p. 7.

31. Vella Pillay, The Natal Mercury (Durban), 6 March 1996.

3.

OVERCOMING APARTHEID'S LEGACY: THE ASCENDANCY OF NEOLIBERALIM IN SOUTH AFRICA'S ANTI-POOR STRATEGY

Third World Quarterly, Vol 22, No 4, pp 505–527, 2001

Overcoming apartheid’s legacy: the ascendancy of

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neoliberalism in South Africa’s anti-poverty strategy

FANTU CHERU

Fantu Cheru is at the School of International Service, American University, 4400 Massachusetts Avenue, NW, Washington, DC 20016, USA. Email: MalkomC@aol.com.

ISSN 0143-6597 print/ISSN 1360-2241 040505-23 q 2001 Third World Quarterly DOI: 10.1080/01436590120071768

online/01/

505

ABSTRACT

Poverty in South Africa is intertwined with a host of social and economic issues. The burden of poverty is exacerbated by limited access to basic services, poor housing, limited employment opportunities and inadequate infra- structure, which are an outcome of the terrible legacies of apartheid.

During its first year in office, the ANC-dominated government officially endorsed a policy of ‘growth from redistribution’, whereby a strong state and a strong market were expected to serve as vehicles for generating growth and reducing poverty and inequality. By 1996, however, the

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government had embraced a standard neo- liberal strategy as a central piece of its anti-poverty strategy. This article examines the potential contradictions between what appears to be on the surface progressive social policy on the one hand, and on the other, the implementation of aggressive neoliberal strategies of privatisation, liberalisation and deficit reduction to stimulate the economy and create jobs.

This heavy reliance on market-led solutions is a high risk strategy, since there exists no example internationally where neoliberal adjustment of the sort championed by President Thabo Mbeki and Finance Minister Trevor Manual has produced a socially progressive outcome, especially in a country like South Africa, which is marked by extreme disparity and poverty.

South Africa is a very unequal society, consisting of a highly developed, ‘first world’ sector on the one hand and an underdeveloped, ‘third-world’ sector on the other.

Racial and class differences generally coincide; most members of the wealthy minority are white, and most members of the poor majority are black. A closer examination of the South African Human Development Index (HDI) shows the depth of these inequalities. While the overall score for the country is 0.63, whites score 0.878 while blacks score 0.462. Whites’ score on the HDI is roughly equivalent to that of Spain, while that of the black majority is similar to that of Congo-Brazzaville (Friedman, 1998: 3–4). If ‘white’ South Africa were a separate country, it would rank 24th out of 180 countries, while

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‘black’ South Africa would rank 123rd. According to its Gini-coefficient, of 0.58 (which measures the degree of inequality), South Africa is only second to Brazil, which at 0.63 has the worst inequality among similar middleincome countries (Whiteford & McGrath, 1994; UNDP, 1997). This, said President Mbeki, ‘represents a scale of human suffering and wretchedness which, by any standard, is impermissible’. (Mbeki, 1998: 143). This inequality, historically determined by the apartheid policies of the previous government, continues to be the source of poverty today.

The scale and depth of poverty in South Africa

Estimates of the incidence and depth of poverty in South Africa vary. Figures have ranged from over 56% of the population to just over 36% living in poverty. Roughly 53% of the South African population were living in poverty and earned less than R301 (or $50) a month in 1995 according to the Reconstruction and Development Plan Office (Government of South Africa, 1995). Based on consumption expenditure levels consistent with the minimum level of food intake, which usually defines the ‘absolute poverty’ level, it is estimated that about 40% of the South African population may be considered poor.

This translates into 3 126 000 households or more than 18 million citizens living below the poverty line. Poverty is not confined to any one racial group, but it is heavily

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concentrated among black people: 61% of ‘Africans’ and 38% of ‘Coloureds’ are poor, compared with 5% of ‘Indians’ and 1% of Whites. In the 1990s ‘Africans’ still earned only 20% of what Whites earned. Looking at the expenditure shares, the lowest 40% of households account for only 11% of consumption, while the richest 10% of households account for over 40% of consumption.

Besides race, poverty in South Africa also has a gender dimension. Overall, the poverty rate among femaleheaded households is 60% compared with 31% for maleheaded households—underlining the need to target especially African women in welfare, job creation, and training and small business development programs.1 Of the eight to nine million regarded as completely destitute, the majority are women.

While roughly 50% of the population of South Africa is rural, the rural areas contain 72% of those members of the total population who are poor. These are mostly women with children. In addition, poverty is distributed unevenly among the provinces. Provincial poverty rates are high for the Eastern Cape (71%), Free State (63%), Northwest (62%), Northern Province (59%) and Mpumalanga (57%), and lowest for Gauteng (17%). According to the Poverty and Inequality in South Africa report (1998), it would require R28 billion merely to increase the income of those South Africans living below the poverty line to R353 per month. Fully 76% of this money would have to be spent in rural areas (Government of South Africa, 1998).

Following the first democratic elections in 1994, the new African National Congress (ANC) government has placed

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the need to address poverty and inequality firmly at the centre of its transformation agenda. This is reflected in the poverty audits that have been undertaken, as well as in the range of policy documents and strategies developed in the first five years of its administration. President Mbeki has further reinforced this with his challenge to the nation to create ‘a caring society without regard to race, color or disability.’ (Mbeki, 1999). How the government is facing up to this challenge is the subject we now turn to.

From RDP to GEAR: the ascendancy of neoliberalism.

Since 1994, the ANC government has instituted numerous measures to rectify the legacies of apartheid. The White Paper on Reconstruction and Development formed the overarching strategy of government to redress the economic legacies of apartheid (Government of South Africa, 1996a). The major stated goals of the RDP were to:

1. eliminate poverty and inequalities generated by decades of apartheid; 2. raise living standards and develop human resource capacity; 3. address imbalances and structural problems in the economy and labour markets; 4. end discrimination in business; 5. establish a living wage;

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6. address economic imbalances in southern Africa and develop a prosperous and balanced regional economy.

It was expected that the RDP would provide the impetus required for transforming public service activities and to direct expenditure towards the government’s development priorities. It set out an unequivocal set of targets (see Figure 1). And indeed, in its two years of existence, the RDP office, which was located at the office of the Deputy President, registered major accomplishments before the government decided to terminate the programme in 1996. Most impressive were the connection of electricity to 1.3 million homes and one million new water supply connections (in both cases on strict commercial terms). The housing department claimed (in 1997) that some 193 000 houses were built, compared with the 40 000 built in 1996. A primary school feeding scheme to combat malnutrition among children was operating in 12 3000 schools, free medical care was available to pregnant women and children younger than six years, and 297 new primary health care clinics were built in rural areas. Almost 500 public works programmes were launched, providing temporary employment for 30 000 people while several hundred municipal upgrading projects were started in townships.

