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Southern Africa Report Archive

South African economist Oupa Lehulere queries the neo-liberal premises he sees as driving both last year's "Growth Employment and Redistribution" (GEAR) document - the market-driven touchstone of the ANC's present macro-economic policy - and the current year's budget that GEAR spawned. (jbv)

vol 12 no 4

Giving South Africans the GEARs: The '97 budget
Oupa Lehulere

Printable Version
Southern Africa Report

SAR, Vol 12 No 4, September 1997
Page 7
"South Africa"



Oupa Lehulere works as a labour educator for the union support organization, Khanya College, in Johannesburg

In March 1997 the Minister of Finance, Trevor Manuel, delivered his maiden budget to parliament. As the press reported, this was felt by Manuel and the ANC government to represent a milestone. For it was the first budget since the 1994 elections actually to be delivered by an ANC minister: as part of appeasing the financial markets and monopoly capital, Manuel's predecessors were tried and tested representatives of the old order - one had also been finance minister in the dying days of National Party government and the other was a retired banker.

The delivery of the budget by Minister Manuel was also significant for other reasons, however. While - according to one of the country's leading dailies - big business and many politicians welcomed Manuel's "peoples budget," outside the parliament Cosatu, student organizations and some NGOs demonstrated against a budget which they argued failed to meet the electoral promises in the Reconstruction and Development Programme (RDP). The juxtaposition of cheers from big business and protests from the organized working class helped underscore a key feature of Minister Manuel's budget: the fact that it represented a further consolidation of the drift into neo-liberal economic policies that was first systematically presented in the government's macroeconomic strategy document, "Growth, Employment and Redistribution" (GEAR).

Thus, after years of quietly drifting into neo-liberal policies the ANC had finally ran the gauntlet and, with the June, 1996, publication of GEAR, openly embraced neo-liberalism. In GEAR, the ANC stated the main objectives of its economic strategy as:
* to promote private sector-led economic development;
* to prioritize a conservative fiscal policy and debt repayment;
* privatize state assets;
* integrate South Africa into the world economy;
* promote export-led growth and "international competitiveness";
* promote flexible labour markets;
* liberalize exchange controls;
* fight inflation

Now, in Minister Manuel's budget, this standard menu from the world's leading finance houses was to be dished out with a consistency and fervour that has come to surprise even South Africa's ruling classes. Indeed, a more detailed specification of the context and characteristics of the budget easily explains the cheers with which it was greeted by the financial markets.

Gearing down in a downswing

As is customary for a Minister to do, Manuel began by sketching out the state of the economy as background to his budget. His overall assessment was that he was delivering a budget in a situation of cyclical downswing. Against a relatively poor growth of 3.1% in 1995/96, the Minister expected the economy to slow down even further, to 2.5% in the coming year. This forecast was seen to reflect a number of factors.

After a robust growth of 7.5% in 1995, real manufacturing output had grown by a mere 0.5% in 1996; gold production had fallen to its lowest level in 40 years; and gross domestic fixed investment (GDFI) had been steadily falling from 10.5% (1995) to 7% (1996). As for the private sector, recently proclaimed the engine of economic growth for all, growth in GDFI fell by a full 50%, from 13% (1995) to 6.5% (1996).

Closer to home, and despite the sustained growth in economic activity since 1993, the trend in measured formal employment has been disappointing [Budget Review, 1997, Department of Finance]. Up to the year ending September 1996, employment fell by 1.5%, with construction, mining and manufacturing being the hardest hit. It must be remembered, however, that this does not even begin to measure the rise in underemployment and generally insecure forms of employment. Besides the lack of income into which more are now descending, the country's financiers are demanding more and more of their pound of flesh. The high real interest rates not only take work away from people, but they have also resulted in a significant debt-servicing burden for households [Budget Review]. Moreover, in spite of the economic slowdown, the fall in the value of rand and other factors are now leading to an upward pressure on inflation.

How did Minister Manuel respond to this very real contraction in economic activity?

He did so by running a notably contractionary budget. Thus, compared to the preceding year, government expenditure will increase by a mere 6.1%. Against a backdrop of an inflation rate that is 7.4%, and one that, according to the Minister, is set to rise, this represents a real drop in government spending in a period of growing unemployment and therefore of poverty. The determination with which Minister Manuel approaches his budget cutting exercise can also be seen when one contrasts the 6.1% rise in expenditure with the 11.1% rise in revenue. Moreover, these revenue gains are themselves understated because they do not include income that will accrue to the state from privatization and oil sales. Why this ruthless approach to expenditure? There is very little mystery here: it reflects the government's commitment, above all else, to a programme of deficit reduction!

