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Publication Details

Reference
Dwyer, Peter  (2005)  GEAR is Dead, Long Live GEAR . Alternative Information & Developement Centre : -.

Summary
With a huge majority in parliament, control of all provincial parliaments
and with the power to change the constitution given its two-thirds majority,
attention should be focused on what the ANC government plans to do about the deepening socio-economic crisis that grips SA.

In case the post-electoral, post 10 years of democracy celebrations and post successful world cup bid euphoria has dulled our minds to this crisis two important reports should have brought this back into focus. The United Nations Development Programme's South Africa Human Development Report 2003 states that "a highly skewed distribution of wealth, extremely steep earning inequality, weak access to basic services by the poor, unemployment and underemployment, low economic growth rates and the weakening employment generation capacity of the current growth path, environmental degradation, HIV/AIDS and an inadequate social security system" lie behind the deepening of.poverty and the widening of inequality over the last 10 years. The report identifies employment as "the bridge between economic growth, poverty eradication, and opportunities for human development." Yet according to official statistics unemployment has grown to over 40%, the highest in the world for similarly sized economies.

With such high levels of unemployment one may be forgiven for thinking that workers with jobs are in a privileged position. The Labour Research Services Bargaining Indicators for 2004 dispels this myth. The Report highlights that since 1994 while executive directors have had average annual increases of 29%, workers average annual increases was just 6.5%. barely keeping up with inflation. According to the report the percentage of national income going to big business has increased steadily during the past 10 years while that of wages to employees has decreased. No wonder people are saying: 'the rich have got richer and the poor have got poorer'!

With Executive Directors earning 111 times more than the minimum wage it is no wonder that Kevin Wakeford, Managing Director of Growth Africa can conclude that "The general direction that we took was the correct one. Economic policies have in fact been slanted in the favour of big business and at times they got away with murder…The professional, middle and working class, the unemployed and small and medium enterprises have patiently endured the hegemony of big business influence during the past decade.",
Business Day 26, February 2004.

A shift in GEAR
President Mbeki placed poverty eradication and the creation of jobs at the centre of his recent State of the nation Address. With his focus on increased state investment in infrastructure, the roll-out of an expanded public works programme and increased role of the state in the economy the impression has been given that the government has shifted from GEAR. The macro-economic strategy GEAR with its emphasis on controlling government spending, trade liberalisation, privatisation etc. has been the source of much tension and conflict between government and the popular movement. The question being asked is this home-grown structural adjustment programme thankfully now being abandoned? COSATU is beginning to think so. Zwelinzima Vavi, COSATU's General Secretary was widely quoted as saying privatisation is dead and recently numerous articles in the business press have been speculating on what has happened to the much anticipated selling-off of the family silver.

The position was clarified by the newly appointed Minister of Public
Enterprises, Alec Erwin, suggesting Vavi was premature in his assessment.
Speaking during the debate on President Thabo Mbeki's state of the nation
address, Erwin said an essential part of this would be the restructuring of
key state-owned enterprises, to open up investment in the economy as a
whole. "As has been the case up to now, we will use the options of strategic
equity partnerships, joint ventures, concessions, licensing and, in certain
areas, outright sale of assets," he said. This is privatisation by any other
name.

In case anyone still believed that the fundamentals of current economic policy were being abandoned it is useful to review the Financial Mail's (a pro-business magazine) take on things: "the mandate from Mbeki is unequivocal: make public corporations central to economic development and enable business to thrive through better service and cost- ffective
policies." (Financial Mail May 28 2004, p20.)What government has developed is a series of micro-economic reforms to unblock obstacles to economic growth, which will be driven by big business. The hope of government remains that as growth gains momentum job creation will take place. In this sense the idea of government is to recognise that relying solely on increased foreign investment to spur growth has not worked and that state enterprises such as Transnet, Eskom, Telkom, etc. will be used to create an enhanced conditions for doing business in the country. What is being focused on is reducing input costs as a means of keeping production costs low. Given that the focus of economic strategy remains export oriented government plans an overhaul of the transport system, especially air and rail freight, improved working of the ports especially the container terminals. Disappointing for COSATU will be Erwin's insistence on the crucial role of the private sector in state enterprises through private-public partnerships. Thus, it is envisaged that concessions will be offered to big business to run certain harbours or key installations in the ports such as the container terminals.
Also planned is the concessioning of certain rail lines.