The RDP experiment in demand-side stimulation, however, was soon replaced with a supply-side approach when the economic climate became unfavorable to sustain such an ambitious initiative. The RDP was

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therefore subsequently re- articulated in the form of the Growth, Employment and Redistribution Strategy (GEAR—Department of Finance, 1996) and various sectoral White Papers. Part of the reason given by government was that the RDP functioned not as a develop- ment framework, but as an aggregation of social policies designed to alleviate poverty without affecting the complex of economic policies and practices that reproduce poverty and inequality.

For outside observers, the premature abandonment of the RDP by the ANC in favour of GEAR may appear a sudden break from the past. In reality, however, the ideological downshifting actually dates back to the pre-election period (1990–94), when the ANC leadership made a strategic surrender on the economic front. Although political power was handed to blacks, economic policy followed

FIGURE 1

RDP targets

1. Creating 2.5 million jobs in 10 years; 2. Building one million low-cost houses by the year 2000; 3. Providing electricity to 2.5 million homes by the year

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2000; 4. Providing potable water and sewage systems to one million households; 5. Redistributing 30% of arable agricultural land to black farmers within five years; 6. Shifting the health system from curative services to primary health care, with free medical services at state facilities for children under six years and pregnant mothers; 7. Providing 10 years of compulsory, free education, as well as revising the curriculum, reducing class sizes and instituting adult basic education and training programmes; 8. Democratising and restructuring state institutions to reflect the racial class and gender composition of society.

the same neoliberal restructuring that began in the mid-1980s under the National Party of FW De Klerk. The prevailing view in government circles was that economic growth should be translated into redistribution of incomes and opportunities through appropriate social development programmes, economic empowerment and deliberate promotion of employment creation (Government of South Africa, 1998: 53). In so doing, the government hoped to replicate the successful experiences of the newly industrialising countries (NICs) of East Asia which had managed to reduce poverty and inequality drastically in a few short years.

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Promoting economic development: macroeconomic stability

A key step forward in establishing the macroeconomic framework was taken with the publication of the GEAR in June 1996. The GEAR, which the government has tried to present as the macroeconomic policy side of RDP, has largely focused on attacking structural inequalities and eradicating poverty through market-led economic growth and reprioritisation of government budget in favour of dis- advantaged communities. The strategy emphasises the need for improved growth performance to sustain the government’s social and developmental programmes through fiscal discipline, monetary policy and the restructuring of state assets, in order to increase the competitiveness of the economy (Department of Finance, 1996).

The GEAR also emphasises the importance of redistribution in government expenditure priorities and the role of sectoral policies in meeting basic needs and improving services to previously disadvantaged people and the poor. It is widely believed in official circles that public spending channelled to employment- intensive activities can contribute to job creation, although this cannot address the entire shortfall in the labour market.

Policies aimed at strengthening job creation in the private sector take time to bear fruit, but such market-related employment has the advantage of being self-sustaining.

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Time and space do not permit a detailed critique of GEAR (for this, see Bond, 2000). Despite attempts by its architects to present it as a strategy more in line with the NICs model than with the much discredited ‘Washington Consensus’, GEAR bears little resemblance to the stateled mixed-economy approach widely practiced in Taiwan, Singapore and South Korea. The government’s obsession with deficit reduction, containing inflation, restructuring state assets and tax reform has no direct bearing on the achievement of GEAR’s growth and employ- ment targets.

Over the three-year period 1996–98, virtually all GEAR’s targets were missed.2 For example, GEAR projected that 650 000 jobs would be created between 1996–98, when in reality about 300 000 jobs were lost. Its much anticipated massive increase in private investment has not materialised, and productivity increases have been hampered by the shortage of skilled people in both the public and private sectors (ANC, 1998b).

The Asian NICs, on the other hand, succeeded in reducing poverty in the early phase of their industrialisation, not by relying on market-led solutions alone, but by putting emphasis on land reform, reducing income inequalities, and investing heavily in education, and by establishing linkages between the rural and the urban economy to redress unmet basic needs. In addition, the Asian NICs also protected their infant industries until they had developed a competitive niche in exports. Wholesale privatisation of state assets was avoided, and workers affected by privatisation were retrained instead of being retrenched, as is the case now in South Africa.

Furthermore, exchange controls were put in place. The

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effort in the initial years had been on developing the ‘basic needs’ economy before these countries embarked on production for the export market. In so doing, they achieved rapid economic growth without incurring high debts and high human costs.

The above observation regarding the cataclysmic failure of GEAR as the basis for South Africa’s ‘transformation’ strategy should be kept in mind when examining the viability of the government’s national anti-poverty strategy. It is safe to say from the outset that, in cases where clear social gains have been registered since 1994, (eg provision of water supply and education), these are the results of direct and concerted government intervention (in the face of budget reductions) rather than an outcome of the magic of the market place.

Expansion of public sector investment spending in economic and social infrastructure

In addition to liberalisation of the economy, the government’s macroeconomic framework provided for a marked acceleration in investment spending. This partly reflects the need for transport, energy and communications infrastructure associated with increased trade and industrial activity. In addition, social infrastructure development—specifically in housing, water supply, health and educa- tion—forms part of the government’s commitment to providing basic services and

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meeting the basic needs of the majority of the poor (Department of Finance, 1999).

On close examination, however, social infrastructure development has largely been achieved not through the significant commitment of new resources in the budget, but rather through the re-prioritisation of the existing budget allocations and by relying more on market-driven delivery mechanisms. The expansion of public sector investment spending in economic and social infrastructure has focused on the following.

Water supply and sanitation.

Inadequate water supply and sanitation is seen by the government as one of the major symptoms of poverty and underdevelopment While white areas have access to firstworld standards of service, severely crowded townships and rural areas lack basic essential services such as water and sanitation. According to the Census, 55% of South Africans do not access water via an inside tap; the majority of these are in rural areas. Also, 12% of South Africans, mostly in rural areas, have no formal toilet facilities, with only half of households using flush toilets (Department of Statistics, 1998). Use of electricity for various purposes is very limited among black Africans and to some extent among Coloureds.

To address the backlog, a new Department of Water Affairs and Forestry was established in March 1994, assuming responsibility for providing water to communities. In the first five years of democratic government, the programme has brought basic water supplies to over four and a half

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million people. Projects are underway to increase this to seven million (out of an estimated initial backlog of 12 million). Pilot sanitation programmes, while not making nearly as large a dent on the similarly large sanitation backlog, have nevertheless produced a concrete strategy through the experiences of 250 local projects.3 Critically, these activities are conceived and executed as a local government support programme rather than as an independent central government intervention. This reflects the policy as well as the constitutional imperative, which recognises that responsi- bility for the provision of such service is best located at the local level (Department of Water Affairs, 1994; 1996). At the same time, the debate on the privatisation of water services has raised doubts about the sincerity of govern- ment commitment towards the poor.