"Fiscal discipline" and debt reduction

With its adoption of the GEAR strategy, the government committed itself to do better than most signatories to the Maastricht Treaty on European Union: South Africa would achieve a budget deficit of only 3% of GDP by the year 2000. As for the present budget, the Minister announced that the Budget Council - a body that brings together national and provincial elected officials and bureaucrats responsible for finance - accepted that the first charge against revenue is debt cost. In line with the race to reach the 3% deficit target, the Minister announced that the deficit for 1997/98 will be 4% of GDP. (It is important to note, once again, that the deficit for 1997/98 was calculated without taking account of income from privatization or from sale of oil stock - despite the fact that at a recent conference hosted by Societe Generale Frankel Pollak, a director-general from the Department of Finance assured the markets that "although we have not included funds received from the sale of state assets into our deficit targets ... whatever is received ... will go into debt reduction." Note, too, that in the past year budgeted amounts to the value of R9 billion were not spent - a reality that should also help pull the deficit downwards by the end of fiscal year 1997/98.)

The first casualty of the dictatorship of debt has been the wages of public sector workers. In GEAR the government noted that "careful management of the ... wage bill is central to fiscal strategy." Following GEAR the government negotiated a three year agreement with public sector unions according to which they would accept the downsizing of the public sector and the gains would be used to fund a 9% increase in wages for 3 years. In the budget the government allocated an increase of 7.4%, thus reneging on its agreement with the unions. The struggle around the revision of the wages downward still continues, with the unions poised to strike in an attempt to force the government to honour the agreement it had made.

The second casualty of the fixation with debt has been the working class as a whole. For the budget embodies a real cut in spending on social services.

The myth of greater social spending

If one was to believe the country's "bourgeois press," Minister Manuel would earned have the unique distinction of delivering a budget that was, simultaneously, both a peoples' budget and one that gave a substantial boost of confidence to business. The trick lay in the prominence given to social expenditure in both the Minister's presentation and in press reports. In GEAR the government had promised a redistribution of income and opportunities in favour of the poor and a society in which sound health, education and other services were available to all. In his speech the Minister claimed to make "substantial allocation to poverty relief": "We invest," he said, "in people through a significant reprioritization of expenditures in favour of social development." But what was the reality behind this rhetoric?

The reality was that in a country in which many people were coming within the social expenditure net for the first time - the apartheid state had simply declared them to be non-existent - Minister Manuel's allocations to social programmes represented a drastic cut in expenditure. For the traditional basis of comparison used in the budget - that the allocation represents such and such a percentage increase over last year and represents such a percentage of GDP - was (given the much larger number of people to now be affected) merely a way of hiding the cuts in social expenditure. And this is all the more true given the fact that all the "increases" were at or below the ever rising level of inflation. In practice, transfers to provinces, which constitute the main source of social spending, fell in real terms.

The cynicism that lies behind this misleading announcement of a reprioritization of expenditures in favour of social development was expressed most graphically in the allocation of, and policy changes concerning, child maintenance grants. Under the old order, in cases which qualified for child maintenance the mother got R430 per month and the child (up to a maximum of two children in a family) got R135 up to the age of 18 years. The ANC in government has undertaken a fundamental change in child maintenance grants. On the plus side, it is true that "Africans" will now be covered by such grants for the first time. On the negative side, however, are the facts that children will be covered up only to age 6 and that each qualifying child will receive a flat grant of a mere R75, with no grant now for mothers. In short, in this sphere, "reprioritization" means a dramatic downscaling of social benefits. When confronted with vocal opposition to the R75 a month grant, the Minister for Welfare (sic!) defended the grant on the basis that a child could be clothed and fed on R75 per month. In other words, this was not just a case of limited means, but it was an allocation based on the genuine belief that this drastic cut in what was deemed an adequate living levels for workers and their children was correct and appropriate.

The logic of neo-liberalism

Neo-liberalism has as one of its important objectives the downward revision of the value of labour power. The source of the neo-liberal agenda is the crisis of profitability that registered on a world-wide basis at the end of the 1960s. On a given technical basis, one way of raising the rate of surplus value is to lower the value of labour power. The downward trend in wages worldwide forms part of the solution of the crisis of profitability, albeit a solution cast in capital's own interest. Although union bashing, and the weakening of the capacity of the working class to resist, forms the general basis of this downward revision of the value of labour power, it is not enough. After all, one can do anything with a bayonet but sit on it. So in addition to weakening working class organizations, work must be done at the ideological level to convince the working class actually to accept a lower value for its labour power. The Minister of Welfare's contention - preposterous as it might sound - that a child, in 1998, can be clothed and fed on R75 per month represents just such an attempt to ideologically condition the working class to accept just such a low valuation.

