SAFTU condemns snail’s pace of employment equity progress
August 29, 2019
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September 2, 2019

SAFTU rejects Mboweni’s economic strategy plan

The South African Federation of Trade Unions vehemently rejects Finance Minister Tito Mboweni’s attempt to find a solution to the country’s economic crisis in his paper – “Economic transformation, inclusive growth, and competitiveness: Towards an economic strategy for South Africa”.

SAFTU has often used the quotation attributed to Albert Einstein – that “Insanity is doing the same thing over and over and expecting different results”. Mboweni’s paper is the best possible example of the type of insanity.

He begins with a statement of the obvious – that “South Africa’s current economic trajectory is unsustainable: economic growth has stagnated, unemployment is rising, and inequality remains high”. Yet he then goes on to offer as ‘solutions’ for this unsustainable situation a long list of all the old right-wing capitalist policies which have brought it about in the first place!

While on reading it, the document may appear more nuanced and sophisticated than previous Treasury documents, it is essentially a rehash of all the failed economic strategies which are the main reason why the country is on the brink of a catastrophic economic and political implosion. It comes immediately after the Treasury has announced a full-blown austerity framework for the MTEF which sees cuts of 5, 6 and 7% from 2020 to 2022. Yet the there is no discussion of this macroeconomic policy in the document, which wants to deliberately conceal it from the public, under the cover of “micro economic reforms”

The key moment in this descent into today’s disaster was the adoption by Mboweni’s predecessor Trevor Manuel, of the Growth, Employment and Redistribution (GEAR) strategy in 1996, which imposed the same neoliberal free market policies as his today. There was no prior discussion with any trade unions, communities or civil society groups. GEAR was announced as ‘non-negotiable’. It followed the apartheid regime’s Normative Economic Model (NEM).

Indeed there is a very clear trajectory from the De Klerk depression of 1989-1993 to Derek Keys’ National Economic Model (NEM) to the $850 million International Monetary Fund loan in 1993 to GEAR to the Accelerated and Shared Growth Initiative (ASGISA) for South Africa of 2007 and then to the National Development Plan (NDP), which promised to eliminate poverty and reduce inequality by 2030.

Most of these relied upon a ‘Computable General Equilibrium Model’ designed by technocrats in Treasury, the World Bank, Stellenbosch University or other neoliberal institutions – and like most of neoliberal economic thinking, they simply failed when tested against capitalist crises and class struggles, which in South Africa are both acute, given our apartheid legacy and the extremely corrupt nature of post-apartheid crony capitalism, driven by the ANC elites who have lost their way, plus Sandton and Stellenbosch corporations which PwC continues to consider to be the world’s most economically crime-riddled in their biannual reports.

As a result of neoliberal economic modelling and state-corporate corruption, the policies of NEM, GEAR and the NDP led to exactly the opposite of what they promised. The GEAR led to low and eventually negative economic growth, soaring levels of unemployment and redistribution from the poor to the rich. It was not GEARing up the economy, but instead a recipe for Decline, Unemployment and Polarisation Economics: we were duped!

The NDP policies have thrown two thirds of the population into poverty (measured at R50/day or below, the Upper Bound Poverty Line), making South Africa the most unequal society in the world.

Yet Mboweni now regurgitates exactly the same failed policies, with not a word to explain why these policies have persistently not only failed to fulfil their promises but have made all the problems of unemployment, poverty and inequality that they were supposed to have solved even worse.

For example, the central premise of neoliberalism is always that exporting to foreign markets will save South Africa. As this new report argues, quoting a 2014 World Bank report, “South Africa needs to promote export competitiveness and actively pursue regional growth opportunities in order to leverage global and regional value chains for export growth (Purfield et al. 2014). Exports have been identified as a key driver of economic growth.”

South Africa is, in reality, extremely vulnerable to export-led decline, just as we were in 1998 and 2008, because of
·      the ongoing run on emerging markets which just crashed the South African rand from R13 to R15.30/$ in recent weeks;

·      imminent world recession and a potential full-fledged global capitalist crisis;

·      the pre-existing processes in which globalisation has been in ‘retreat’ since 2007 (declining world and South African trade/GDP, FDI/GDP and cross-border finance/GDP), which the Economist magazine terms ‘slowbalisation’;

·      the ongoing Chinese economic slowdown to the lowest GDP growth since 1993;

·      shrinkage of global value chains from 28% to 22.5% of exports;

·      the likelihood of increasing costs for faraway trading transactions due to shipping and airline carbon taxation;

·      Africa’s worsening debt crisis which makes regional export growth far less feasible;

·      Trump’s chaotic trade war, with not only China but many other countries including South Africa; and

·      the adverse impact of Brexit on South African exports anticipated in late 2019.

The only difference is that his latest attempt to breathe life into a policy corpse does not even make the same sort of promises as GEAR and the NDP. The best Mboweni can offer is the hope that “the economy-wide impact of the proposed interventions over time based on when they can realistically be implemented… can raise potential growth by 2–3 percentage points and create over one million job opportunities”.

