12 October 2001
Moving away from GEAR trenches towards an economic strategic perspective
Introduction
On behalf of the SACP I would like to express our appreciation for this invitation to address this National Conference of the Black Management Forum. I would also like to take this opportunity to congratulate you on the initiative you have taken to establish the Black Economic Empowerment Commission. In particular we would like to express our appreciation of the manner in which BEECom has defined black economic empowerment beyond a restricted definition of an elite but to include the overwhelming majority of our people. On this we fully agree, that there can be no meaningful empowerment in our country, unless we empower and create opportunities for sustainable livelihoods for the ordinary working and poor people of our country.
My topic has been advertised as having to talk about GEAR. I think that such a topic is very restrictive, because it would not take fully into account the debates and discussions within the Tripartite Alliance since the adoption of GEAR. It would also do an injustice to the debates that have taken place since then, and restrict us into pro- and anti-GEAR trenches which we believe will not be able to take us forward to face the challenge of economic growth and development in our country at the moment. Therefore the thrust of my input this morning will be to share with you our perspectives on economic transformation in the short to medium term, within which we should locate debates and issues surrounding macro-economic policy challenges for our country.
The challenge of economic growth and development in the current context
The twin challenges that we are faced with if we are to transform South African society is that of creating a democratic, developmental state and find an appropriate economic growth path for the development of our country. Let us start with the economic challenges.
Despite indications of possible moderate economic growth since the first quarter of 2000, and some important developmental gains, growth and development remain modest, uncertain and hostage to fickle market sentiment, which represents little more than the prejudices and class interests of a tiny handful of powerful international financial circles.
The key challenge facing South Africa's transition is the development of a coherent economic policy to drive a developmental path aimed at job creation, infra-structure development and the eradication of poverty. Such a path can only be sustainably and transformatively led by a national democratic state, which intervenes in the economy on behalf of poor and working people and other sections of society which were stunted by our apartheid capitalist past. In many ways this was at the heart of the whether the GEAR policy was an appropriate macro-economic policy for our country.
We now have the experience of 7 years of post-apartheid South Africa, a period during which we have experienced some massive positive achievements eg. Increased provision of water, electricity, telephones and set our country on a path of democratic change. But at the same time we have witnessed a worsening of the persisting socio-economic crises. This socio-economic crises we confront is characterised by:
As the South African Communist Party we have persistently pointed out that unless we address the question of poverty and the reality of the HIV/AIDS pandemic, our entire democracy and achievements are at risk. It is to these issues that we feel this Conference will also have to address, if we are realistic about better prospects for our country.
What is the basis for a new platform for growth?
Some economic commentators argue that there is evidence of a structural turnaround, a "new platform" for growth. These commentators concede that the last seven years have been painful, we have had to introduce tough measures to transform an economy that was in serious structural decline. It was not competitive, skewed in many ways, unduly and unhelpfully protected, and the fiscal and monetary policies we inherited were incoherent. The state deficit was not sustainable without drastic measures, and the balance of payments situation precarious. But, so this argument continues, thanks to the GEAR-related measures that we have taken, we now have the accelerators in place for sustained and higher levels of growth and development. From this perspective, the structural turnaround is just the beginning, a new "platform" for a decade or more of development and of growth that begins to reach the 6 percent plus that is required to make a serious dent in unemployment. Essentially, this position argues for more of the same in terms of government macro economic and other economic policies.
The SACP has also spent a lot of time analysing the current growth path in our country and some of the problems and challenges that we face. Firstly, we are operating in a very hostile global environment that is dominated by global multinational corporations, whose prescriptions to developing countries are aimed at strengthening their dominance at the expense of not only the working people and the poor but also the indigenous and aspirant black entrepreneurs and capitalists. This is perhaps what still binds together the likes of professional managers like yourselves and the overwhelming majority of our people.
Secondly, and directly flowing out of the above, is the reality that we are having a very weak accumulation process, whose primary characteristic is to ask the working class and the poor to be the only sections of our society that has to sacrifice in order to turn our economy around. The current job loss bloodbath is one expression of the sacrifice of the interests of the majority of our people, on the basis that workers have to sacrifice now in order to gain in the future. We are saying that this is neither inevitable nor desirable. This, in a country where more than half of its population lives in poverty, is simply unsustainable. Your very interests are tied up to the gradual and radical improvement in the standards of living of the overwhelming majority of our people. This is the challenge of economic development and growth in our country. There is no chance of turning our economy around by sacrificing the interests of the overwhelming majority of our people.
