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At a time trade unions are under fierce attack from big business for above‑inflation wage increases and for opposing both labour brokers and a state‑subsidized sub‑minimum wage for youth, the sibling of former president Thabo Mbeki is helping restore balance.
Moeletsi Mbeki opened a profound economic debate with a remark to the Democratic Alliance last Tuesday: “Big companies taking their capital out of South Africa are a bigger threat to economic freedom than ANC Youth League president Julius Malema.”
You could argue that Mbeki didn’t do the argument full justice, asserting that “Capital flight means there is no capital for entrepreneurs in South Africa.” That’s probably not true, for local financial markets are as speculative and liquid as ever, especially now that the real estate bubble is gradually deflating.
More pervasive problems that prevent both entrepreneurship and job creation include constrained consumer buying power, the market dominance of monopoly capital in most industries, and excessive trade liberalisation.
Consumption is stagnant largely due to overindebtedness: the banks’ ‘impaired credit’ list now has 8.5 million victims, representing nearly half of all SA borrowers. That would include many of the 1.3 million who lost their jobs in the last downturn and haven’t got them back.
And even if they did, there is very little scope for local entrepreneurs to open up the manufacturing facilities that president Jacob Zuma last week unhappily observed were virtually all in white hands. Waves of imports are still descending on South Africa thanks to the overvalued rand, as many more local industries will understand once Walmart begins cheap imports in earnest.
Asked about the entrance of that US retailing behemoth, Moeletsi Mbeki was correct to ridicule the neoliberal agenda that his brother so decisively implemented from 1994, assisted by Trevor Manuel, Tito Mboweni and Alec Erwin: “In South Africa we think we will just open the doors and everything will be hunky dory. Of course it won’t.”
The doors swung open not only to East Asian imports but also the other way: to rich South Africans and our biggest companies who left with apartheid‑era loot. In 1995 they lobbied hard for the abolition of the Financial Rand (finrand) dual exchange rate and for permission to relocate financial headquarters from Johannesburg and Cape Town.
Mbeki complained that there was never “an explanation for why companies like Anglo American and Old Mutual had been allowed to list in London. On what basis did they allow them to go, to move their primary listing from South Africa to London? Why did they approve it? What did they get out of it?”
There are tough questions, especially because the outflow of profits, dividends and interest payments to Anglo, DeBeers, Old Mutual, SABMiller, Mondi, Investec, Liberty Life and BHP Billiton is the main cause of South Africa’s dangerous current account deficit (far worse than the trade deficit), and in turn, our soaring foreign debt.
I think the answer is not necessarily the implied backhanders that we now know characterise Zumanomics, as exemplified by Limpopo Province Malemanomics. The more durable answer is more difficult to grapple with than mere ‘corruption’, for at stake now is ideology.
This was abundantly evident in the report released late last month by the International Monetary Fund. Every year the IMF provides SA with an “Article IV Consultation” and in mid‑2011, it’s evident that last‑century orthodox ideology prevails.
In its meetings with Treasury officials, the IMF recorded how “Discussions centered on the timing and strength of the required exit from supportive policies” which translates into cutting the budget deficit. “Staff recommended stronger fiscal consolidation beyond the current fiscal year than currently being considered.”
Orthodox ideology typically blames workers and the IMF was true to form, advocating “policies to moderate real wage growth.”
As for capital flight to London, New York and Melbourne? No worries, say IMF staff: “Relatively low public and external debts, mainly denominated in domestic currency, and adequate international reserve coverage offset risks from currency overvaluation and current account deficits funded by portfolio flows.”
'Relatively low'? Our $100+ billion foreign debt is, in reality, a very high proportion of GDP, with even FNB economists concerned about SA approaching mid‑1980s crisis levels. The increase in foreign reserves from $40 billion to $50 billion over the last 18 months offsets only half the rise in foreign debt over the same period.
What does the IMF know about debt crises, anyhow? Orthodox thinking left the institution utterly unprepared in 2008 for the world’s worst financial crisis since 1929, so its lackadaisical attitude should ring alarm bells in Pretoria.
Don’t count on it, for when the labour movement helped replace Mbeki with Zuma, Manuel with Pravin Gordhan, and Mboweni with Gill Marcus, they failed to replace neoliberalism with the social democratic (“Keynesian”) ideology they still vigorously promote.
This is evident given our extremely volatile currency, with more crashes since apartheid ended than any other country I know of except Zimbabwe. Nearly 30 separate relaxations of exchange controls since 1994 is the main reason.
The IMF doesn’t care much, praising the Reserve Bank’s “prudent” policies “together with a flexible exchange rate” which allegedly “helped dampen the adverse effects of those global cycles.” (Huh? Replace ‘dampen’ with ‘amplify’ for accuracy’s sake.)
More nonsense: “Although the government’s borrowing requirements remained large, they were easily met through the issuance of rand denominated bonds and bills at low interest rates against the backdrop of large capital inflows.”
The IMF ignored a recent Reserve Bank admission that of fifty major countries, only Greece has higher nominal rates.
The diabolical implications of IMF logic are now clear, when it comes to the exchange controls we need to address Moeletsi Mbeki’s concerns.
For if you suggest merely a “small tax on inflows to try to curtail inflows or at least change their composition,” IMF staff point out “significant drawbacks”: “it likely would raise the government’s financing costs. Second, even if this were to help engender nominal rand depreciation, absent wage restraint it is unlikely this would enhance competitiveness.”
The rebuttal is easy: put exchange controls on outflows of capital, to address capital flight, and then systematically lower interest rates and manage the appropriate decline in the rand’s value, to the point workers can return to at least the wage/profit share they had won by the end of apartheid: 54/46, compared to just 43/57 today.
As South Africa again barely broke into the World Economic Forum’s top fifty countries in business competitiveness last month, the prevailing neoliberal ideology is clearly both ineffectual and inhumane. Control of capital flight is the first step away from this perpetual crisis, and let's hope this debate is more constructive than the one on nationalisation.
Patrick Bond directs the UKZN Centre for Civil Society.
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