No act of reform can reverse the slide in SA's fortunes

South Africans hope that a change in leadership of the ANC or a miraculous act of reform with reverse the downward trajectory of the country. RW Johnson, author and Emeritus Fellow at Magdalen College, Oxford, explains why this will not happen, according to Biznews.com.

If one looks at water pouring down the mountainside after rain one always sees that every stream, no matter how strong its downward flow, always has little counter-currents and eddies, even little whirlpools. It is the same now with us. For some, the partying, indeed the sheer fecklessness of the last twenty years, still goes on. Take for example our local councillors. Already they don’t do badly, earning between R400,000 – R458,000 per annum – while those elected to a mayoral committee earn R800,000 p.a.

As we have seen above, they now want that to be raised to R1.2m. a year for all of them. But examination of municipal accounts shows that everywhere municipalities are owed large sums because councillors have not paid for their rates and services [1]. Moreover councillors now have also voted themselves funeral expenses so that when a councillor dies, anywhere between R25,000 – R50,000 of public funds has to be spent on burying them. Thus in August 2014 Moretele municipality voted to shift R98 million meant for infrastructure to be spent instead on funerals for councillors, ex-councillors and traditional leaders [2].

The old feckless spirit of partying that the new elite has so enjoyed since 1994 also continues, naturally enough, in Durban, the privileged heartland of Zuma’s South Africa. There the city council has diverted huge amounts of money into engaging the services of highly paid pop stars and rap artists in an attempt to overtake Johannesburg as South Africa’s ‘events capital’. Huge further sums have been spent on periodically turning the city into a motor race track and in enticing Jeremy Clarkson and the Top Gear team to the city.

Inevitably the city is also bidding for the 2022 Commonwealth games – a  bid which seems certain to succeed after the (much richer) Canadian city of Edmonton backed out of its bid on grounds of expense. (The 2012 Commonwealth Games in Glasgow cost that city between £500 million and £1 billion.)

At the same time that the council is thus hoping to spend up to R20 billion on this event, the port of Durban, on which the city’s entire economy rests, has been allowed to silt up so that large visiting ships now complain that their vessels are grounding in the harbour. [3] It is difficult to find a purer example of fiddling while Rome burns.

Key objections – and a wild card

Two objections which have been made to the argument in my recent book are that the slide towards a credit downgrade and a probable consequent IMF bailout could be averted by a last ditch reform effort by the ANC which would pull the country back from the brink. Alternatively there are arguments about how long this downward slide may take.

The only wild card which needs to be considered in this regard is China. The Deputy President, Cyril Ramaphosa, on his recent visit to China apparently reached agreement with the Chinese Government to assist South Africa in advancing its industrialisation programme, accelerating its infrastructure investment and developing special economic zones. [4]

Mr Ramaphosa understandably seems to have laid great stress on the poor state of South Africa’s state-owned enterprises and here too the Chinese apparently offered their help. It remains to be seen what will come of such an agreement. It seems unlikely that advice-giving from the Chinese would make much difference because the application of Chinese methods in South Africa would meet huge resistance from all the ANC’s major pressure groups.

To understand how differently things work in China one merely needs to contrast the attitude of the Public Service Unions in South Africa who assume their wages will increase in real terms every year and the fact that in 2015 China’s civil servants have just had their first increase since 2006.

On the other hand if this agreement were to presage large-scale Chinese investment in South Africa’s infrastructure and industries this could obviously be a game changer. Should this actually occur the question would be of course what the Chinese would want in return? All that one can say with any certainty is that China’s record does not include large scale charitable donations with no benefits for Beijing and that any attempt to bring South Africa within the Chinese sphere of influence would have counter-productive effects in many other ways. If the economy and administration were to be reformed via a large infusion of Chinese capital, expertise and, perhaps also labour, the consequent restructuring would be immensely painful and destructive.

Nonetheless, Blade Nzimande is clearly dreaming of just such a situation. When he says that it is “an important part of this struggle is to defend and protect our national sovereignty as a crucial requirement for driving this democratic transformation” [5], he is merely echoing the SACP’s new and recent stress on “national sovereignty”.

