Committee for the Abolition of Illegitimate Debt

 Reasons to reverse course

A few years after a prior era of speculative-financialised globalisation ended in tears, in the midst of banking crashes and the Great Depression, leading British economist John Maynard Keynes concluded in a 1933 Yale Review essay, “Ideas, knowledge, science, hospitality, travel – these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national.”

International travel may grind to a halt thanks to Omicron, but in addition, the likelihood of long overdue climate taxes on air travel puts South Africa’s tourism and hospitality sector even more at a disadvantage. And this suffering is relatively minor, compared to a broader capitalist recalibration, again demonstrating that since 1971 when gold was delinked from the U.S. dollar, South Africa sinks faster during global economic turbulence than nearly any other country.

Today, resurgent interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. in – and fear of – ‘localisation’ (the ‘onshoring’ of productive capacity) is at the core of an ideological controversy. At Johannesburg’s leading neoliberal thinktank, the Centre for Development and Enterprise, two analysts – Ann Bernstein and Anthony Altbeker – were recently joined by influential Business Day columnist Peter Bruce in denouncing the added costs and inefficiencies associated with Trade and Industry Minister Ebrahim Patel’s strategy to substitute home-grown goods for imports.

But in doing so, these critics were silent when it comes to acknowledging real-world problems: declining global and local trade/GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. ratios, chaotic global value chains, rising shipping costs and logistics crises, the need to strengthen coherent internal economic linkages and regenerate manufacturing employment, imminent climate sanctions on exports, and trade partners’ worsening protectionism in the West combined with massive excess capacity in the East, China specifically. To be sure, neither has Patel, though at least President Cyril Ramaphosa seems to have his finger on the pulse of some of them.

 A localisation winner

The most obvious case justifying onshoring of production, requiring little explanation given the context of ongoing Covid pandemic and the Global North’s grip on vaccine Intellectual Property (IP), is making medicines locally. Both Ramaphosa and Patel deserve credit here, for in spite of their initial failures at vaccine acquisition, they joined the Indian government in October 2020 to demand an IP waiver, to assure wider production of Covid-19 vaccines and treatment.

The already sizzling-hot World Trade Organisation WTO
World Trade Organisation The WTO, founded on 1^st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

debate will continue next month, when Angela Merkel’s dogmatic opposition to Ramaphosa’s proposal will perhaps be reversed by her Social Democrat successor Olaf Scholz, now that Boris Johnson’s humiliation at the Glasgow Climate Summit lowers his status when he defends status quo “vaccine apartheid.”

But this crucial fight gives us reason to consider a prior case of localisation, starting twenty years ago when similar waivers were granted at the WTO Doha summit to fight AIDS. The generic versions of AntiRetroviral (ARV) drugs – made here by Aspen – were then provided free in the public health sector.

This is the main success story of deglobalising capital, through ending the tyranny of Global-North intellectual property: a typical patient’s $15,000/year ARV bill shrunk to less than $100 for generic manufacturing costs, allowing the expansion of treatment from a few thousand rich people living with HIV in the early 2000s to seven million at peak.

The globalisation of people – i.e., activism by the AIDS Coalition to Unleash Power (Actup) in the U.S. and similar advocacy groups across Europe, Medicins sans Frontier, Oxfam and others, responding to South Africa’s Treatment Action Campaign – was pitted against the typical prerogatives associated with the globalisation of capital, and the people won. South Africa’s life expectancy soared from 52 in 2005 to 65 in 2019 before Covid-19 reversed the progress.

 Organic deglobalisation

First led by Raul Prebisch, ‘dependency theorists’ from Latin America have long advocated making internal economic relations stronger by rebelling against destructive circuits within global capitalism. The theme was subsequently reiterated by Africa’s Samir Amin in Delinking and Asia’s Walden Bello in Deglobalization. But that process recently on a life of its own.

Beginning in 2008 – coinciding with world financial meltdown – three core economic measures of globalisation went into reverse: trade/GDP, Foreign Direct Investment/GDP and cross-border financial flows/GDP. The global trade ratio is most commonly cited, falling from a 2008 peak of 61% to 53% last year. South African trade fell further, from 73% in 2009 to 56% in 2020.

Both will rebound somewhat this year given the post-2020 bounce-back. But compared to the prior era, in the meteoric globalisation rise from 1991 (when both global and South African trade/GDP ratios were just 38%), the last dozen years represent a distinct pause, nicknamed deglobalisation, or in The Economist’s lingo, the “Gated Globe” and “Slowbalisation.” And for good reason; as in the 1930s, corporates and banks had overextended. As a result, there has been a profound correction, in part due to the natural creative destruction of a system which – thanks mainly to Chinese productivity – caused massive global manufacturing overcapacity.