What is the engine for sustained growth and development? The 1994 RDP document essentially saw the growth engine as being a major reconstruction and development programme directed at infra-structural development, harnessing, to begin with, public, parastatal and domestic capital to drive the process, with the expectation that FDI flows would then also come into such a process. By contrast, the 1996 GEAR document quite explicitly sees major flows of FDI to be the principal engine of growth in our economy. The principal means for securing such major flows were to be appropriate macro-economic austerity measures and significant levels of privatisation.
What has happened to GEAR's FDI projections?
Sadly, expectations of major FDI flows have not been forthcoming. The majority of incoming capital flows continue to be hot money. Much of the actual FDI that has come in has been by way of mergers and acquisitions, or for partial privatisations (Telkom and SAA). In other words, the flows have neither been on the scale anticipated, nor have they typically been into new infra-structural or "green fields" development. This is not to deny the importance of actual FDI flows for our balance of payments situation, and, critically, in helping with the technological transformation of our economy. The relatively modest flows of FDI are despite the fact that most of our macro-economic austerity measures have been successfully implemented. These measures may have had some impact in terms of favourable global market "perceptions", and in terms of enabling SA to escape the worst of the developing economies' crisis in late 1997-8. However, major FDI flows have not been forthcoming. According to the 2000 World Investment Report, SA attracted US$380m in 1998, while Chile, Argentina, Australia and Brazil drew $5bn, $5,8bn, $6bn and $29bn respectively.
There are also inherent limitations of privatisation as a source of FDI. While the contested nature of privatisation within our country may be one factor that has slowed down massive movement on this front (as the DP and others allege), inherent limitations have also played a role - the pension debt burden on key parastatals (e.g. SAA and Transnet) has made it impossible, in any case, to sell them off lock stock and barrel in order to reap a quick inflow of foreign capital. The fate of Sun Air is another salient indicator of the flaws in the belief that wholesale selling-off is the "obvious" route to getting major flows of foreign capital that could act as a growth accelerator. What is more, mass parastatal sales in Latin America and Eastern Europe has made it a buyers' market. Even were whole-sale privatisation a desirable option, we would find that it is a bad time to sell.
Without for a moment dismissing the importance of FDI for growth in our economy, it is surely fair to say that excessive expectations in this regard are misplaced. Our argument here needs to be anchored within a deeper structural analysis of the major tren
While the 1999 UNCTAD Report notes an important increase in FDI to developing countries, this comes on the back of decades of decline. Current levels are the same as the 1960s. Moreover, most of the increase is accounted for by a handful of developing countries - most notably the People's Republic of China (PRC), and to some extent Brazil and Mexico. The PRC is an exceptional and interesting case, Brazil and especially Mexico are much more connected to the US economy than, for instance, SA. Indeed, our country's geographical location is a serious limitation when it comes to attracting major FDI flows.
In short, we have been pursuing an FDI-as-growth-accelerator path in the most unfavourable circumstances.
We need a greater focus on the productive economy based around clearer industrial strategies. Clearly we need fiscal discipline. Clearly FDI flows are needed. Inflation targeting is certainly a superior monetary policy guideline than defending the exchange rate of the currency.
But all of these considerations need to be subordinated to and aligned with a major infra-structural growth and development programme. An inflation target, for instance, that chokes off growth will be a disaster. Infra-structural growth and development in our country (and region) will require, amongst other things:
It is for this reason that the SACP welcomes the 2001 government budget commitments to an infrastructural investment programme of R7bn over the next three years. The question that we need to ask is how are we to ensure that these funds are adequately used to address poverty and infrastructural backlogs, and to what extent have you as the BMF discussed your role in this regard?
In other words, economic growth and development must be based on the mobilisation, in the first place, of domestic capital resources (including public, parastatal, social and private domestic capital) around a coherent industrial strategy.
This industrial strategy while obviously involving the core manufacturing sector must also encompass mining, agriculture, services and the new economy. This approach must include sector by sector strategic plans, as well as spatial planning. The industrial strategy must ensure coherence between, and initiatives in, all spheres of government - national, provincial and local. This is because, no matter how ideologically coherent we may sound, the market on its own is incapable of addressing the challenge that we face. For that matter the market on its own, as your our BEECom report shows, cannot be address the legacy of white ownership and management in our country.