Strategies announced recently by the cluster of Ministers responsible for economic matters suggest that state enterprises will be reorganised to improve their operations, be debt free and able to raise finance independently of government. According to these Ministers the parastatals must be self-financing. What this means for workers and the broader community is that a leaner meaner state machine is being put in place – most likely accompanied by continued retrenchments and the intensification of the rate of exploitation - and the services these enterprises offer will be based on full cost recovery – meaning if you are unlucky enough not to have a regular income you will not be able to afford water, electricity, telephones, sewage, refuse removal etc.

In essence we have a sophistication of the GEAR strategy not its abandonment. Macro-economic strategies are being complimented by a series of micro-economic reforms that government hopes will lead to increased economic growth. Who the beneficiaries of the growth will be, is indicated by the LRS research and by the sensational report by This Day (4 June 2004) that reveals that Patrice Motsepe has over 10 years amassed R4 bn in assets.

In the absence of private sector investment the government has shifted gear
to fill the breach to create better conditions for private sector
investment. Nevertheless, all the fundamentals of GEAR's neoliberal policies
remain intact: open export oriented economy, based on liberalised financial
markets and oiled by free trade, restructured state assets on a firmer
commercial basis with private-public partnerships, strategic equity schemes
and business concessions. Other key pillars of the GEAR policy remain i.e.
restrained fiscal spending with low budget deficits, low tax rates for
corporations and low inflation policy kept in place through adjusted
interest rates. Not even the World Bank understands the government's
over-vigorous adherence to economic orthodoxy. Fayez Omar World Bank
Director for SADC interviewed in This Day questions the wisdom of current
policy "From a macro-economic perspective one could also ask if South Africa needs such small fiscal deficits, especially as economic growth and job creation are paramount issues. An expanded fiscal deficit could translate into higher inflation but one needs to weigh up the optionas."

Economic policy in South Africa can be likened to the imperial monarchies of the past the king dies and everyone hails "long live the king" in honour of the newly installed king.




Government Privatisation Policy: What is going on? Since the ANC landside election victory in April 2004, headlines like 'Privatisation on the back burner' (This Day 17 June 2004) have led some people to say that government policy has changed for the better. Zwelinzima Vavi, of COSATU, has spoken of the 'government's shift and rethink on privatisation' (Business Report 28 May 2004).

Story behind the story
The government has put off the outright sale of state-owned enterprises such as Eskom and other major assets. Although Alec Erwin admits they will still sell 'non-core' assets and have not ruled out selling off Eskom and the government's remaining stake in Telkom in the future.

But before we tell people to stop their anti-privatisation campaigns, it is important to understand that the government has not abandoned the principle of privatisation but has changed the form of privatisation.

There are several main reasons for this. Firstly, the anti-privatisation strikes that took place between 1999-2002 and protests by community organisations pressurised the government. Secondly, the failure of large privatisation projects, such as rail privatisation in the UK, means more people are questioning the usefulness of privatisation.

Thirdly, since 1994, instead of spending more money on social grants, building houses and schools etc (and so creating more jobs) the government has used money from the sale of state assets to pay off its debts. Because it has reduced its debt quicker than expected (or needed to), it no longer urgently needs extra money from privatisation to pay off debts.

Finally, changes in global market conditions (and the strong rand making South Africa more expensive for international investors) means the telecommunication and airline industry are not a good place to invest right now and so it has been difficult for the government to attract buyers for Telkom and South African Airlines.

All of this forced the government to re-think its privatisation strategy and
place greater emphasis on other forms of privatisation such as Public
Private Partnerships (PPPs).

PPP: Promoting Private Profits
PPP is the name given to the different ways that governments encourage the private sector to operate on behalf of the state sector. Through PPPs the government enters into a contract with a private business to provide public services and/or public infrastructure. For example, a government department can ask a private business to build, finance and manage a new hospital.