The excesses within global value chains (GVCs) didn’t help, for as McKinsey’s remarked in 2019, “a smaller share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of the goods rolling off the world’s assembly lines is now traded across borders. Between 2007 and 2017, exports declined from 28.1 to 22.5% of gross output in goods-producing value chains.”

The firm’s follow-up report last year warned, “Intricate production networks were designed for efficiency, cost, and proximity to markets but not necessarily for transparency or resilience. Now they are operating in a world where disruptions are regular occurrences. Averaging across industries, companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years, and the most severe events take a major financial toll.”

The European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx was correct to worry, last year, that “For the world economy in the short term, GVCs could amplify the decline in imports and exports occurring through direct linkages (i.e. traditional trade) by around 25%.”

 Container transport chaos

A major cause of the immediate crises across so many value chains is the chaotic state of world shipping. From 2008-20, the ever-larger container vessels’ scale economies had lowered maritime emissions somewhat, but it was the role of trade stagnation in cutting bunker fuel emissions during that period that was most helpful to slowing climate crisis.

However, since the Covid-lockdown low point of April 2020, soaring shipping costs – measured by the Baltic Dry Index – have revealed another good reason for localisation, as artificially-imported inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. follows from that index’s rise, from within a 300-700 band during most of the last decade, to more than 6000 earlier this year, with the index still above 2500 today.

Another reason for the price-hiking panic was vulnerability in the system exposed by the grounding of the Ever Given, a massive Taiwanese-based container ship. Stuck in the Suez Canal in March, the ship blocked 13% of world trade for a week. The vessel’s deep (16-metre) draught – required to carry 20 000 containers – is so large, it doesn’t fit inside the main South African harbours. These ports’ physical limitations are one reason this economy can’t take advantage of mega-ships. But worsening operational paralysis is another, for although Durban is Sub-Saharan Africa’s busiest container port, the World Bank ranks it the world’s 3^rd least efficient major container port out of 364.

And that was before Transnet declared force majeure there thrice: a fire in one of the mian wharfs last month, preceded by a ransomware attack, which came shortly after the unprecedented July looting spree that also temporarily shut harbour operations. Moreover, Transnet’s rail and pipeline networks have suffered such spectacular failures in recent months and years, that the entire notion of ‘network infrastructure’ linking South Africa to the rest of the world needs a rethink.

 Factors supporting localisation

Instead of importing so many goods, ‘import-substitution’ technology does offer hope. There is, first, the prospect of building upon regional scale economies to reindustrialise, via the Africa Continental Free Trade Agreement. Vitally-needed backward and forward supply and demand linkages to other parts of the local economy need nurturing, in the process reducing South Africa’s extremely dangerous level of unemployment before another July-style socio-economic powder keg explodes.

And some new technologies can help, not hinder the process. For example, “as a result of widespread implementation of 3D printing” for a huge variety of manufactured goods, economists Avner Ben-Ner and Enno Siemsen suggest, “global will turn local; mega (factories, ships, malls) will become mini; long supply chains will shrink.”

Indeed, the factors that drove globalisation – massive Asian scale economies, pollution externalities, and the labour repression that together made China such a source of high-profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. production these last decades – will run up against not only local 3D printers but also both ever-higher shipping costs and climate taxes.

The latter – in the form of a “Carbon Border Adjustment Mechanism” (CBAM) imposed by Western importers of SA goods – could be decisive, with Ramaphosa expressing his own concern last month in a Presidential letter advocating a low-carbon economy and Just Transition for affected workers and communities: “As our trading Market activities
trading Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit. partners pursue the goal of net-zero carbon emissions, they are likely to increase restrictions on the import of goods produced using carbon-intensive energy. Because so much of our industry depends on coal-generated electricity, we are likely to find that the products we export to various countries face trade barriers and, in addition, consumers in those countries may be less willing to buy our products.”

The CBAM will indeed hit South African metals and auto exports hard in 2023, especially because of fossil fuel projects in the pipeline. Eskom’s replacement of coal will include CEO Andre de Ruyter’s much more potent methane-based LNG in several Mpumalanga power plants, as well as Energy Minister Gwede Mantashe’s Karpowerships that may float into three harbours.

Add to these several Chinese firms’ proposed Musina-Makhado coal-fired power plant and high-carbon metallurgical complex, which their own plans acknowledge will emit 14% of South Africa’s greenhouse gases in 2030. And now come billions of barrels worth of offshore methane gas drilling by Total (in the Brulpadda and adjacent fields) not to mention the controversial Wild Coast exploration underway by Shell, Impact Oil&Gas and Myanmar-based Silver Wave Energy, attracting unprecedented joint protest by communities, climate activists and marine conservationists.

So climate sanctions on South African exports look certain. Perhaps because of the trade surplus from the last months’ temporary boom in most commodity prices, Mantashe must have already discounted energy-intensive exports as less important than tapping South Africa’s coal and gas down to the last hydrocarbon, damn the climate and future generations.