A good example of the problem of water privatisation is the recent cholera outbreak in KwaZulu-Natal. Water supply cuts to people who were too poor to pay their accounts had resulted in the deaths of 32 people by 25 October 2000. The number of cholera cases reported in the area has risen to 3711 and the number is rising daily at the time of this writing. Water was available free of charge in the Mpendle area in KwaZulu-Natal from the early 1980s after tap water supplies were laid on by the apartheid government following a severe drought. The free water supply was, however, terminated recently as a result of cost recovery systems implemented by the local water board in the area in accordance with the government’s GEAR strategy. The poor who could not afford to pay had to resort to polluted river water to meet their needs and

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this, according to the Ministry of Water Affairs and Forestry, contributed to the cholera outbreak. In the wake of local government elections promised by the ANC, the Inkhatha Freedom Party and the Democratic Alliance Party have promised free access to basic services (van der Westhuizen, 2000). Whether this is pure political opportunism or a real commitment to provide basic services to the poor remains to be seen.

Housing.

Accelerating the delivery of housing has been a major government priority since 1994. The White Paper on Housing provides a long-term frame- work for institutional arrangements, funding and delivery. The aim is to entice banks and developers into providing low-cost housing through subsidies and mortgage guarantees. The main state actor in this sector is the Department of Housing. Other actors include the Development Bank of Southern Africa (DBSA), the National Housing Finance Corporation, NGOs specialising in low-income housing projects, and commercial financial institutions.

Implementation is largely concentrated in the private sector, with the Department of Housing playing a more limited overseeing and monitoring role.

However, large-scale delivery of housing has not occurred because the policy is market-driven, not people-driven, and is co-ordinated by bankers. The World Bank and the

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Urban Foundation—a corporate sponsored think-tank that went out of business recently—have been particularly influential in the evolution of a market-driven housing strategy in South Africa (Bond, 2000). Since 1994 some 600 000 cheap houses eligible for government subsidy have either been built or are under construction, and about 25 000 have been completed. A further 250 000 housing subsidies had been granted for projected housing schemes by May 1998. This is a far cry from the one million low-cost houses that were envisaged under the RDP. On the whole, however, what passes now as housing policy is simply ‘toilets-in-the-bush’’part of a site-andservices programme, in addition to government subsidy and loan guarantee schemes. About 2.6 million houses are still needed for the roughly seven million South Africans living in shanty settlements (Cheru, 1997: 229).

It is not possible here to delve into the profound failure of transition politics in the housing field, which can be traced back to the very hard ideological positions taken by late apartheid state agencies and liberal capitalists, and was exacerbated by inadequate and inconsistent ANC staff attention, cemented through the ‘coerced harmony’ of the kind of bogus social contract formation in the period preceding democratic rule (Bond, 2000: ch 4). The social contract ruled out social housing to ‘kick-start’ the economy as an alternative, and instead focused on sitesand-services schemes and making credit available to the poor using market-based criteria. In some respects, the policy represented a continuation of the ‘deracialisation’ policy in housing that began under the de Klerk era and whose aim was to evolve apartheid racial segregation into

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class-based segrega- tion. The policy was largely drawn from the work done by the Urban Foundation and the Independent Development Trust, which experimented with site-and- services and low-income housing credit schemes mediated by the private sector. This strategy, however, did little to change the geography of urban apartheid or the structural causes of poverty and homelessness in South Africa. The post-1994 housing policy has simply followed the same lines. And with the ascendancy of neoliberal strategy, the role of community groups has been reduced.

Considering the limits of the current market-driven housing policy, the govern- ment needs to invest directly in a public-sector housing programme, focusing on the poor without having to rely on financial institutions. This can be achieved only if the government enters the lower end of the market as a developer and provides rental stock for the marginalised sector for a specified period of time.

This would involve provision of rental stock with an option to take ownership by repayment of a loan portion; loans directly through the housing budget and/or indirectly through the National Housing Finance Corporation; or by increasing the amounts available for people in lower income brackets and decreasing the allowances for those in the higher income brackets.

The missed opportunities of an alternative development model based on a housing ‘kick-start’ become obvious when one examines estimates of the job creation ability of the low-income housing process. The most optimistic scenario done by the National Manpower Commission has

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stated that for every R1 million invested in the building industry, 186 new job opportunities are created. On the more conservative side, the scenario produced by the Gauteng Provincial Government assumes that, for one house built, 22 direct person-days and 21 indirect persondays are created.4 For example, during 1996, 164 055 houses were built or completed, which resulted in 3.77 million direct person-days and 3.45 million indirect person-days. If both totals are divided by 254 working days, this results in 13 671 direct jobs and 13 050 indirect jobs (Department of Housing, 1999).

Improving access to and quality of education.

The South African education system comprises 12 million students, and almost half a million staff. Education expenditure absorbs 26% of the total government budget, but inequalities in spending under apartheid were such that in 1993 the spending on whites was over three times that on Africans. Since 1994, however, South Africa has introduced free and compulsory education for 10 years for all children. It is placing emphasis on non-formal education and early childhood development. Other cornerstones of the education strategy include dismantling racial and geo- graphical disparities in service provision (Department of Education, 1995). The reprioritisation between government departments and functions is one way in which the government is addressing the legacy of under-investment in people and

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past discrimination (Financial and Fiscal Commission, 1998).

Table 1 demonstrates that overall the level of public spending on education is higher than that of other middle-income countries in terms of its percentage of total government expenditure and percentage of GDP. This has remained on average 22.6% (Department of Finance, 1999). About 46% of the total education budget is spent on basic education. In real terms, the increase in expenditure on basic education between 1995 and 1996 was 12.8% (Financial and Fiscal Commission, 1998: 42).

At the same time, there are serious challenges related to the quality of education. Much of the school system suffers from poor manage- ment, high repetition and absenteeism, inadequate work effort and considerable deficits in basic infrastructure and support materials. This is despite the fact that a disproportionate share of public funds is being channelled to poorer schools. A related critical issue in the context of high unemployment, particularly among youth, is the critical need for training in vocational areas, which is not being urgently addressed.

Improving access to health services.

Expenditure on health comprises about 8% of GDP, with 60% of funding from the private sector. The bulk of

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spending is on tertiary health care, with 20% of the total population on medical aid schemes. Only about 12% of public sector health spending accounts for primary health care. The immunisation rate is also slow to increase. The quality of and access to health care facilities and provisions also differ by provinces (Department of

TABLE 1 Consolidated national and provincial spending by function, 1998/99 to 1999/00 1998/99 (R millions)

As % of total

1999/00

As % of (R total millions)

Consolidated expenditure

206 996

100.0 219 602

100.0

Social services

98 814

47.7

103 708

47.7

Education

46 347

22.4

48 532

22.3

Health

23 220

11.2

24 036

11.7

19 262

9.3

19 817

8.9

development

8534

4.1

9855

4.1

Other social services

1431

0.7

1469

0.7

Welfare Housing and community

Sources: Department of Finance, Budget Review 1999, calculated from Table 5.8, p 132.

