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Will Neoliberalism Fall

Will Neoliberalism Fall

Editorial| Amandla Magazine Issue 70 | June 2020

A tragedy is unfolding in South Africa. The tragedy is not only about Covid-19 and the lockdown crisis. It did not start at the end of March. It has been unfolding over years. It now amounts to the destruction of the social fabric of our country and the brutalisation of everyday life in working-class communities. We don’t need statistics to prove the truth of that.

It is the tragedy of post-Apartheid South Africa. The state is tremendously powerful – witness the shutting of the economy and confinement of millions of people to their homes. But that power has not been used to transform the lives of the poor. Instead, it has enabled SA’s elite to become wealthier, while at the same time eroding the public sector, on which the majority depend for essential services.

A different global future In the face of the pandemic, which has highlighted and magnified these inequalities, many voices can be heard saying we cannot go back to the type of economic system which enabled the pandemic to have such devastating consequences. This is a global discussion. It is not restricted to do-good charities and non-profits. An extraordinary editorial in one of the most prestigious newspapers of the business elite, the Financial Times, made the following call:

“ Radical reforms – reversing the prevailing policy direction of the last four decades – will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure.”

And this is not an isolated view coming from the business elite. The World Economic Forum, under the leadership of Klaus Schwab, responsible for the annual meeting of the world’s elites in Davos, has started the initiative “The Great Reset.”

“It’s not enough to change a few policies or address short-term issues, what we need is a change of mindset, of lifestyles, of business models…
To achieve a better outcome, the world must act jointly and swiftly to revamp all aspects of our societies and economies, from education to social contracts and working conditions…

In short, we need a ‘Great Reset’ of capitalism.”

Almost writing in concert, the Financial Times explained:

“One may be forgiven for worrying that the pandemic has brought socialism on its coat-tails. Yet the paradox is that today’s emergency measures are necessary to protect the longterm health of free markets and a capitalist economy. Those who, like this news organisation, value those institutions must welcome this unprecedented intervention.”

The leaders of the world are being urged by the great advocates and defenders of capitalism to ditch neoliberalism and use the great power of the state, as they have with the pandemic, to address both inequality and the climate crisis.

Catching this changed atmosphere amongst the business elites, the champion of stakeholder capitalism in South Africa, President Ramaphosa, in one of his recent addresses to the nation, told South Africa: “We are resolved to forge a new economy in a new global reality”, adding that a new social compact is necessary for inclusive growth.
But just more of the same Yet this sentiment is yet to be reflected in the immediate trajectory of the “recovery”. What we see is more of the same.

Massive swings of financial markets have become the norm. As the economist Michael Roberts points out:

“ The stock markets of the world, after dropping precipitately when the lockdowns began, have rocketed back towards previous record levels over the last two months. This rally has been driven, first, by the humungous injections of money and credit into the financial system by the major central banks. This has enabled banks and companies to borrow at zero or negative rates with credit guaranteed by the state, so no danger of loss from default. At the same time, governments in the US, UK and Europe have made direct bailout funds to major companies stricken by the lockdowns, like airlines, auto and aircraft makers, leisure companies etc.”

And it is not reflected in the views of those who have their hands on the levers of the South African economy. Reserve Bank governor, Lesetja Kganyago has held the line against doing what many central banks have done. No printing of money or buying of government debt so that the state has sufficient money to bail out the millions of South Africans without any income.

For Kuben Naidoo, a deputy governor at the SARB, reflecting the views of Kganyago:

“We do not think it is prudent to finance government directly, … It would increase inflation risks. It would blur the lines between an independent central bank and publicly-elected office bearers. If we were to finance government directly, there would be no pressure on government to manage their costs in any way.”

So our Finance Minister, Mboweni, has just gone to the IMF to fund some parts of the R500 billion stimulus package announced by Ramaphosa.
This is unnecessary. The application for the IMF loan is motivated less by the lure of cheap credit and more by the desire to lock in neo-liberal policy. And this is in the face of calls from his own party for loosening of rigid macroeconomic policy.

Of course, in terms of economic policymaking, big capital in SA is not considering the need for overhauling policy. In fact, what we see playing out is business dusting off the cobwebs from its battery of saved opinion pieces. They are prepared to quash challenges brought in the face of the obvious failures of these policies.

This is Roger Baxter, CEO of the Minerals Council of South Africa (the old Chamber of Mines), in a recent Business Day article:

“ To grow an economy requires sustained levels of investment of about
25% of GDP. Our current investment level of 19% of GDP is simply too low. To attract investment requires competitive, stable and predictable
policy and regulatory frameworks, and a conducive operating environment to be more internationally competitive.”

So, hold neoliberal policies in place if you want foreign investment. In South Africa, regardless of what Ramaphosa may say to appease the radical economic transformation wing of his party and its trade union allies, capital and the state are not about to take the line from the Financial Times. Or the World Economic Forum for that matter.

Resist payment of odious debt

In our view, political economist Gilbert Achcar is correct when he says:

“The outcome of the present pandemic-related economic crisis
will likewise be determined in every country by the balance of local social forces in the context of the global balance. The most likely immediate outcome will not be one of the two opposite alternatives of a spontaneous post-Keynesian abandonment of neoliberalism or a Trumpian Behemoth. It will rather be the attempt by neoliberal governments to shift the burden of the huge debt currently incurred onto the workers, as they did in the wake of the Great Recession, depressing the people’s purchasing power and propensity to spend, thus leading the world into a major aggravation of the current secular stagnation.”

The fate of SA post Covid-19 will be determined by how it deals with the debt incurred by the state in different forms, both prior to the pandemic and during. The likes of Ramaphosa, Mboweni and Kganyago will tell us we have no alternative but to cut spending, i.e. more austerity. This will already be signposted when Mboweni presents his adjusted Covid-19 budget. The attack on the public sector will be deepened – the R161 billion in cuts to the public sector wage bill just a beginning. More cuts are coming. Working-class communities must stand in defence of public sector workers. These are the essential workers to whom government pays lip service, for their heroism in fighting the virus. Opposition to the cuts to the public sector brings the demand for debt cancellation to the centre of the struggle for its preservation. We can’t fight to cancel the debt if we are at the same time taking loans from the IMF. Their rules will not permit it. So, we have to start with opposition to the IMF, World Bank and New Development Bank loans. We have to call for the repudiation of the corrupt loans to Transnet and Eskom, on the grounds that they are odious and thus illegitimate (we go into more detail on this in the article on page 39 of Issue 70).

In 1997, Jubilee South Africa was formed to campaign for the cancellation of the Apartheid debt. Mbeki’s refusal gave us GEAR and the tragedy of rising unemployment and its allies prepare to fight the attacks on the public sector, they would do well to pick up the banner of the anti debt movement. Cancellation of the debt is fundamental to the recovery of the South African economy.

[This is an editorial from the latest issue of Amandla Magazine coming out on the 15th of June, 2020]
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