And in this context, perhaps the most troubling sign is that both Eskom and Sasol aim to become yet more methane-dependent, even though the main prospective source – Cabo Delgado, Mozambique (the world’s fourth largest gas field) – is a war zone where the SA National Defense Force is currently consuming $125 million for soldiers to defend the interests of Total, ExxonMobil, ENI and China National Petroleum Corporation, with more such subsidies anticipated. Given the terrible cyclone destruction in 2019 caused by higher temperatures in Mozambique Channel waters, we should be paying climate reparations to the residents, instead of sending bombs, bullets, boys and, unfortunately, body bags.

Finally, as the Organisation for Economic Cooperation and Development (OECD OECD
Organisation for Economic Co-operation and Development OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

http://www.oecd.org/about/membersandpartners/ ) warns, “ongoing protectionist and geopolitical trends suggest that the world is unlikely to see a return to business as usual.” With Joe Biden refusing to undo the trade restrictions his predecessor Donald Trump imposed, partly because Biden faces extremely low popularity ratings and he dare not lose more white working-class votes in next year’s mid-term election or in his 2024 re-election, we can anticipate this anti-trade sentiment to continue. Already, with Washington-Beijing tensions rising, there’s a Trumpish Sinophobia evident in Biden’s speeches.

And even more protectionist than the U.S. are two other major South African trading partners: China and Germany, which actually imposed far more ‘discriminatory’ than ‘liberalising’ trade measures since 2009, according to the OECD.

 Conclusion: An end to onshoring of white-elephant, high-carbon industries

Onshoring more of our economy certainly carries risks, given the distortions in the local power structure, including the world-leading corporate corruption. Some has been evident in Patel’s own portfolio when – according to emails between television executives Marcel Golding and Yunis Shaik – he took an in-kind bribe from the largest tv station to promote a dubious dam on the main news programme, in exchange for a homegrown television technology (set-top boxes) contract that would have enriched Golding.

To be sure, irrational localisation ‘lemon’ strategies proliferated during apartheid, such as the long-standing coal-squeeze – followed by methane-squeeze – conducted at Sasolburg and Secunda (world’s highest greenhouse gas emissions point source). This was Nazi-era technology deployed to combat United Nations oil sanctions, but its continuation into the liberated era is surreal given that the Social Cost of Carbon is now estimated at $3000/ton, making South Africa’s annual 500 megatons of combustion effectively 3.3 times more expensive than annual GDP, with Sasol the second main contributor to the damage, after Eskom.

Moreover, as Bernstein, Altbeker and Bruce point out, there are likely to be more such foolish mistakes made by a Department of Trade and Industry which often fails to properly pick winners because it hasn’t gotten around to full-cost accounting, including rudimentary carbon footprinting. To illustrate, Patel continues to lavish massive subsidies (typically $1.7 billion annually) on what are mainly luxury-priced auto exports. This subsidy represents the single most substantive industrial policy, so Patel’s fetish for helping multinational auto corporations deserves the devastating criticisism leveled by Cape Town economist Dave Kaplan.

Although a new electric vehicle is finally going to be built in South Africa, there appears to have been no concern by Patel – or his predecessors, dating a quarter century, including well-known neoliberals Trevor Manuel and Alec Erwin – that solo-driven cars have such an enormous carbon footprint, at a time working-class public rail transport has broken down and kombis remain dangerous.

To get to a low-carbon version of import substitution industrialisation, of the sort that widened manufacturing and generated 8% annual GDP growth in South Africa from 1933-45, during the prior deglobalisation era, a new generation of onshoring entrepreneurs will be needed. To encourage them to import-substitute, government’s local carbon tax of $0.42 per ton of emissions will have to rise; Sweden’s is already $132/ton. If carbon pricing takes off as expected, so that South African exporters can in 2023 claim they’ve already paid the equivalent of a CBAM, a vast amount of current fossil-based energy inputs and high-emissions manufacturing will have to be replaced.

As just one example, the message that the anti-Shell protesters provide is encouraging: the Wild Coast shouldn’t be drilled for planet-destroying methane (and helpfully, Bruce agrees that a consumer boycott of the firm is timely). The message needed from business commentators – even confirmed neoliberals Bernstein, Altbeker and Bruce – would incorporate climate benefits of onshoring more production, not ignore them.

And given the turbulence of the times – shipping chaos, declining trade/GDP ratios, protectionism and geopolitical tensions, not to mention the Covid-19 Omicron variant – many additional benefits would follow from reducing vulnerabilities and improving backward-forward linkages, assuming a more coherent economy society emerges from the ashes of globalisation.

(Patrick Bond is professor of sociology at the University of Johannesburg: pbond at mail.ngo.za)