Such pathetically low growth rates would have an infinitesimal effect on poverty and unemployment. Even if in the unlikely event that his policies were to create one million jobs over 10 years (or 100 000 jobs a year), this will lead to a reduction in the current number of ten million unemployed and the over 400 000 new young new young work-seekers expected to be entering the labour market in every one of those ten years. None of the neoliberal policies imposed on us in the past few decades, since Treasury’s late-apartheid conversion to the Washington Consensus, have worked.

Most of the detailed proposals in the papers are based around the familiar calls from business for the relaxation of ‘regulations’ and ‘rigidities’ which limit the amount of profit they can make. Yet South African businesses have vast powers to act just as they wish with minimal restrictions, many of which are ignored anyway. Mboweni wants Special Economic Zones like Coega to be the place to ‘pilot’ the relaxation of regulations and labour protections. We won’t let that happen.

The corporations are not victims of the economic crisis but its main cause. They have withdrawn or smuggled billions of rands out of the country. Money which could have been invested locally and saved and created jobs is either invested elsewhere the world where labour costs are even lower or hidden away in tax havens.

They are also one of the most monopolised capitalist classes, which is still largely owned and run by the white male elite which ruled under apartheid.

They, just like Mboweni, try to pretend that the biggest problems are faced by small, medium and micro-enterprises (SMMEs), when in fact the biggest problem small businesses face are monopoly big business which conspires to exclude them from the mainstream economy, while ANC and other councils evict them from their business sites and xenophobic demagogues who incite people to loot their premises. Fare from labour rights being the main obstacle to SMME growth, the biggest problems they confront are lack of access to affordable credit, and lack of access to markets, because of stranglehold of the monopolies.

The paper uses the ‘plight’ of SMMEs to justify policies which are in fact demanded by the big monopoly employers. The most alarming passage in the paper is:

“Rigidities in labour market institutions and regulations raise costs for SMMEs. This includes the extension of collective bargaining wage agreements to SMMEs. If these wage agreements raise labour costs without concomitant increases in productivity, it reduces the global competitiveness of South African workers and may inhibit the long-term sustainability of SMMEs and contribute to rising youth unemployment.

“In addition, the introduction of the National Minimum Wage could potentially have an adverse effect on small businesses who cannot afford the increase. While there is an exemption available for small and micro enterprises, there are concerns that having to apply for this exemption introduces additional red tape.”

This is a restatement of the anti-worker provisions in the economic chapter of the NDP, which led to a commitment to redraft this chapter, a commitment which has never been realised.

It is a barely veiled attempt to reduce even further the laws which are supposed to protect workers and their unions from exploiting employers, who are already waging war on collective bargaining and demanding exemption from having to pay even the poverty national minimum wage. SAFTU will fight tooth and nail against any such moves.

What is totally missing from the paper is any recognition from Mboweni that it is his friends in the boardrooms of monopoly big business, the international financial institutions and the credit ratings agencies who are responsible for the unsustainable economic trajectory.

Even less surprisingly is no recognition of the responsibility of successive ANC governments, in particular its finance ministers and treasury officials, who have followed the dictates of global business and adopted policies totally opposite to those in the election manifestos on this they were elected.

Austerity cuts in public spending have further increased unemployment and widened inequality not just in income but in the quality of services. These cuts have meant plummeting levels of service in schools, hospitals, transport and social care. Job cuts have left them all without enough staff to run these services properly, yet 10 million unemployed people could be employed and trained to work in these services.

The misery this has inflicted millions of the poor it has expanded the swelling army of South Africans who are so poor that they play virtually no part in the economy as consumers, which makes the economic crisis even more severe.

The unemployment crisis is also the biggest cause the terrifying levels of crime, drug addiction and gang warfare in poor communities, which has led to the spectacle of the army patrolling the streets of Cape Town.

The Eskom crisis is profound, and instead of a ridiculous attempt to sell coal-fired power stations for a fantasy sum of R450 billion (a privatisation strategy already rejected by workers and management alike), Mboweni should instead go back to the drawing board.

For example, he should ask our society whether foreign lenders like the World Bank, African Development and China Development Bank deserve to be repaid more than R100 billion for their 2008-18 loans to Eskom, while fully aware of the extreme corruption there – not just Gupta-era rot, but also Hitachi’s 2008 bribery of Chancellor House to get Medupi and Kusile contracts, for which the Japanese firm paid the U.S. government a R300 million fine under the Foreign Corrupt Practices Act in 2015 and for which the Public Protector in 2009 termed the Eskom chair’s conflict-of-interest behaviour ‘improper’ because he also sat on the ANC Finance Committee.

As Eskom’s corruption is cleaned up, the corrupt officials and their financial facilitators need to be both taken to task, and lender liability needs to be demanded. Otherwise, Mboweni runs the risk of locking in the incredibly expensive corruption for future purchasers of Eskom electricity plus taxpayers who are to be shouldered with repaying the R450 billion guaranteed debt.

SAFTU demands an end to Mboweni’s failed ‘business as usual’ policies, in favour of a fundamental transfer of wealth and power from the white monopoly capitalist elite to the majority. We call on the government to:

1.    Announce a real stimulus package at least to the region of R500 billion rands to save the situation from getting worse in the third and fourth quarter.