Welfare, 1997a: 5).

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The most important policy goal of the government has been to shift resources from tertiary and secondary to primary health care, resulting in greater proportional expenditure on primary health care clinics and less on provincial and academic hospitals. The District Health System is viewed as the key to the trans- formation of the health sector and for expanding services to rural areas.

Provinces are, therefore, instructed to make this shift in their budgets (Department of Health, 1997). The most notable achievement has been free health care services for expectant mothers and children under six years of age.

Similarly, the government’s HIV/AIDS initiatives, particularly those focused on poor communities have placed an emphasis on reaching women both for preventive, treatment and support dimensions of the programmes.

One should not minimise the achievements made in the social sector since 1994. At the same time, however, a lot more could have been done in the initial years since there existed a ‘window of opportunity’ to generate new revenues from the white middle class and the domestic private sector. Regrettably, the ANC government was reluctant to levy new taxes on the well-off segments of society and the private sector to finance massive social infrastructure projects for fear of alienating these powerful forces. This would have been possible in the first three years following democratic rule, since most white South Africans were prepared to pay a one time ‘reparation/reconciliation tax’ for their past crime had the ANC government asked for it. It was a missed opportunity given the political climate of the time.

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Indeed, in the initial years, a 5% RDP levy was imposed aimed at reducing the budget deficit and freeing funds for the RDP. In addition, a 1% payroll levy was imposed to fund skill development and training as part of an overall human development strategy (Department of Labour, 1997). But these were miniscule in comparison with what the government would have been able to collect had it gone after the private sector. With the passage of time, however, and with the recomposition of powerful social forces (which now include the new black elites), the government has bent over backwards to grant tax and other incentives to the very capitalist forces who benefited from the apartheid system. This strategy is based on the flawed assumption that the private sector should be the engine for growth and for eradicating mass poverty in South Africa.

Employment creation

Employment status is a key determinant of poverty.

Unemployment in South Africa is very high and is of a structural nature, mainly because of misallocation of resources in the apartheid economy. The unemployment rate is estimated at 30%, but goes up to 55% for black South Africans (Government of South Africa, 1998). Even though job creation is a priority in South Africa, the rate at which jobs can be generated is limited by overall economic considerations, a shortage of skilled workers and high unemployment among the unskilled. New entrants to the labour market have increased to around 450 000 per year, and will rise to 600 000 per year over the next decade

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(Department of Finance, 1999). This is where social development in welfare has to play a major role, combined with the provision of social security as a safety net.

Government and the constituencies of civil society represented in the National Economic Development Labor Council (NEDLAC) reached an agreement during the Presidential Job Summit held in October 1998 to act in concert to create jobs and stable employment, as part of the broader strategy for providing a better life for all South Africans.5 The central objective of the government’s employment strategy is to increase the labour absorptive capacity of the economy. Under the auspices of the Department of Labour, a co-ordinated approach to the unemployment problem has been developed, focusing mainly on skill development, removing structural impediments to job creation and identifying key employment generating opportunities. Employment creation is, therefore, the aim of a range of industrial support policies, tourism promotion, small business development and agriculture support (see above).

Support for the small and medium business sector (SMME)

The government is aggressively diversifying the economy by promoting rapid industrial development, tourism and small business development. The latter sector was suppressed in the apartheid era because the regime did

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not want this sector to develop and absorb labour in competition with the large mining industry. However, since 1990 the sector has started to evolve on its own as a result of economic decline in the formal sector and the dismantling of restrictive apartheid laws. As early as 1995 there were more than 800 000 small, medium and micro enterprises in South Africa, providing jobs for about 3.8 million people. Beyond this figure, other micro enterprises provide jobs for 3.5 million people (UNDP, 1996: 2).

The democratic government has put into place measures to support the sector in a more formal way. In 1996 it issued The White Paper on National Strategy for the Development and Promotion of Small Business in South Africa . The Department of Trade and Industry (DTI) is responsible for promoting small business in the country.

Two agencies—Khula and Ntsika—have been established to provide financial and expert support. Khula is an agency designed to assist small business through advice and mobilisation of resources. In its three years of existence, Khula has assisted 35 000 small, micro and medium enter- prises through its micro finance programme. Its Credit Guarantee scheme assisted about 1000 small to medium businesses, creating 15 000 jobs.6 The Small Business Development Corporation, one of several parastatals, also provides loans and equity investment to small business initiatives. These institutions have become vehicles for the poor to access economic opportunities (Department of Trade and Industry, 1995).

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Land reform

South Africa’s apartheid past has left the country with a skewed land distribution pattern, with far-reaching social and economic consequences. Therefore land reform constitutes a key component of the government’s development strategy. At the same time, it has proven to be a sensitive and difficult area to address given that most of the stolen land has since been reinhabited and developed. The government’s land policy is based on three initiatives: land redistribution to poor and disadvantaged people, land restitution to people who were deprived after 1913 because of racially discriminatory laws, and tenure reform (Department of Land Affairs, 1997).

The land redistribution programme is aimed at the poor, labour tenants, farm workers, women and emergent farmers. Applicants can obtain a Settlement/Land Acquisition Grant to buy and develop land, and the Department of Land Affairs provides planning funds of up to 9% of the grant. After a slow start, the programme has redistributed half a million hectares of land to some 200 000 beneficiaries.7 The National Land Committee (NLC) says that less than 1% of South Africa’s farmland has been redistributed to poor, black households. The target set by the ANC in 1994 was 30%.

Land restitution has turned out to be much more complex than was originally realised (Department of Land Affairs, 1998: 17). The purpose of land restitution is to compensate or restore land to people dispossessed by

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racially discriminatory legislation or practices after 19 July 1913. The Restitution of Land Rights Act (1994) gave content to the constitutional right to restitution. Of the 4000 land claims lodged with the Land Claims Court, 27 have been settled in favour of claimants, involving 168 000 ha of land and about 70 000 people (Department of Land Affairs, 1998).

The third leg of the land policy, tenure reform, aims to provide people with secure tenure where they live and to prevent arbitrary or unfair evictions. The major impact of the tenure policy has been on privately owned land, where some six million people are affected. These include farm workers, their families, and other people living on land with the consent of the owner.

The Land Reform Act of 1996 provides secure tenure to one of the most vulnerable rural groups—people who are employed on the basis that their main remuneration is the right to occupy and farm a piece of land. As a result, the unfair or unlawful evictions of labour tenants have virtually been halted, with major benefits to an estimated 250 000 people (Department of Land Affairs, 1998: 16). Furthermore, the Interim Protection of Informal Land Rights Act of 1996 ensures that holders of informal land rights, mainly in the former homeland areas, are recognised as stakeholders in land transactions and development projects on the land they occupy.

