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Umsebenzi Online

Volume 12, No. 41, 21 November2013

In this Issue:

Red Alert

Our country is better place now than 20 years ago, but letís not get too carried away: Engaging Goldman Sachsís report, our doomsday prophets and nay-sayers?

By comrade Jeremy Cronin

The arch promoter of neo-liberal policies, Goldman Sachs, published a favourable 20-year review of SA earlier this month. The report is entitled "Two Decades of Freedom - What South Africa is doing with it, and what now needs to be done". It was warmly welcomed by Finance Minister, cde Pravin Gordhan, and the ANCís treasurer general, cde Zweli Mkhize.

Our comrades certainly have a point. It was pleasing to see how the Goldman Sachs report flummoxed our doomsday prophets, our nay-sayers in the media and opposition parties. It paints a very different picture from their "things are going from bad to worse", "it was better under apartheid" litany. Some of them accused Goldman Sachs of "sunshine journalism". Others, like Tony Leon, did ideological flip-flops, suddenly quoting from a (presumably hastily googled) left-leaning Rolling Stone exposť of the Goldman Sachs predatory track-record. Leon further asserted that it was largely pointless comparing present day SA with pre-1994. Rather compare us with our contemporary "peers", he suggested, implying that our past history no longer has much traction on the present.

Writing in the Daily Maverick, in an article reprinted in the Business Times, Richard Poplak, outdid himself in his anxiety to hold on to the "things are worse than ever", anti-ANC, anti-government viewpoint. He ended up exhibiting his own statistical illiteracy. "Goldman wants us to believe", he scoffs, "that while there is no change in the unemployment percentage, there are more actual people working." Yes, that is what the Report is saying, and yes that is what has actually happened. The explanation is simple - since 1994 the South African population has grown, and the number of work-seekers in particular has expanded. While there has been a net increase in the number of people working, unfortunately this has not brought the unemployment percentage down.

So what are some of the positive achievements listed by Goldman Sachs and that have so much miffed the Poplaks? They include:

  • A trebling of South Africaís GDP from $136bn to $385bn since 1994;
  • An increase from 13,8m (2001) to 23,5m (2010) of those in the LSM 5-10 bracket (LSM stands for Living Standards Measure, and brackets 5-10 are regarded as "middle" and "upper" strata).
  • The reduction of those living below the poverty line to 9% of the population;
  • The increase in the number of those receiving social grants rising from 2,4m (1994) to 16,1m in the present;
  • Households with electricity rising from 58% in 1996 to 85% in 2011; and
  • Labour productivity per worker trebling in a decade - from $8,800 (2002) to $25,600 (2012).

But if so many positive achievements have been notched up (and they have), why are there still crisis levels of poverty, inequality and unemployment? It is here that the Goldman Sachs report falters. It certainly notes the unemployment crisis, but it is unable to explain it and therefore to offer systemic responses to it.

Part of the problem is that some of the other things that the report regards as positives are, in fact, at the very root of our problems. When the report praises government for making "decisive positive structural changes" it is referring largely to short-term investor friendly, macro-economic policies associated with the 1996 GEAR programme, and not to measures that will ensure long-term inclusive and job-creating economic growth. The report notes that as a result of macro-economic measures "overall cost of capital has declined", that South African "corporate valuations have improved relative to peers", and that "real ZAR returns" (i.e. rand-denominated profits) "compare favourably" with other developing countries. In short, monopoly capital is doing exceedingly well in South Africa, thank you very much. But what is the story behind these super profits?

The report notes positively the "rise of a black middle class" that "has led to a structural boost in spending". But it fails to connect this development with some of the warning lights that it flashes elsewhere, namely that "Household debt to disposable income soared from 57% in 1994 to 76%"; and the "contribution of mining and manufacturing to GDP has fallen to 23% from 38% in 1986".

In short, the growth that Goldman Sachs celebrates has been considerably consumer driven, and this consumer driven growth has been directly linked to the increasing financialisation of the economy at the expense of the productive (and labour intensive) sectors. In effect, the report celebrates this financialisation, the increasing exposure of our economy to speculative flows of short-term capital. It proudly tells us that "South Africa is a standout among all countries covered, with an equity market capitalisation that is twice the size of GDP". In other words we are a casino economy, with the JSE twice the size of our GDP.

In one breath Goldman Sachs praises the liberalisation of capital flows and then, in another breath, but without connecting the dots, it notes that financial liberalisation designed to attract fixed investment into the economy has produced paltry results with almost as much outflow as inflow. "On a net basis after accounting for outflows such as dividends to international investors, particularly after 2000, as a result of offshore listings, dividends or outward bound FDI, we see that net FDI has been volatileÖThrough the period 1994 to 2012 net annual FDI has been on average only $1.9bn with only two years (2001 and 2008) in which net FDI has exceeded $10bn."

Other studies have shown that the loss of surplus out of SA since 1994 has been much greater than this, resulting in a veritable haemorrhage. The drastic cutting of exchange controls, dual listings for South African monopolies like Old Mutual, Anglo, and SASOL, and consequent dividend outflows to foreign investors, and a significant illegal capital flight have all contributed. The South African government now increasingly confronts companies that were once South African born-and-bred as if they were foreign investors.

Add to these developments the investment strike prevailing in our country with a widening gap between surplus generated and gross savings, on the one hand, and actual bricks and mortar investments by the major corporates on the other, and then we get closer to understanding what lies at the root of the unemployment crisis in our country.

The Goldman Sachs report is to be welcomed at least for the consternation it has stirred amongst all those nay-sayers in our country (many of whom would normally treat anything coming from this source as Biblical truth). The report tells us what any sane and relatively objective South African knows - that our country is an immensely better place now than it was 20 years ago for the majority of our people.

But the question as to whether things have got better is different from another, more important question. Has the balance of forces shifted more favourably towards the working class and poor over these past 20 years? While the answer to the first question (have things got better?) is Yes, the answer to the second is, unfortunately, No.

The power of South African monopoly capital and mistaken policy choices by government particularly in the period 1996 to around 2003 have meant that it is monopoly capital that has positioned itself to be the main beneficiary of the democratic breakthrough of 1994. But it is not just a question of who has benefited most. Benefits translate into class power, and class power translates into the ability to dominate, the capacity to subvert and undercut transformational endeavours and to infiltrate our own formations, and the resources and arrogance to wage an unceasing ideological onslaught against progressive, state-led policies.

Only a determined effort to use state and popular power to transform the problematic growth path of our economy will reverse this situation. That, of course, is not something we can expect Goldman Sachs to advise. The report is very careful not to offend government or the ANC, but just occasionally there is a revealing misstep. On page 11 of the report we are told that a decade of "sound growth" was "moderated" after 2007 as a result of "the changes brought about by the ANCís Polokwane conference and the onset of the global financial crisis". Does the ANCís Polokwane conference weigh equally with the global economic crisis in knocking growth? And, more importantly, exactly what are the changes brought on by Polokwane that the report is complaining about? A more coherent commitment to a state-led industrial policy action programme? Greater focus on localisation? A massive state-led infrastructure programme? The consideration of a tax on short-term capital flows?

Letís welcome the fact that even one of the high priests of neo-liberalism acknowledges significant achievements over the past 20 years. But letís not get too carried away, or we will risk getting sucker punched into believing that the way forward now is to endlessly curry favour with Goldman Sachsí casino economy clientele.

Cronin is SACP 1st Deputy General Secretary