This attempt at the ideological conditioning of the working class reaches its height in the government's approach to housing. If anything epitomized the RDP it was its dramatic target of 1 million houses by the year 2000. With the adoption of GEAR this target was abandoned. According to GEAR delivery of houses has been slow "due to refinements to policy frameworks," the upshot of which was that the housing budget for 1996/97 went largely unspent. The governments "refinements," do not really explain very much about this failure of delivery, however. For the real reason lies in the fact that the government has quite self-consciously abdicated a direct role in the provision of houses. For example: in an exercise in verbal gymnastics comparable to the heyday of Soviet Stalinism in the 1930s, the late Joe Slovo managed to strike an agreement with the "homeless" at Botshabelo by which the homeless committed themselves "to continue, as we have always done in the past, to meet our own housing needs, using our very limited resources, our creativity, our initiative and our collective strength. By this we mean that we will continue to implement and upgrade the systems we have designed in order to secure affordable housing for ourselves." In this manner, the newly installed ANC government not merely abdicated its responsibility to provide housing for the homeless, but it did so with a rhetorical flourish (and with, one fears, a heavy dose of cynicism).

So much then for the ANC's reprioritization of social expenditure.

Liberalization of financial markets

And what, in the meantime, of those, in much smaller numbers, who were already rich in South Africa. In fact, while the rest of the population were beginning to feel the effects of a slowdown in economic activity through unemployment, high debt levels and so on, the bold and the rich were asking "Slowdown?, what slowdown?" In the year 1996, the value of shares on the country's stock market rose from R13.3 billion to R34.6 billion. The average price level of all shares rose by 30%. The volume of shares traded went up 74.7% [Budget Review]. Moreover, even as the stock market celebrated its "successes" the powers-that-be apparently felt it was time for further rewards, rewards that Minister Manuel's budget handed out quite handsomely.

True, in his budget speech, the Minister declared that "we are bold in the further integration of South Africa into the global economy by the freeing up of exchange controls; ... we improve the competitiveness of our financial markets ..." There are certain dangers for wealthy South Africans in such a course. Thus, when the rand went into free fall in early 1996, it was continuing a process that had began in the mid1980s. Although such a freefall is useful for a range of other purposes, including encouraging an export-led economy, a rand in continual freefall also devalues wealth held in money form, and disadvantages our rich (in that for their foreign competitors the values of both local and foreign equities are cheaper). But note that the budget resolved this problem by allowing the rich to hold foreign currency denominated accounts in local banks! In particular, their foreign income earnings can now be held in forex accounts. In addition, these individuals can now invest up to R200,000 offshore, and the amount of money they can take out when travelling overseas has been increased to R80,000 per adult and R25,000 per child.

All this in line with "today's supranational environment," in which, as Howard Wachtel has observed, "four principles prevail: think global, act short-term, move money, and buy and sell other corporations." And Minister Manuel's budget went very much further in order to facilitate this kind of corporate culture. South African corporations will be allowed to invest a portion of their assets for portfolio investment ... and the Reserve Bank will facilitate the hedging operations of local capitalists by supervising the implementation of a dollar-rand futures contracts. In short, a further globalization of South African corporations is facilitated by the fact that it is now possible for local capitalists to raise foreign funding on the strength of their South African balance sheets.

Such, then, are some of the measures taken by Minister Manuel to further the interests of finance capital.

Concluding remarks

In the draft report of the September Commission on the future of trade unions in South Africa set up by Cosatu, it is argued that GEAR's main aim is to meet the demands of financial capital and of financial markets for conservative macroeconomic targets. Minister Manuel's budget represents a consolidation and concrete elaboration of this worship at the shrine of finance capital. But for the capitalist classes the show is never over until its over. Monopoly capital continues to apply pressure to ensure that the transformation of the ANC into a party of monopoly capital is both accelerated and guaranteed. The more Minister Manuel delivers to the financial markets, the more they want. As Cosatu's General Secretary remarked, in GEAR employers have scored a significant victory. Essentially, the recent budget also seems to be one more milestone in the conquests of the legions of finance.

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Printable Version

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