2.    Introduce a wealth tax and solidarity tax,

3.    Implement legislation such as a general anti-avoidance tax act to halt base erosion, profit shifting and the loss of the country’s resources to illicit financial flows, that not only reduces the tax base but more significantly perpetuates wage inequality.

4.    Review the corporate taxes that were around 45% during the apartheid era but driven down to 28% after 1994.

5.    Review personal income tax to ensure that those who can pay more make more contributions to the fiscus.

6.    Tax the trillion rands investible cash in the back pockets of the billionaire class and introduce tax rewards when they invest the money in the productive sectors of the economy.

7.    Scrap the current monetary policies and replace them with more expansionary fiscal and monetary policies.

·     Cut interests rate by 3% to lower the cost of borrowing, resulting in higher investment activity and the purchase of consumer durables.

·     Scrap the punishing inflation target of 3% – 6% as it leads to extremely high interests’ rates regime to keep inflation at these extreme low levels for a developing country

·      Take steps to do away with a situation where cash returns from money market investments currently generate a return of inflation plus 3%-4%. This is not normal, as long-term (10yr) average cash returns are approximately inflation plus 1%. That means there is no incentive for institutional investors to take risks when risk free assets generate these sorts of returns in a low growth environment.

·     Implement the ANC national conference resolution regarding both the mandate and ownership of the Reserve Bank

8.    Cap the salaries of those earning gruesome amounts and introduce a meaningful National Minimum Wage that could close the worsening income inequalities and address the crisis of poverty amongst the employed workers.

9.    Find creative ways of effectively taxing incomes gained in the financial markets.

10.  Raise government revenue to 33% of the GDP.

11. Scrap the Labour Bills that have been introduced to undermine the right of workers to strike.

12.  Adopt industrial policy aimed at import substitution, sectoral re-balancing, social needs, eco-sustainability.

13. Encourage more agreements between SAFTU and the Manufacturing Circle to promote buy local awareness campaigns focusing on growing tomatoes in Limpopo

14. Increase state social spending, paid for by higher corporate taxes, cross-subsidisation and more domestic borrowing (& loose-money, ‘Quantitative Easing’, too, if necessary)

15.  Reorient infrastructure to meet unmet basic needs, and expand/maintain/improve energy grid, sanitation, public transport, clinics, schools, recreational facilities, internet

16.  Adopt ‘Million Climate Jobs’ strategies to generate employment for a genuinely green ‘Just Transition’

17. ESKOM and Electricity: Ensuring the inevitable transition in the energy sector is accompanied by energy sector transformation driven by the unions, the working class and communities. It is now clear – to all but the last few with vested interests in the fossil fuels industry – that the low-cost wave of storage-backed wind and solar energy is all consuming.

18. Address the land and property poverty of the majority by nationalising land and minerals under the democratic control of workers as called for in the Freedom Charter.

19. Retirement funds and prescribed assets

·      Retirement funds allocate investment according to Regulation 28, which relates to prudential limits as per the Pension Funds Act. This allows pension funds to allocate up to 10% of their funds to unlisted investments in the real economy. Outside of the GEPF and Eskom Pension and Provident Fund, most pension funds have not allocated much to this asset class, but around 1% – 2% at best.

·      Do not use the national budget to increase the support to looted and indebted SOEs. A more progressive way to finance the rescuing of Eskom would be to tap into the resources of the PIC and the GEPF. Shifting Government Employee Pension Fund (GEPF’s) investments away from shares to bonds specifically made to deal with the SOE debt crisis is critical to saving Eskom (and other SOEs) from privatisation and austerity. This move will not put workers’ pensions at risk

20. SMMEs

Government has the power to change the fate of SMEs in South Africa, by:
•      Channelling investors’ spending to favour institutions that have devoted the necessary resources towards the SME growth agenda
•      Imposing penalties on institutions that are on an Investment Strike, through additional taxes on funds that are invested in cash instruments
•      Channelling more than 30% directly to SMEs from the R800bn public procurement
21. Fix our education and better prepare for the reality of the 4th Industrial Revolution. If all institutions attach themselves to a cause bigger than themselves (SA growth and development), they will continue to grow accordingly. Broadband providers need to reduce the cost of data immediately. If not, their licenses to operate in South Africa need to be reconsidered.

South Africa ranks 35th in Africa, out of 50 ranked countries, with an average 1GB prepaid mobile data charge of $7.84. Egypt is the cheapest with a $1.13 charge for the same package. The purchase of 1GB costs $1.19 in Namibia, $2.02 in Mozambique, $2.49 in Kenya, $2.62 in Ghana, $2.68 in Uganda, $2.79 in Nigeria, $3.55 in Zambia and $5.07 in Lesotho. (Source: Research ICT Africa March 2019)

Take practical steps to fix the public education system

Unless something is done at this level the economy will never grow when the overwhelming majority are trapped in squalor and poverty.

The federation calls upon all workers, communities and civil society to demand that the ANC and government reject Mboweni’s outrageous political strategy and join together in a mass campaign for a democratic socialist South Africa.