The challenge of the transformation of the financial sector
As part of this integrated industrial strategy we need a far-reaching restructuring and diversification of the financial sector. The financial sector is literally holding our economy at ransom. We are very pleased that in the BEECom report you identified this area as one of the crucial ones in the transformation of our economy and country. In particular, we need to break the financial-mining-industrial complex which still has a tight grip on our economy and one of the principal obstacles to transformation.
In addition to this, we need to struggle together for the transformation of the racial and gender composition of the financial sector, so that it is better able to respond to the challenge of development in our country. Failure to do these two above, the working people and the poor will continue to be held at ransom by the dominant economic structure of our society. For that matter, the emerging black ownership structures become nothing but a front and hostages to the interests of white finance capital. This is an area where we need to forge solidarity and fight together on. Emerging out of your BEECom report is another very important issue, that of the interventionist role of the state in the transformation of the economy, in particular the financial sector. Without a very serious state intervention in the financial sector, there will be no change in the structure of our economy. As the SACP we last year decided to embark on a massive mass-based campaign for the transformation and diversification of the financial sector. We have taken forward this campaign by recently launching a broader forum made up of more than 80 organisations to intensify pressure on the financial sector. We invite the BMF to join these forces so that we are able to mobilise the widest possible sector of the previously disadvantage to ensure that we have a financial sector responsive to the needs of the overwhelming majority of the black people in our country.
Since we launched our campaign we have recorded a number of successes. First of all, as a direct result of this campaign we are going to be holding a NEDLAC Summit of the financial sector for the first time ever in our country. Secondly, as a direct result of this campaign government has embarked on an investigation into the operations and possible regulation of the Credit Bureaux. The Credit Bureaux are one of the major impediments to reaching our developmental goals. Again we are disappointed that the BMF is not part of this very critical struggle to ensure that we create a credit regime in our country that is responsive to the needs of all the previously disadvantaged. To this end, and as part of the build-up to the NEDLAC Summit, we are tabling the following key demands:
Engaging private capital
In this context what is the role of the private sector? We have accepted and acknowledged the fact that private capital, in the current period, is a reality and has a role to play and its resources
Given our current economic situation and the investment strike and disinvestment by private capital, is it not time now to approach domestic private capital resources in a new way? Is it not time we seriously consider and propagate the kind of role that all sections of domestic private capital (black and white) need to play in advancing a developmental agenda? Such an agenda will have to be based on a commitment to investment in job-creating sectors of our economy. Of course the role of private capital will have to be based on regulation, incentivisation, directing, mobilising and disciplining of such capital towards a development agenda. The SACP led financial sector campaign is an example of this - say more.
But for harnessing such resources to have national democratic and developmental outcomes requires that such a programme be centrally driven by the state.
A related question is whether there is a basis for a thoroughgoing engagement between labour and domestic capital. For example, recent COSATU bilaterals with domestic capital, the relatively successful gold crisis tripartite engagements (which succeeded in halting IMF gold sales) and the Job Summit commitment to sectoral summits are an indication of this kind of new approach to our public resources and the role of domestic private capital.
Government budgets are not separate from broader economic transformation. And thus the need to shape budgetary priorities that are more aligned with our vision of infra-structural development and industrial policy programmes as the key accelerator for growth, job creation and development. Such a growth path needs to be powered by a mix of budgetary, parastatal, co-operative and domestic private capitals, while seeking to attract FDI at the same time. All of this requires an economically active state that is capable of and willing to plan, co-ordinate and discipline the capital resources of our society.
Building a people's economy
Captured in the above perhaps are three interrelated tasks. These tasks are deepening democracy through building popular power; accelerating the transformation of the state as a developmental state and struggling to build a people's economy.
A people's economy seeks in the first instance to place the eradication of poverty, and broad-based black economic empowerment at the centre of economic restructuring, coupled with a deliberate strategy to defend and strengthen the public sector. Key components of this people's economy are an integrated industrial policy driven through sectoral summits, a strong public sector, an active labour market, a growing co-operative sector, and a social security system.
The challenges facing the BMF in the current period
In the light of the above analysis and challenges, I would like to end by posing some of the key challenges that face an organisation like the BMF in the current period:
We hope that your Conference will be able to deal with these, and if not, your continued work as an organisation will confront these critical questions.