A government magazine called PPP Quarterly shows they have signed 12 PPP
deals worth R8bn, with 50 more planned such as the R7bn 'Gautrain' (a rail
link between Pretoria and Johannesburg). The Department of Trade and
Industry (DTI) new R400 million campus buildings in Pretoria are also being
built on a PPP basis.

By using PPPs the government says it is saving the public money because the
private sector borrows the money for a project like the DTI buildings. Yet,
under a contract the government still has to pay a yearly 'management fee'
to the private company. So, the government saying PPP's save money is like
saying a person who borrows from a "loan shark" to pay off a debt to a bank
has saved money!

In other words, PPPs are still a form of government borrowing (from the
private sector) which has to be repaid using public money or through giving
the private sector a 'concession' (permission) to charge the public for
using services. Just like the private businesses that charge tolls for using
sections of the N1 highway.

Normally, if the government needed a new public building like a school, they
paid building contractors to build it and the state (the public) owned it.
Using public money, we then paid public sector workers (often unionised) to
run the public service. Under PPPs, we pay a private company to build a
hospital - and they own it, we lease it back a bit like a hire purchase
agreement.

Privatisation by the back-door
There are different types of PPP. Service agreements are contracts up to 5
years where the government 'contracts out' work to a private company for
services such as meter reading and waste collection. The company makes its
profit by charging the government or council for the service.

A concession is when a private business manages and pays for all aspects of
running a building(s) and providing a particular service, usually over a
period of 15 years and charges the government for this service.

Commercialisation is another form of privatisation where the profit-making
motive is introduced to public organisations. Whilst this began under
apartheid, the ANC government are using it more.

Not only are jobs lost (since 1994 27,000 workers in Telkom and 16,000 in the Post Office have been retrenched), commercialisation and the pressure to be 'efficient' (make profits) means cutting costs, (reducing wages and benefits). After the commercialisation of some public services in Nigeria the unit price of electricity increased by 883% between 1985-1995 and the cost of postal services increased by 25 times.

Abandoning the management of state functions to private businesses through 'contracting-out' or 'outsourcing' is another form of privatisation. For example, the government recently announced that the R13 billion backlogs in repairs of state-owned buildings would be done by the private sector.

This is often justified as 'empowering' black people as the contract is given to a BEE company. However, this just creates more BEE Fat Cats making profit from public services and does not empower poor black working class communities.

Public Service or Private Profit?
Unlike the private sector, public sector service delivery is not normally based on making profits but to serve the public by providing 'public goods' such as roads or subsidizing an economic activity.

All forms of privatisation are anti-democratic because private businesses are ultimately accountable to their shareholders (not elected councillors or MPs like the public sector) whose main interest is profit and not providing services where they are most needed. In some countries 'commercial confidentiality' has been used to prevent trade unions and citizens from getting access to information about PPPs. No wonder banners held by striking workers on the anti-privatisation protests in October 2002 stated 'Privatisation is born again apartheid'.

Also, as trade unions are weaker in the private sector these forms of privatisation shift the balance of power in workplaces to management. There is a huge amount of evidence, particularly from the UK, that workers pay and conditions worsen under PPPs.

If this is allowed to continue, then many other services once provided and run by the public sector will become a source of profits for local and multinational corporations at the expense of citizens and public sector workers.

If the government have abandoned privatisation, they have a funny way of showing it. The Sunday Tribune (26 September 2004) reports how a conference '…to examine how private enterprise can participate in the water sector' in Durban next month will be attended by former Ministers Kadar Asmal, Ronnie Kasrils and current Minster Buyelwa Sonjica.

This is why the business magazine, The Financial Mail, says the shift in focus of government policy is not a move away from the free market and BusinessMap Foundation executive director Reg Rumney says: 'There has been no fundamental change of policy, it is true, but there has been a definite shift of emphasis' (Sunday Times 30 May 2004). This means we must not stop campaigning against privatisation because privatisation covers much more than the sale of state-owned enterprises and infrastructure. We need to be on our guard against "privatisation by the back door" – particularly PPP's.

Dr Peter Dwyer
Senior Researcher
AIDC
129 Rochester Road, Observatory 7925,
Cape Town, South Africa.
Tel 021 447 5770 Fax 021 447 5884
www.aidc.org.za

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