South African Workers Tackle Neoliberalism

Against the Current, No. 143, November/December 2009

Patrick Bond & Azwell Banda

“A sound banking system, healthy fiscal position, credible monetary policy and appropriate foreign exchange regulations will continue to limit our exposure to the international downturn, while serving as key building blocks in financing future growth and development” (former Finance Minister Trevor Manuel, February 2009)

“I am not sure the Numsa march was helpful. It is not a household tactic to march because you are actually pushing them not to drop rates… It may be counter productive” (Gwede Mantashe, ANC General Secretary, May 2009)

CAN THE NATIONAL Union of Metalworkers of South Africa (Numsa) be credited with a sudden high-profile career change — from central banker to academic — by Tito Mboweni? The Reserve Bank Governor made a mistake in May when he refused to take a petition from thousands of Numsa members marching to the Banks’ Church St. headquarters. In July Governor Mboweni was rewarded with early retirement.

Numsa’s strategy was not to remove the governor’s head — swelled as it was — but instead to immediately reverse his “sado-monetarist” policies that have privileged short-term speculative financial capital at the expense of productive and industrial capital.

Whether his successor Gill Marcus changes tack will be known only in November. One thing is certain though: Numsa is not about to abandon its struggle to wrestle monetary policy from the dominance of financial capital.

Mboweni and his predecessor Chris Stals imposed the highest interest rates n South African history, starting in 1995 when the “financial rand” — the decade-long exchange control — was removed, and during the 2000s did so with the excuse of “inflation targeting” within a 3-6% band.

The point of the high interest rates, Mboweni argued in a July meeting with Numsa leaders, was “macroeconomic stability,” so as to lower domestic demand which leads to higher prices. Numsa leaders replied, “Inflation is no longer as much a problem as SA’s economic depression — including a 28% cut in steel production and 26% in autos in the first quarter of 2009 — so why not bring down the interest rate much more to stimulate the economy?”

Answered Mboweni, “Because it would lead to capital flight, since investors need a premium to bring their money into South African financial assets.”

“So then impose exchange controls to prevent capital flight,” Numsa leaders reply, “instead of the creeping financial liberalization that just gave The Economist magazine reason to rate South Africa as the world’s riskiest emerging market economy.”

Indeed the magazine’s February 25th issue judged SA the most vulnerable amongst 17 middle-income competitors, largely because of the vast “balance of payments” deficit (more money flowing out than coming in).

Contrary to mainstream wisdom, South Africa’s neoliberal macroeconomic policy has been unsound, causing more currency crashes than any other major economy (1996, 1998, 2001, 2006 and 2008), and from 1997-2008 creating a property bubble four times larger than even the USA’s, and twice larger than the second most speculative real estate market (Ireland), according to The Economist.

Although a few months ago the balance of trade went into surplus — i.e. we finally export more than import — there is still a huge capital outflow underway, largely to foreign investors like Anglo American, DeBeers, SAB Miller, Old Mutual, Investec, BHP Billiton, Liberty Life and Didata.

All were formerly South African companies, but Trevor Manuel (and to a lesser extent his predecessor Derek Keys) and Mboweni allowed their relocation to London and Melbourne. To cover the flight of profits and dividends, Manuel and Mboweni ran the foreign debt up to nearly $80 billion by late 2008, after inheriting just $25 billion in foreign debt from apartheid.

The anger at Mboweni’s monetarism is widely shared across the spectrum, even including mainstream economist Iraj Abedian, who in a recent debate agreed that Mboweni did too little too late to drop interest rates. Numsa argues that the SARB and Treasury adopted inflation targeting even though it was highly inappropriate for South Africa, so as to please global finance.

Then when the world capitalist crisis hit, SA’s fiscal stimulus and the drop in interest rates were both inadequate. A proper Keynesian response would be to run a larger budget deficit, directed to mass consumption — instead of prestige projects such as 2010 sports stadia, elite transport and dubious nuclear energy plants as is currently the case — and to much more rapidly lower interest rates. If Nobel prize winner Paul Krugman is correct, we need to drop rates much further: by at least another four percent from current levels.

Protecting Elites from the People

Numsa is demanding the abandonment of monetary policies that have privileged the export of capital in return for massive, unsustainable inflows of short term speculative capital. Numsa general secretary Irvin Jim and president Cedric Gina argue that one way to solve the mismanagement is to end the Reserve Bank’s self-isolated role in an economy we all need to debate. The South African political class granted the Bank formal “independence” in the November 1993 interim constitution, an historic mistake.

With democracy on the immediate horizon, the elites wanted protection from a much broader-based constituency of ordinary black people. That allowed the “new” Bank to adopt policies harmful to that constituency. The Bank’s refusal to accept a petition from thousands of peaceful Numsa protesters not only reflected institutional arrogance, but also class interest in denying democratic inputs.

The Bank’s mission and vision is “to pursue balanced economic development and growth” and to “foster a stable financial environment in which the economy can thrive for the benefit of all.”

Numsa is challenging incoming Reserve Bank governor Marcus to “pursue balanced economic development” — as is her formal mandate — instead of continuing policies so destructive to the productive sector, labor and the poor. Numsa is looking for support from the trade union confederation Cosatu in its fight, at the 10th Cosatu Congress.

ATC 143, November-December 2009