Finally, the Extension of Security of Tenure Act (1997) provides secure tenure for people living on other people’s land in rural and peri-urban areas, and applies human

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rights standards to the relationship between owner and occupier. Work has now been finalised on developing a national Land Rights Monitoring System to determine the impact of legislation, and the related support systems on the tenure security of farm workers and labour tenants.

Needless to say, progress in land redistribution has been far below than what was envisaged under the RDP. Subject to the creeping influence of the World Bank (through its policy advice since the early 1990s), the ANC-dominated government has progressively brought its land policy in line with the market- driven approach long advocated by the Bank. This is a strategic mistake, since similar attempts by the World Bank in neighbouring Zimbabwe, Kenya and other developing countries have done little to alleviate rural misery and mass didlocation of peasants.

Rural poverty in South Africa is being accentuated further by a clear lack of a comprehensive rural development strategy. The over- emphasis by the government and its multilateral supporters to transform South Africa in the image of the NICs of East Asia has resulted in the neglect of the potential contribution of rural development.

The picture that emerges from the foregoing analysis is that the ANC govern- ment’s pre-election social transformation agenda has been severely compromised because of the influence of powerful local elites closely tied to transnational capital. Rhetorically, attempts were made by the government to align GEAR with the socially progressive objectives of the RDP. In reality, however, a tightly controlled macroeconomic balance—deficit reduction, keeping inflation low, privatisation, tax cuts

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and phasing out exchange controls—has taken precedence over redistribution. This has resulted in serious internal contradictions. The social infrastructure was to be expanded while public sector spending was drastically reduced. Job creation was presented as a significant objective while deficit reduction would require the shedding of hundreds and thousands of public sector jobs.

Despite these contradictory tendencies and persistent criticism from organised labour, the government has vowed to stay the course. In a three-day consultation convened in Pretoria by President Thabo Mbeki in early November 2000, where World Bank President James Wolfenson and the Deputy Director of the IMF participated, both the Bank and the IMF gave a ‘thumbsup’ to the government’s macroeconomic policy and advised it to intensify the pace of the reform. The government was further encouraged to repeal the labour law to make the economy competitive in world markets and to attract foreign investment into the country. The argument was that South Africa’s competitiveness is hampered by high labour costs. When implemented, the policy is likely to result in the dismissal of thousands of workers while lowering wage rates and accentuating the problem of poverty in the country.

Welfare, social security and pro-poor social expenditure.

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Since 1994 the new democratic government has devoted large sums of money to the social sector, mainly through the re-prioritisation of the budget. However, this still needs to be monitored closely to ensure that programmes are well designed and well targeted to make a difference to the lives of the beneficiaries. Large expenditures on social programmes through increased taxes on the wealthy and through other means did not happen as initially anticipated. This is because concern for inflation and fiscal prudence have taken precedence over any frontal attack on mass unemployment, poverty and homelessness.

The national anti-poverty strategy includes a broad range of support for the poor. The White Paper on Social Welfare provides a policy framework within which this commitment is being realised. Welfare services comprise a wide range of developmental and community-based functions (comprehensive systems of social services, facilities, programmes and social security), including support for the non-governmental welfare sector (Department of Welfare, 1997b). Welfare financing at present is based on a subsidy system in which the government is considered to be a funder of services and not a purchaser of services.

Targeting poor people for government programmes occurs in a variety of ways. Three types of criteria are utilised: location, population and socioeconomic characteristics.

Poverty relief programmes tend to target rural and urban areas that have a high prevalence of poverty (eg the Coordinated Municipal Infrastructure Programme,

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Community Rural Water Supply Programme, Clinic Building Programme, etc) (Department of Finance, 1999: 123–124). The programmes focus on women, children, youth and the aged—groups considered vulnerable to poverty. Some programmes are based on means tests such as social grants and the housing subsidy (Department of Welfare, 1998: 24).

In some instances, the government has opted for universal coverage over targeted coverage, ie of those where social returns from providing a particular service are high. This is true for basic education, primary nutrition and health care, maternal and child health care, and immunisation.

Any individual in the public school system where the programmes exist can access them. Similarly, where there are significant spillover effects from a benefit, universal coverage has been opted for, eg old-age pensions.

In addition to government institutions, the welfare sector in South Africa has a large institutional infrastructure rooted in civil society. It is estimated that there are up to 10 000 organisations of civil society with a welfare and development focus. The government recognises the need to broaden the scope of partnership with the nongovernmental welfare sector, particularly the current ‘unfunded’ welfare sector where historical imbalances still exist. The National Development Agency, which will assume the work of the Transitional National Development Trust, will channel government funds to organisations for programmes aimed at meeting the development needs of the poor and to strengthen their

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capacity

Special employment programmes

The government has put in place labour-intensive infrastructural and special employment programmes intended to enable quick job creation, particularly for people who are at the low end of the labour market. These include ongoing capital projects and maintenance expenditure by government and public corpora- tions on roads, telecommunications, regional water networks and electrification (Department of Finance, 1998: 46). The bulk of the funding goes for housing (R3.2 billion) and the Consolidated Municipal Infrastructrue Program (CMIP) (about $700 million). Labour-intensive programmes include:

1. The CMIP, which provided grants to local authorities for bulk infrastructure works in low-income neighbourhoods and housing projects; 2. The Community Based Public Works Programme (CBPWP) of the Department of Public Works, which provided mainly rural road maintenance and other local infrastructure needs; 3. The Working for Water programme of the Department of Water Affairs and Forestry, which

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clears alien vegetation in water catchment areas; 4. Rural Water Supply and Sanitation, which provides water services to formerly under-served communities; 5. Support for social development and incomegenerating projects of non- governmental organisations and community-based organisations through the Transitional Development Trust and the National Development Agency. Through its Flagship Programme, the Department of Welfare provides economic development support to unemployed women and their young children living in rural areas.

In 1998, 15 pilot projects were under the implementation phase in eight provinces.

Participants earn two to three times more than they would have received in social security grants (Department of Welfare, 1998: 24).

According to the 1998 Medium-Term Budget Policy Statement, special employment programmes accounted for 300 000 jobs and were expected to add another 100 000 jobs over the period ending 2001. These programmes together created 50 000 temporary jobs, largely in poor communities. The 1999 Budget included R3 billion linked directly to job creation programmes (Department of Finance, 1998: 47). Much of the government’s employment creation projects have explicit training components, and are aimed at strengthening small businesses and community organisations and will make lasting contributions to local infra- structure. It will take

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several more years to assess the actual impact of these programmes on the ground.

The government believes that public spending channelled to employment- intensive activities alone cannot address the entire shortfall in the labour market. Policies aimed at strengthening job creation in the private sector, although taking longer to bear fruit, have the advantage of being self-sustaining.

Put simply, liberalisation and deregulation of the economy should be carried out further with greater intensity.

Social grants

Social assistance in the form of grants remains one of the most extensive forms of redistribution in South Africa.

