The South African Civil Society Information Service
A nonprofit news agency promoting social justice. Seeking answers to the question:
How do we make democracy work for the poor?
A nonprofit news agency promoting social justice. Seeking answers to the question:
How do we make democracy work for the poor?
By Glenn Ashton · 23 Jul 2010
Economic pundits are by their nature economic optimists – they talk up the game, they look on the bright side and they dismiss negative perspectives and doom and gloom talk about any economic downsides.
This is quite understandable. Their careers are after all utterly reliant upon the continued growth of capital, on increased profitability and on positive economic sentiments. Consequently they sing the praises and extol the health of the dominant economic system.
But the question is, why do we trust them? No matter whether the expert is a commentator, a policy maker or employed in the corporate world, their version of reality remains subjective at best, misinformed at worst.
There are those who warn of the dangers and consequences of unrestrained, destructive market driven solutions. Even Alan Greenspan, then head of the US Federal Reserve, warned of “irrational exuberance” in 1996. The irony that the warning emanated from someone responsible for creating a suitable climate for our present economic woes was then unrevealed.
Greenspan’s consistent manipulation of interest rates to manage the overheated US market eventually created more problems than it solved. Its culmination in the perfect storm of cheap money chasing speculative money was instrumental in the collapse of a speculation centred banking system.
Statements by South African economic leaders such as head of the National Reserve Bank, Gill Marcus, who recently expressed concern about the potential for a double dip recession, clearly fail to recognise the full array of implications of our present situation, affected as it is by current global market instability.
This is unsurprising given that Marcus, along with Tito Mboweni and other local economic notables are ideologically influenced from within the very source of the problems - the banks that landed us in this trouble in the first place. Marcus, Mboweni and Lesetja Kganyago, the Director General of the National Treasury, were each mentored at Goldman Sachs, the bank which remains at the centre of the global economic malaise. Mboweni even undertook some consultation work with Goldman Sachs after handing over the reins of the Reserve Bank to Gill Marcus. Is this not perhaps a relationship bordering on the economically incestuous?
While our economic leadership will deny untoward influence, one must question such ideological alignments that are fundamentally at odds with the concept of a developmental state. When the economic leadership of a developing nation side with those creating the global economic crisis, their policies are by definition diametrically opposed to the interests of the poor majority. This is confirmed by a refusal to contemplate real economic reforms like the Basic Income Grant as proposed by the South African New Economics Foundation (not the one hijacked by the DA, themselves clear agents of neo-liberalism). The poor are relegated to a shadow world of hand outs, not hands up.
In the global north the G8/ OECD nations have been sucked into ballooning national debts through bank bailouts. Instead of nationalising banks, governments subsidised them at the cost of the taxpaying public and then allowed them to continue their normal destructive patterns of behaviour.
The real global economic reality is dire; whether we live in highly indebted G8 nations, or in developing nations, we are all in the same situation. Poor nations will inevitably subsidise the financial follies of the first world through World Bank and OECD driven policies and projects.
These involve the extension of international loans to pay for capital projects such as infrastructure and power generation. The poor of the south will indirectly end up bailing out the indebted North, just as taxpayers in the global North have been coerced to do. The patterns of colonial times are reprised in these cynical neo-colonial ploys.
The global economy is not improving, despite the positive spin by the pundits. The Japanese national debt of about 174% of GDP in 2008 had climbed to 192% last year. In the USA it had increased from around 70% in 2008 to over 100% today. Economists estimate that these debts may only reach a manageable level - less than 60% of GDP - after 2050. This is only if nothing untoward happens in the interim, an unlikely reality given the present state of play.
While the global economy falters, vast sums continue to be spent by the military industrial complex, effectively removing it from the economy forever. This money alone could halt hunger and bring health and education to most of the poor people on earth.
In order to bring the economic crisis under control, austerity measures have been implemented. These inevitably reduce growth, capital spend and money circulating in the economy, worsening the problem.
While the situation in South Africa may not be as dire as the rest of the world – our debt levels are far more manageable and our deficits miniscule compared to those of developed nations – we will, as a member of the global village, be impacted.
But more worryingly, as a Southern nation with significant mineral commodities, we are doubly vulnerable. We have disproportionate reserves of minerals, energy supplies and other resources. We present an attractive proposition for those seeking to exploit our inherent wealth, as is evident by the presence of the Mittals and Billitons of the world, who exploit us as much as they can, in the name of corporate profit.
This is the plague of the global South, simultaneously vulnerable to both acquisitive transnational corporations on the one hand and those controlling the instruments of international capital control such as the International Monetary Fund and the World Bank on the other. Recent statements by OECD task teams telling South Africa to reduce the value of the Rand to maintain our competitiveness are yet further examples of these forces at play. Such offers of assistance have strongly vested self interest.
The irony is that as the Northern OECD nations sink ever deeper in the mire of debt we are simultaneously encouraged to increase external debt levels, which negatively impact us as it will in turn assist in bailing them out.