A rough translation would be "we have to keep the IMF at bay at all costs for their intervention would see the end of democratic (= SACP-driven) policies in South Africa.” That is, the SACP has also understood that an IMF intervention cannot now be ruled out. Instead Nzimande sees in South Africa’s relations with China the possibility of a “partial delinking from the Western imperialist economic centres, thus creating real possibilities for radical economic transformation in our country” [6], for which a rough translation would be ”the breaking or major disruption of our reliance on the West for the bulk of our trade and investment which would thus allow us to build socialism in one country in South Africa”.

It goes without saying that in reality this dream would be a nightmare. Even Nzimande might pause to consider that the more we are reliant upon China, the less we will be able to do to stem the inflow of Chinese imports which have already largely killed off South Africa’s textile industry, are throttling its manganese ferro-alloys industry and is threatening to shut down the South African steel industry.  At the moment however the Chinese factor remains a question mark.

Why reform is so difficult

No doubt the finance ministry and the Reserve Bank both understand the urgency of reversing the present downward drift in South Africa’s growth rate and credit ratings – though it is worth pointing out that thus far Mr Ramaphosa has been slavishly loyal to ANC-SACP dogma and shows no sign at all of supporting a reform agenda. However it is important to resist the journalistic temptation to reduce such discussions to taking bets on how leadership struggles will work out. What such discussions lack is the comprehension that the visible decline in South Africa’s governance and economic management is not finally to do with this or that leader; it is a social process.

The exhaustion of inherited momentum

This process is driven by four large factors. The first of these is that when the ANC came to power in 1994 it was able to rely on a large number of working institutions; Eskom produced a surplus of cheap electricity; the civil service and other state-owned industries functioned adequately; the judiciary was independent and competent; the police and armed forces were efficient and effective; and in a host of other ways the regime inherited an institutional architecture in reasonable shape.

Moreover, without any particular effort on the new regime’s part, the end of sanctions and boycotts, together with the simple fact of a peaceful settlement produced a welcome inflow of capital, trade, new visitors, aid and expertise which helped drive economic growth in the early years.

Gradually, however, it became clear that none of these institutions were being properly maintained. The police became corrupt and ineffectual; state schools and hospitals deteriorated markedly; the roads, railways, ports and power generation all suffered from poor management and lack of maintenance; several universities deteriorated; some judges now don’t know the law. This process of institutional decay began under Mandela and has continued under his successors but only now are the full results of this failure to maintain key institutions becoming fully visible. Indeed, one reason why the Mandela presidency is seen as a golden age and why even Mbeki’s presidency is viewed more favourably than it might be, was simply that they came much earlier in the cycle of decline.

Disconnecting merit 

The second factor was the Employment Equity Act of 1998 and the generalisation of affirmative action across the public and private sector. Never has affirmative action been used before to promote people from a group constituting 80% of the population. In the USA or UK it has been used to help ethnic minorities and already well-educated women. Within South Africa the results of affirmative action were immediately to cripple the civil service and the state-owned enterprises. But the malaise stemming from this process goes much wider.

Bluntly put the normal relationship between effort, merit, achievement and reward has been undone in South Africa. For members of the “right” race, merit is irrelevant. For members of the “wrong” races, it is pointless. That is, the whole normal system of incentives no longer applies. No modern society can successfully co-exist with such a disconnect.

Power and patronage

The third factor is the tightly constructed power-and-patronage system within the ANC itself. As I argue in my book, this results largely from President Zuma’s active encouragement of what were already “natural” trends within the ANC. Either this system will generate a post-Zuma ANC leader who is a product of that system or, should leadership change take place through a sudden crisis – should Zuma die in office for example – an outsider like Ramaphosa might succeed but, lacking any real base within that system, he would be even more at its mercy. Either way the system would prevail.

Policy contradictions

Fourth is the contradictory nature of so much public policy. Examples are legion. Eskom, for example, has now instituted a rule that all its coal suppliers must be at least 51% black-owned. The result is chaotic because there is no well-established and reliable group of black-owned suppliers to fill this need. Established suppliers like Anglo American are having to sell their coal businesses because they are no longer allowed to sell their coal to Eskom. The result could well be the creation of another major power crisis by 2018 when current contracts run out. Eskom will then need to secure a supply of 3 billion tonnes of coal over 25 years.

Moreover Eskom will also need to extend the life of its own tied collieries. This will require an investment of R60 billion over the next 20 years and the only way that can be funded is through even higher electricity price increases, which would have gravely deleterious effects on a range of other industries. This is a classic example of an industry already in deep trouble tying itself into unnecessary knots simply in order to placate key interest groups within the black elite.