The Department of Welfare has ended legal disparities by race, changed access to grants and established a unified administrative system at the provincial level. Social grants are provided to over three million beneficiaries, representing income support to a large proportion of poor households. Social security absorbs 90% of the total welfare budget. Social grants provided an important safety net for the poorest households particularly in the rural areas. Social pensions can be used as collateral, infuse cash in rural areas and are gender sensitive. Overall, social grants have been found to be well targeted and decrease poverty and inequality (Department of Welfare, 1997a: 7).

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The government is presently reorientating programmes and resources to support developmental incomegenerating programmes, promotion of family- centred and community-based programmes for children, youth and people with disabilities. The goal of the budget and programme re-prioritisation exercise is to use resources efficiently in order to reach out to as many poor people as possible.

Poverty Relief Fund

The main source of funding for the anti-poverty plan is through the budget, broadly as indicated in the public expenditure review above. There is, however, funding which is earmarked for specific poverty relief programmes above and beyond broad programmes targeted at meeting basic needs. In the 1994/1995 FY the government allocated funding through the RDP fund. This funding was earmarked for targeted spending on the most pressing poverty-related problems. An important component of this funding was the R250 million allocated for community-based public works programmes.

In 1997 the Minister of Finance allocated R300 million for special anti-poverty programmes. A further R203m has been allocated for the 1999–2003 budget years. Of this fund, R50 million was allocated to the Department of Welfare to support community-based social development projects. As a result of the success of this initiative, the

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Department of Finance allocated R800 million toward a multi-year Poverty Relief Fund (Department of Finance, 1998). This is over and above the money allocated to other sectors of the social services in the welfare budget.

Table 2 indicates round figures of funds which were allocated by the Department of Finance to poverty relief in different financial years. The purpose

TABLE 2 Poverty Relief Fund

Programme

1997/98

1998/99

1999/00

Poverty relief R300 million R500 million R1 billion

Sources: Compiled from Annual Report of Social Welfare and the 1999 Budget Review, Department of Finance.

of the fund is to allocate money to local projects on the recommendation of provincial welfare departments, and to national projects in collaboration with national departments and NGOs in the welfare sector. In addition to funding in these areas, a certain component of the fund will be utilised for building the capacity of NGOs and community-based organisations involved in preventative

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and early intervention services, eg, HIV/AIDS counselling services for young people in rural villages and towns, which do not have adequate access to welfare services (Department of Finance, 1998).

Housing subsidies

The government allocates housing subsidies to poor households with an income less than R1500–R3000 a month. The maximum amount of the subsidy is R16 000 and decreases as the level of income increases. The subsidy can be utilised to achieve single home ownership.

In reality, however, most people receiving this subsidy are not able to access bank loans to top up the R16 000 because of high interest rates and the stringent qualification criteria of the banks, such as having secure regular employment.

Subsidies are also available to builders in projects controlled by provincial committees. This is designed to entice builders into social housing projects, which they are unlikely to otherwise undertake.8 Yet fewer than 20% of houses built under the subsidy scheme were linked to the R16 000 subsidy scheme for individuals (Department of Housing, 1996). Given the cost of administering a large portfolio of small loans, it should not be surprising that the banks do not favour low-income mortgages. As profitorientated companies, their rate of return is much higher when they service fewer, larger loans. In light of this, a

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mechanism such as a Community Reinvestment Act is needed to compel banks to make available loans to lowincome customers (Bond, 2000: ch 4).

The Child Support Grant

The Welfare Laws Amendment Act, which was passed in December 1997, ushered in the new Child Support Grant over a five-year period. This grant replaced the State Maintenance Grant, which exclusively targeted White, Coloured and Indian households during the apartheid years. The Child Support Grant programme, which became effective on 1 April 1998, is a cash transfer to poor families to care for young children under seven years of age. It is intended to supplement the cost of rearing young children, particularly in rural areas. The grant is targeted at three million children and is means tested in order to reach the poorest children. The objective for FY1999/ 2000 is to reach 500 000 children with payments. Cooperation with NGOs such as the South African National Civics Organisation (SANCO) has borne fruit in increasing the uptake of the grant (Department of Welfare, 1999: 3).

The Child Support Grant must be viewed within the wider context of the government’s efforts to reduce poverty in the country.

In summary, the central theme of South Africa’s welfare

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policy is social development—a process through which members of society can increase their individual and institutional capacities to mobilise and manage resources as well as produce sustainable improvements in their quality of life, consistent with their aspirations. Central to this approach is the recognition that, while there is a need to address the symptoms of poverty through material relief/grants, sustainable development strategies are those that focus on building institutional capacity to address structural conditions. While the focus on economic growth is commendable and inevitable, the heavy reliance on market forces to redress the legacies of apartheid is misguided and unsustainable in a society marked by extreme inequality and poverty. The gulf between the government’s macro- economic policy and its social policy is glaringly apparent.

The financing of the national anti-poverty plan.

The bulk of the funding for the national anti-poverty strategy occurs through the regular budget, while added support comes through the Poverty Relief Fund. The government’s approach is that the needs of poor people must be met through the re-prioritisation of the budget towards the provision of basic needs, support for job creation strategies that encourage labour-intensive employment and SMMEs, and measures that enhance the competitiveness of the economy.

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A primary tool used by the government is the reprioritising of state expendi- ture, thus moving the budget towards reconstruction and development. One of the core elements of the GEAR strategy is a renewed focus on budget reform to strengthen the redistributive thrust of government expenditure. To give effect to this, the government embarked on a significant budget reform process, which was to assume a central role in its development plans; it introduced a three-year rolling expenditure plan known as the Medium Term Expenditure Framework (MTEF). The policy statement tabled in parliament in November 1998 outlined the division between national, provincial and local government for the next three years, and set out broad medium-term expenditure projects.

Aiming to assess how reconstruction and development could be addressed through the budget and the reprioritisation of expenditure, a comprehensive review of six spending functions was undertaken: education, health, welfare and social security, infrastructure investment, the integrated justice sector and personnel spending. The reviews also sought to ensure greater effectiveness of donor support in strategic areas. These included: job creation against the back- ground of a broad range of policy commitments; strengthened infrastructure investment in areas such as electrification, transport, water, telecommunications, etc; improving performance in the integrated justice system—Justice, Police and Correctional Services; enhancing the quality of education, reforming provincial education spending, with particular emphasis on increasing capital expenditure, and skills

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development; improving health services; strengthening welfare and social security.

and

Institutional arrangements for implementation of the National Anti-Poverty Plan

All government functional departments are responsible for implementing the national anti-poverty programme.