Our threats are both internal and external. Population growth, the displacement of food supplies into fuel manufacture, the approach of peak oil and perhaps most importantly, the limitations to growth as a consequence of limited environmental resources: each of these factors highlight the extent to which we are trapped in a double jeopardy conundrum.
On the one hand the debt crisis exists because of the reckless nature of the capitalist system and the irresponsible behaviour of players within the system, coupled to a marked reluctance to place any constraints on economic growth. On the other hand we have tangible limitations of our biosphere, often defined as overshoot, comprising the limitations of our ecological and resource base to the impacts of continuous population and economic growth.
Couple these threats with the influence of political interference in the market driven economy and the precariousness of our situation increases. As a developing Southern nation we are largely at the whims of the currents that drive the global economy, be they benign or malign. South Africa is a particularly rich prize.
In order to protect ourselves from creating further indebtedness we must be extremely careful of embarking on capital intensive projects such as our new build coal fired power stations and proposed nuclear power plants. Political influence, through vehicles like Chancellor House, or through the hidden hand of Goldman Sachs, is indivisible from the interests of the ruling political clique, with inevitable long term economic consequences for the rest of us.
South Africans must query the extent to which our development path fails to include a pro-poor budgetary approach. Political lip service does not equate to real action. If we are to rely on the same market driven, crony capitalist model we have seen to date, no advantage will accrue to anyone except the well-connected. The wealth gap will simply expand.
We must ask hard questions about our economic leaders. Either they continue to gorge like pigs at a trough - imitating the Goldman Sachs master classes - or they begin to behave responsibly to provide not just hand-outs, but hands-up to the people who elected them.
The choices are simple. Either we follow the mainstream economic model like a herd of cliff-bound lemmings or we pursue meaningful and active strategies to close the ever widening gap between the rich and poor of South Africa. We need only heed pundits we can trust, not those whose future is vested in a model that has failed the majority of our people.
Should you wish to republish this SACSIS article, please attribute the author and cite The South African Civil Society Information Service as its source.
All of SACSIS' originally produced articles, videos, podcasts and transcripts are licensed under a Creative Commons license. For more information about our Copyright Policy, please click here.
To receive an email notification when a new SACSIS article is published, please click here.
For regular and timely updates of new SACSIS articles, you can also follow us on Twitter @SACSIS_News and/or become a SACSIS fan on Facebook.
Posts by unregistered readers are moderated. Posts by registered readers are published immediately. Why wait? Register now or log in!
New thinking on Reserve Bank Needed
I noted with interest City Press this weekend carrying an article about Portugal, nothing its high deficit and the fact that it has the bigest gold reserves per GDP in Europe. But the laws don't allow the reserves to be sold to pay off the deficit, the article rather disingenuously noted. Taking that the deficit was probably ratcheted up mainly by ocrruption, it's outrageous to suggest the nation's gold be used to pay it off. But it may come to that.
Which brings us to South Africa. Who owns the Reserve Bank's reserves? How often are these reserves used to balance our current account, our trade deficit?
The reserves are built up after all, at the expense of the rand, that currency representative of our country that expresses a measure of our collective work. As such, we are all working to build up the SARB's reserves. So, shouldn't there be more collective control over them?
And why do we only have about $4.5bn worth of gold reserves? The dollar and the euro have been heading for trouble since 2006 (and even earlier, given the fading growth potential of mature/stagnating economies). But our SARB has slavishly committed itself by building up its reserves in dollars and other 'hard' currencies. What madness!
There has been a massive oversupply of dollars and euros in the plethora 'bailouts' "emergency funds" and so on that have been thrown at the banking sector. Logically, that means those currencies are in truth worthless.
But we continue exchanging worthless currencies for our rand.
And another thing (actually there are plenty): if we are going to keep interest rates as the main means of 'regulating' our economy, why don't we introduce differential interest rates: a fixed one for mortgages, a low one for one-car owners, an even lower one for companies investing in capital equipment and to SMMEs, and a high one for fast-moving consumer goods like hifis and clothing?
Tito came back from a Bank of International Settlements in May 2006 where the bank, in line with similar contemporary calls by the IMF and the US treasury, had called for higher global interest rates. In effect the big boys were seeking higher rates they could invest in elsewhere in the world because the scope for raising rates sufficiently in the States and the EU were viciously circumscribed. In effect, they were seeking to export their domestic inflation pressures that were unaffordable at home. Tito caught the market by surprise, saying we were facing a crisis. In the next two years, his interest rate increases shave off at leat a percentage point a year from our GDP, according to Moodys.. Just a few months after Trev Manuel has stated confidently that South Africans had never had it so good, as SA was approaching the magical 6% GDP growth rate needed to reduce unemployment, Tito goes and cuts it out from under us.
Abandoning the Neoliberal Cul De Sac!
We, indeed, urgently have to "query the extent to which our development path fails to include a pro-poor budgetary approach", if our country were at all to benefit from undergoing the on-going transitional phase and hopefully recover from inherited inconsistencies. Imitating G8/OECD economies is the exact opposite of the challenge facing us: self-discovery and assertion as a potentially viable system within the network of developing economies in the post-colonial South - abandoning the neo-liberal cul de sac before it could be too late!
