The IMF and South Africa: Old Vinegar in Old Bottles
by Ben Fine
Over the period of neoliberalism, the motivation underpinning IMF policy advice has gone through three phases. The first, lasting from the early 1990s, was to promote global capital in general as much as possible with global finance in particular to the fore and never mind the negative and dysfunctional consequences of the spin-offs in terms of fiscal austerity, high interest rates, free capital movements, economic and social wage repression, rising unemployment, inequality and poverty, privatisation, and so on. The second phase was to seek, unsuccessfully, to prevent economic or social crises from erupting in particular countries or regions whilst keeping as many of the features of the first phase on track as possible. And the third phase that has emerged following the global crisis, implicitly acknowledging the failure of holding to the previous phases, has been to accept that there are going to be country crises but to seek to prevent them from giving rise to “contagion”, not least as the global economy is already heavily diseased. But, whilst the motivation may have changed, and the neoliberal rhetoric became less blunt, the medicine remains much the same in policy terms.
This is the context in which to view the latest annual IMF report on the state of the South African economy. It is based on a number of totally invalid dualisms. The first, endlessly repeated, is that the country’s macroeconomic performance over the past twenty years has been a success. But this can only be sustained by contrasting the macroeconomy with the “structure” of the economy. How can an economy with 50% official youth unemployment, declining industry, desperately inadequate social and economic infrastructure, and wide and vast inequalities be considered to have been managed successfully? By the neat device of placing this on the unsuccessful side of the economy’s structure as opposed to its successful macroeconomy.
This leads to the second invalid dualism, within the structure which has accordingly to be reformed, that between insiders and outsiders. We are long familiar in South Africa with the false argument that the high wages of those in jobs (insiders) are at the expense of those without (outsiders). And so, despite wage shares having fallen and profitability booming, we are as always offered the recipe of lowering wages and worsening working conditions as the solution to unemployment (alongside youth employment subsidies). Moreover, those lower wages are deemed to be the source of resources to pay for much needed public expenditure (as opposed to expanding already bloated profits).
In addition, the IMF does reasonably point to the monopoly structure of South African industry but sees it as an insider preventing the entry of outsiders and therefore the corresponding growth in employment and output. This simply does not ring true as South African conglomerates, let alone those from abroad, have no trouble entering sectors as and when they want. Think Walmart in retailing or Mittal in steel! Indeed, the corporate concentration within sectors we are witnessing in South Africa is a consequence of how the economy is being restructured by large-scale companies, not their being prevented from doing so. And, just as attacking wages and working conditions are seen as the solution to labour market structures (alongside SMEs that have been shedding jobs overall), so industrial policy (and the Department of Trade and Industry’s own interventionist IPAP programme in particular) is simply dismissed with a flick of inconsideration. After outlining it within a sentence or two, it only takes one to get rid of it, “Critics of this approach have highlighted the difficulties of picking winners, the focus on industry as the only sector that could have high job creation potential, and the possibility that the implementation of industrial policies could provide space for rent-seeking behavior.” Now, if they had just turned this spotlight on finance, we might be getting somewhere! Whatever happened to geese and ganders?
For, at the end of the day, the really crucial insider/outsider dualism in the South African economy (and society more generally) is between the global and domestic elites and the rest of the population, however much the matter may itself be differentiated. And, of course, the distinction within the elite between global and domestic is increasingly being eroded, whether in terms of command over assets or mutual interests. Yet, again increasingly, policy documents talk of a common purpose through sacrifice (especially of higher wages) by which they mean what they say: in order to boost the profitability of the insiders who nonetheless spirit their rewards outside the country but for luxury consumption and pitiful levels of public and private investment lest it be in the self-serving financial sector.
The third revealing dualism, if not invalid other than for realism, is between what is in there and what is not in there. As has been suggested many times elsewhere, the dynamic restructuring (and hence macroeconomy) of the South African economy over the post-apartheid period has been dominated by conglomerate globalisation international and domestic financialisation (including rates of illegal capital flight exceeding 20% of GDP), continued subordination of policy to the imperatives of the minerals-energy complex, and the Black Economic Empowerment creation of a parasitic elite through such restructuring, whether by incorporation within the private sector or largesse of the public sector (especially through mineral rights and tenderpreneurship). The single most important issue on which South Africa’s capacity to make policy depends is the level of investment in the economy, on which and the rest of this, the IMF scarcely has a word to say. Instead, not surprisingly, it merely seeks to continue the policies of the past as (un)usual, not least given their unquestioned “success” and, especially, to liberalise exchange controls further to build up expensively-held reserves in case of volatility (the prospects of which are precisely the consequences of its policies and failure even to address illegal capital flight).
The fourth false dualism is between the IMF and the South African authorities. It simply is not there except around the edges. The IMF applauds the newly formulated National Development Plan even though its economic chapter has been thoroughly discredited in the process, hopefully, of being revised if not discarded (not so much Hamlet without the Prince as absence of the whole Royal Court). And the differences between the IMF and the South African Treasury are so slim it would be hard to get a Zimbabwean dollar between them. At most, not least to manage internal dissent, the government merely wants to be a little slower in handling “labour market restructuring”, i.e. in attacking the labour movement, and to be a little more tempered and flexible around fiscal austerity. Indeed, in the IMF’s own report, the government does stand up boldly in its reported response with the nothing statement, “The South African authorities are willing to consider any policy advice regarding the accumulation and management of reserves, provided that the potential benefits and costs are robustly established.” SO HEAR THIS. SEEK TO STOP ILLEGAL CAPITAL FLIGHT, NOT LEAST BY ROBUSTLY INVESTIGATING ITS NEGATIVE BENEFITS AND HUGE COSTS ACROSS THE PAST, PRESENT AND FUTURE, AND PENALISE THOSE WHO HAVE COMMITTED THIS ECONOMIC CRIME RATHER THAN OFFERING AN AMNESTY FOR 10% REPAYMENT WHICH NONE WILL DO AS YOU CONTINUE OBSESSIVELY TO PURSUE REMOVAL OF CAPITAL CONTROLS.
What are the alternatives? Very roughly, in a historical perspective, whether by means of individual firm, sector, national economy or beyond, two different macroeconomic trajectories at opposite extremes can be identified, dubbed the four highs in contrast to the four lows. And this is how we must envision the macroeconomy. For high employment, productivity, investment and wages tend to accompany one another as do their low counterparts. The challenge is how to sustain a four high economy or how to attain it from one of four lows, or at least for the majority of the population as opposed to running the economy for the continuing or new elites that have been disproportionately rewarded in South Africa. Almost without exception, if we examine how South African economic and social restructuring is proceeding, we find that each and every element is more conducive to four lows rather than four highs, and that these separate elements interact to consolidate such an outcome. Both the IMF and government, as its partner in crime, are targeting four lows. It’s time for a change, and it ain’t going to come from the IMF.