The Co-ordination Implementation Unit (CIU) located in the Office of the President is responsible for programme co-ordination. It does this through the Chief Directorate of Intergovernmental Co-ordination. The CIU, which is coordinated by the Minister of Welfare, chairs the Interdepartmental Committee on Poverty.9 The Minister of Welfare also chairs the Cabinet Committee on poverty reduction. The committees are supported by tech- nical task teams, which comprise the top management of the various ministries. Cross-departmental co-ordination is facilitated through inter-departmental committees, which are structured along clusters, eg social sector, economic sector, and intergovernmental relations (Presidential Review Commission, 1998). In addition to the policies and programmes implemented by the line function departments, some are the responsibility of the provincial and local spheres of government as set out in the 1994 Constitution.

A major challenge for the national anti-poverty plan is co-ordination across departments and among the three

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spheres of government through effective intergovernmental relations, institutions and mechanisms.

Where concurrent power exists, national government sets norms and standards in consultation with the provincial sphere of government. The National Council of Provinces (NCP) is the institutional mechanism through which provincial government participation is effected in the legislative process. Through its proximity to grassroots linkages, infrastructure investment projects, local economic development strategies, partnerships with the private sector and integrated development plans, local government is believed to be the public service agency best able to have a direct and enduring impact on the lives of citizens.

Intergovernmental co-ordination

A system of intergovernmental fiscal relations exists to ensure that all spheres of government are allocated sufficient funds from the central government to carry out their mandates. Revenues collected at the national level are then allocated to other spheres of government through grants allocated on the basis of a formula. The provinces generate only 5% of their revenue needs and receive the other 95% in the form of unconditional and conditional transfers from national government (Department of Finance, 1999). The Constitution requires that several factors should be taken into account. These factors include the level of develop- ment of the province and

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extent of need for basic services. Expenditure allocation among the three spheres of government attempts to carry through the logic of the anti-poverty plan.

Local governments and municipalities are seen as having an important role to play in the implementation of the Anti-Poverty Plan. The 1994 Constitution grants extensive legislative power to the provinces, ranging from key service delivery functions such as education, health and welfare, to more facilitative function such as town, regional and district development planning. They are expected to play both a planning and developmental role (Ministry of Provincial Affairs and Constitutional Development, 1998). The White Paper on Local Government (1998) established the basis for a new integrated and developmental local government system, which is committed to working with citizens, groups and communities to more effectively meet their social and economic needs.

Despite the devolution of power to local governments, however, many pro- vincial and municipal structures have struggled to find their feet. Severe capacity constraints are one reason, exacerbated by conventional executive–legislature relations and dynamics. This situation has allowed corrupt local politicians to siphon off taxpayers’ money for their private ends. In the Eastern Cape, for example, 10 out of 14 provincial departments, responsible for 97% of the budget, failed to submit proper accounts for 1998–99 to the auditor- general.10 Strengthening the capacity of local governments for poverty reduction, therefore, remains the Achilles hill of

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transformation. This is particularly true in the case of the poorest provinces—Eastern Cape and Northern province—where such capacity is woefully lacking because of the integration of former ‘homeland’ civil servants in the new local government structures.

Scope for civil society participation in poverty reduction

At the community level, depending on the nature of the programme, efforts have been made to incorporate mechanisms which enable poor people to play an active role in deciding how the benefits from programmes are distributed. For example, in the community-based public works programmes, communities often set up committees to manage the programme. The committee, in conjunction with other structures, determines what infrastructure should be built and where, what the employment criteria should be, what wages should be paid, and how many days/hours different people should work in order to spread the benefits of the programme to as many households as possible. Similarly, with the Community Water and Sanitation programmes, communities could through their Water Committees influence the location of taps and methods for determining payments and managing the water supply.

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At the level of macro-policy, however, the influence of the most disadvantaged segments of the population is often limited. The one exception was the National Speak Out on Poverty Hearings (March to June 1998) convened by the Commission for Gender Equality, the South African Human Rights Commission and the South African NGO Coalition. The Poverty Hearings provided a platform for poor people in South Africa to share their perspectives on what economic and social rights meant for them, the obstacles and difficulties they experienced in gaining access to these rights, their suggestions for overcoming these obstacles, and the role of government in promoting their rights.11 Generally, however, limited access to media, low education levels and geographic isolation from the centres of government, not to mention constraints of time and money, preclude meaningful participation among much of society in policy decisions.

Risks and threats to the national anti-poverty strategy

The success of the national anti-poverty strategy will depend on the capacity of the government to manage the following threats effectively.

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Unsustainable economic policy

The sustainability of a market-led strategy for fighting structural poverty and inequality in the context of a volatile global economy is widely questioned, not only in South Africa, but also in other parts of the world. The GEAR strategy of rapid liberalisation of the domestic economy and the abandonment of financial controls effectively rendered GEAR hostage to the vagaries of finance capital. By allowing uncontrolled penetration of domestic financial markets by foreign capital and encouraging the migration of local capital, patterns of investment are swept out of the ambit of government policy. The lessons of the East Asian crisis and the effect of financial contagion on South Africa four years ago are excellent reminders of the importance of financial control and the need to avoid indis- criminate liberalisation of the domestic market. The South African stock market crashed by 40% between April and September 1998; the currency dropped 30% over a few weeks in between. To avert the slide, the Reserve Bank raised the interest rates by 61%, the highest real level in South Africa’s modern history (Bond, 1999: 7). Moreover, as South Africa is heavily integrated into the global economy, slower world growth will have a serious impact on the economy through both weaker export prices and volumes and a more cautious investment environment (ANC, 1998a).

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HIV/AIDS

The high prevalence of HIV among large segments of the South African population presents a new challenge to the government’s anti-poverty strategy. Its effects on the human development prospects of South African citizens are already massive, and if not seriously addressed, will be traumatic (UNDP, 1998). In the absence of any major breakthrough in countering HIV infection or curing the disease, AIDS will significantly affect future mortality, family structures, labour market participation and demands on health and welfare services. Unless the disease is checked, one in every four citizens is expected to be HIV-positive by the year 2010 (UNDP, 1998).

Crime

A third threat eroding the ability of the poor to utilise all their assets in an efficient and productive manner is crime. South Africa has a high incidence of all forms of violent crime, particularly gender violence, which affects women of all races. Although it affects both rich and poor, black women in poor communities are most at risk of gender violence. The incidence of reported rapes has increased steadily since 1994.12 The high levels of violence also affect children, both directly, as victims of crime and abuse, and in terms of psychosocial trauma. The

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rising level of crime is severely testing the government’s capacity to provide its citizens with a sufficiently secure environment and puts pressure on welfare, health and education systems while threatening the integrity of family and community structures. In 1996, the National Crime Prevention Strategy was introduced to strengthen public and international confidence in the government’s capacity to deal with the levels of crime. As long as unemployment and poverty remain high, however, the crime situation is likely to get worse before it gets better.

