A dozen devils (in the details) which hobbled Mandela’s economy

4 February 2016 by Patrick Bond

CC - Flickr - Paul Simpson

Is our society finally maturing to the point that the economics – not just political compromises – of the 1990s democratic transition can be considered? When engaging student activists, for example, University of the Free State rector Jonathan Jansen frets that “If Mandela gets any mention at all, it is as a sell-out, the man who led South Africa into a soft transition that left white privilege undisturbed and black poverty undiminished.”

Tough questioning of Mandela’s deals is advanced by radicals as diverse as Economic Freedom Fighters leader Julius Malema, Black Consciousness ideologue Andile Mngxitama, Soweto community activist Trevor Ngwane (way back in 2003), Stellenbosch political economist Sampie Terreblanche, and insiders like Winnie Mandela (since 2010) and Ronnie Kasrils who in 2013 explained how Mandela signed a self-sabotaging ‘Faustian Pact’ with global capital.

(As one who sat in on mid-1994 Presidency policy debates as editor of the RDP White Paper, to my everlasting shame, and as drafter of the aborted 1996 National Growth and Development Strategy, my view is that there’s a bit of both ‘structure’ – externally-imposed necessity – and individual ‘agency’ in answering the question, “was Mandela pushed, or did he jump?”)

In his 2005 book Season of Hope and a more recent article, former Presidency official Alan Hirsch justifies neoliberal compromises on wealth and land redistribution, the Reserve Bank mandate, competition policy, industrial policy, small business support, and the apartheid urban structure. Radical change, he insisted, was “constrained by concerns for economic stability.”

Yet weren’t such choices partly the cause of economic instability? The neoliberal compromises demonstrably failed the society, economy and natural environment, no matter what you think of the ethics and politics of these dozen Faustian Pacts:

- repayment of $25 billion of inherited apartheid-era foreign debt (October 1993)
- giving the SA Reserve Bank ‘independence’ in the country’s 1993 interim constitution and 1996 final constitution (November 1993 and July 1996)
- borrowing $850 million from the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

with tough conditions (December 1993)
- reappointing apartheid’s finance minister Derek Keys and SA Reserve Bank governor Chris Stals (May 1994)
- joining the General Agreement on Tariffs and Trade (later the ‘WTO WTO
World Trade Organisation
The WTO, founded on 1st 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.

’) on adverse terms (August 1994)
- lowering primary corporate taxes from 48 percent to 29 percent and maintaining countless white people’s and corporate privileges (1994-99)
- privatising parts of the state (e.g. enough of Telkom that very destructive Texans and Malaysians ruined its developmental mandate) (1995-99)
- relaxing exchange controls (the ‘finrand’) and raising interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
to unprecedented levels (March 1995)
- adopting the neoliberal Growth, Employment and Redistribution (‘Gear’) macroeconomic policy (June 1996)
- giving property rights dominance plus juristic personhood to corporations in the Constitution (July 1996)
- ‘demutualising’ the two mega-insurers Old Mutual and Sanlam (1998)
- permitting most of South Africa’s biggest dozen companies to move their financial headquarters and primary stock market listings abroad (1999)

Given this list, ANC leaders who elite-pacted with Afrikaner nationalists and big business during the 1990s were apparently ‘constrained’ not by a desire for economic stability, but mainly by a concern to comply with world economic orthodoxy at a time their prior Moscow sponsors had given up the ghost. For Thabo Mbeki, a related goal was to create a black capitalist class who, his 2005-08 deputy, Phumzile Mlambo-Nguka, once advocated should not be ashamed to be ‘filthy rich.’

But in addition to agency, recall the structural dynamic still in play: world and SA capitalism’s ‘financialisation.’ As manufacturing and mining declined, the 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 finance and business services in Gross Domestic Product 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.
(GDP) soared from 17% in 1994 to 24% two decades later.

Financial liberalisation gave South Africa the appearance of healthy GDP growth of 5%/year a decade ago, prior to the 2008 world crisis. Yet given the 1990s deals, this ‘growth’ was largely froth.

It was driven not only by Fifa-2010, bribery-induced white elephant infrastructure and the 2002-08 commodity price blip (also fuelled by financiers). In addition, after the 2000s consumer debt boom, soaring 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. rates made repayment obligations difficult for 70% of borrowers: 12 million of us are ‘credit impaired’, two months overdue, what with interest rates the fourth highest amongst the world’s 57 main economies, lagging only Brazil, Turkey and Indonesia.

Financial froth also included what The Economist measured as the fastest-rising speculative real estate bubble on earth from 1997-2008 (doubling even maniacal Irish and Spanish property gamblers).

The froth included a Johannesburg Stock Exchange (JSE) whose valuation in 1994 was equivalent to underlying corporate asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). value (the Tobin “Q” index) but which, in spite of 50%+ JSE crashes in 1998, 2001 and 2008, has since risen three times faster than base assets. By late 2015, with a market capitalisation 320% higher than GDP (the ‘Buffet Indicator’), the JSE hit the highest recorded level of any major country’s modern stock exchange, with only Singapore (304%) and Switzerland (281%) close.

Now add and stir South Africa’s world-leading inequality (0.77 on a scale of 0 to 1 for the income-based Gini Coefficient), a poverty rate that three UCT economists recently acknowledged is 63%, and an unemployment spike from 16% in 1994 to 26% today (it mainly occurred from 1995-98).

These are just some of the spawn of the dozen devils who offered seductive neoliberal Faustian Pacts to Mandela a quarter century ago. Given the resulting damage, isn’t it time, finally, to honestly confront the devils, and to discuss how to reverse the damage, by undoing the deals?

Courtesy of the author

Patrick Bond

is professor at the University of Johannesburg Department of Sociology, and co-editor of BRICS and Resistance in Africa (published by Zed Books, 2019).



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