Concluding observations

The efforts of the South African government to generate economic growth and reduce poverty through market-led solutions are commendable, and even desirable in the context of globalisation. However, in a South Africa marked by extreme inequalities and poverty, the most appropriate strategy to follow would have been a mixed economy approach in order to establish the basic foundations for long-term development through the provision of basic services and the redistribution of income. The Asian NICs succeeded in reducing poverty in the early phase of their industrialisation not by relying on market-led solutions alone, but by placing emphasis on land reform, reducing income inequalities and investing heavily in education, and by establishing linkages between the rural and the urban economy to redress unmet basic needs.

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Unlike South Africa, the Asian NICs also protected their infant industries until they had developed a competitive niche in exports. Wholesale privatisation of state assets and indiscriminate liberalisation of the domestic market were avoided, and workers affected by privatisation were retrained instead of being retrenched, as is the case now in South Africa. The effort in the initial years was on developing the ‘basic needs’ economy before these countries embarked on production for export markets. In so doing, they achieved rapid economic growth without incurring high debts and high human costs. The NICs’ past development experience, and their sudden trouble in 1997, should be instructive for policy makers in South Africa as they try to navigate the cold currents of globalisation.

Second, given the myriad policies, programmes and initiatives on poverty that are under implementation by the South African government, it is essential to establish an effective mechanism for assessing overall impact and to ensure that programmes are well designed and well targeted to make a difference on the ground. However, no system exists to provide a comprehensive and integrated picture of what the impact of the various initiatives is on the overall reduction of poverty and inequality. Some government departments may have internal monitoring and evaluation mechanisms, designed to inform them how well they are meeting the targets they have set for themselves. But how well their individual success and failures compare to those of other departments is not clear. Finally, it is of paramount importance that government and civil society institu- tions involved in the

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implementation of poverty strategies have robust internal systems for managing and evaluating performance.

Equally important is the calibre of human resources deployed to co-ordinate programmes and interface with stakeholders at both local and national levels. This is especially true in the case of the poorest provinces—Eastern Cape and Northern Province—where such capacity is lacking because the integration of former ‘homeland’ civil servants into the new local government structures. The central government must invest heavily to improve the performance of public institutions in these two provinces, if the delivery of services to the poor is to be handled efficiently and in a timely fashion.

References

African National Congress (1998a) The global economic crisis and its implications for South Africa, Discussion Document, Alliance Summit, Johannesburg, 24 October.

African National Congress (1998b) The state, property relations and social transforma tion, ANC Discussion Document reprinted in African Communist, 4th quarter.

Bond, P (1999) The ‘Washington Consensus’: winning or waning?, Southern Africa Report, March. Bond, P (2000) Elite Transitions: From Apartheid to Neo-liberalism in South Africa (London: Pluto Press).

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Cheru, F (1997) Civil society and political economy in South and southern Africa, in: S Gill (ed), Globalisation, Democratisation and Multilateralism (Basingstoke: Macmillan and United Nations University Press).

Commission for Gender Equality, the South African Human Rights Commission and the South African NGO Coalition (SANGOCO), Poverty and Human rights, National Speak Out on Poverty Hearings, March to June 1998.

Declaration of the Presidential Job Summit (1998) convened

by President Nelson Mandela, 30 October 1998.

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Department of Health (1997) White Paper for the Transformation of the Health System in South Africa (Pretoria: Government of South Africa).

Department of Housing (1996) Housing Facts (Pretoria: Government of South Africa).

Department of Housing (1999) Job Creation in the

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Building Industry: Establishment of a Calculation Method, draft report.

Department of Labour (1997) Green Paper on Skills Development Strategy for Economic Growth in South Africa (Pretoria: Government of South Africa).

Department of Land Affairs (1997) White Paper on South African Land Policy (Pretoria: Government of South Africa).

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Department of Statistics, Statistics South Africa 1998 (Pretoria: Government of South Africa). Department of Trade and Industry (1995) White Paper on National Strategy for the Development and Promotion of Small Business in South Africa (Pretoria: Government of South Africa).

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South Africa, Annual Statistical Report (Pretoria: Government of South Africa).

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Notes

A longer version of this article was submitted to UNDP

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as a background paper to the global report on poverty, Overcoming Extreme Poverty (UNDP, New York: 2000).

1 Statistics South Africa figures, using the 1995 Income and Expenditure Survey; and Government of South Africa (1998).

2 Annual GDP growth fell from 3.2% to 1.7% to 0.1% percent in 1996, 1997 and 1998, instead of the strategy’ s projection of 3.5%, 2.9% and 3.8% growth. The rate of increase in private sector invest- ment fell from 6.1% to 3.1% to a negative –0.7% in 1996, 1997 and 1998, instead of rising by 9.3%, 9.1% and 9.3%, respectively. Of private investment, virtually all foreign direct investment was related to the purchase of existing assets through privatisation as opposed to new plant and equipment.

Exports of South African products (other than gold) rose slowly in 1997– 98 (5.3% and 2.1%, respectively), confounding GEAR projections of 8% and 7%. Interest rates remained in double digits from 1996–98 (instead of falling from 7% to 5% to 4%, as GEAR hoped) and the value of the rand collapsed. National Institute for Economic Policy, NGQO! An Economic Bulletin , 1 (1), http:\\ www.niep.org.za\, pp 1–3 3 Interview with Mr Mike Muller, Director General, Department of Water Affairs and Forestry, Pretoria, 6 September 1999.

4 The number of direct and indirect jobs created per year

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is calculated by dividing the number of direct and indirect person-days created by 264 working days per year.

5 Declaration of the Presidential Job Summit (1998).

6 Personal communication with Dr Patrick Kohlo, Chief Director, Centre for Small Business , Department of Trade and Industry, and with Dr Thami Madinane, Khula Enterprise, Mid Rand, 26 August 1999.

7 Interview with Dr Geoff Budlender, Director General, Department of Land Affairs, Pretoria, 6 September 1999.

8 Interviews with Dr Denis Barnard, Director General and Mr Karsen, Deputy Director General, Department of Housing, Pretoria, 9 September 1999.

9 Interview with Mr Pundy Pillay, Deputy Director General, Office of the President,(Pretoria, 26 August 1999; and interview with Ms Julia De Brun, Focal Point for the Poverty Programme, Office of the President, Pretoria, 30 August 1999.

10 The problem of growing corruption was the subject of an article in the 28 April 2001 issue of The Economist, ‘South Africa, trouble, trouble’, pp 45–46.

11 Commission for Gender Equality et al (1998).

4.

MARIKANA, TURNING POINT IN SOUTH AFRICAN HISTORY

5.

NEW CHAPTER

6.

EXTRA CHAPTER

This article is copyright ---------------------------------

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This is a Subtitle

The Contributing Author

PART II

PART 1

7.

NELSON MANDELA AND THE POLITICS OF SOUTH AFRICA'S UNFINISHED LIBERATION

PART III

PART 2

8.

CONSTITUTIONALISM AS A BARRIER TO THE RESOLUTION OF WIDESPREAD COMMUNITY REBELLIONS IN SOUTH AFRICA