It seems likely that the ultimate result will be coal shortages at power stations – by which time the major alternative suppliers will have gone out of business. The only alternative would be to import coal, which would be expensive – and anyway impossible because no infrastructure exists at the ports or on the railways to deal with large-scale coal imports. Any deal that might be done over nuclear power would, of course, take many years to come into effect.

Years ago the state set the goal of guaranteeing that all South Africans had access to the internet: this has been proclaimed a fundamental development objective. In practice the government has simply not taken its own target seriously, with huge negative consequences for education and the economy [7]. What now threatens is that the bulk of South Africa’s TV-owning households could simply be cut off as digital migration occurs. There is no real explanation for this gross blunder.

Agriculture provides another obvious example. Since 1994 the existing commercial farmers have had to deal with the imposition of rural rates, a Labour Tenancy Law and a whole raft of other restrictive labour laws, water and electricity shortages and, of course, farm attacks. Worse, the latest proposed legislation requires farmers to farm their land in line with guidelines drawn up by the Minister, on pain of expropriation [8].

Despite this the larger farms have performed impressively and – most of South Africa’s food comes from a relatively small number of very large farms. The rise of ‘precision farming’ has seen grain yields increase by 120% over the past 20 years and even with the current drought maize production is down by only one third in 2015 – a remarkable performance which only high-tech farming can deliver.

Meanwhile in the period 2001 – 2014 farm employment has fallen by a further 31 %, a process driven by administered cost increases and new labour laws [9]. The result is increasing mechanisation. Everywhere in the world farm mechanisation leads to the consolidation of farms into larger units. Yet the ANC has decided to stop this process by imposing the arbitrary limit that no farm may be over 12,000 hectares and that no one may own more than two farms.

Absurdly, the Ministry of Agriculture places much of its future hopes on the contribution to be made by large numbers of new small farmers but experience everywhere is that such farmers are quite marginal when it comes to meeting large scale needs for food and they are inevitably also the least productive and the least technologically advanced farmers. Again this is an example of an industry being artificially constrained from meeting national needs. It may take food riots to convince the government of its folly.

Other examples abound. Because of the lack of skilled labour a decision was taken to increase hugely the number of black students in tertiary education. However, because the underlying problem of poor state schools had not been faced all this did was to increase failure rates at universities, at huge public cost. Quite clearly this problem cannot be solved until there is far greater investment in poor state schools and an end to the power monopoly of the South African Democratic Teacher’ Union (SADTU.)

Or again, the government is committed to using Economic Development Zones (EDZs) to drive economic development but in order to compete with EDZs in other parts of the world it would be essential to provide investors with relief from South Africa’s draconian labour laws. And this, of course, cannot be done.

SACP and ANC spokesmen also express extreme concern at capital flight from South Africa and the investment strike caused by low levels of investor confidence. Yet the Ministry of Labour has chosen this juncture to announce that it will take court action against 1,000 companies – which could result in jail sentences for their CEOs and directors – because they haven’t appointed enough Africans to the top ranks of their companies. [10]

Anything more calculated to lower business confidence and result in further capital flight is difficult to imagine. And, as usual, one notes that this enormous economic damage is to be committed not in the interests of the broad mass of Africans but of the tiny number who might become company directors or managers.

A final example would be the fact that port charges at all the major ports are ridiculously high thanks to the poor management of the ports and over generous concessions to the local trade unions. The result is that to handle a container through either Durban or Cape Town costs 125% more than the global average. And to export a container through a South African port takes 16 days compared, for example, with 6 days from Singapore.

The report of the Port Regulator states quite flatly that this situation is ‘clearly contradictory to industrial policy, which aims to incentivise value addition, broadening of the manufacturing base and increasing manufactured exports’ [11].

Why?

The list of policy contradictions is almost endless. Journalists and businessmen – and credit-rating agencies – sum this situation up as “policy uncertainty”. This is a misnomer. What these examples of contradictory policy bring to light is that there is no power centre within the state which is able or willing to reconcile or overcome all the various pressure groups within the ANC’s coalition.

That is to say, the multiplicity of contradictory policies is not just an accident or due to intellectual confusion – though there is quite enough of that. It stems, inevitably and structurally from the nature of that coalition.

To put this in Marxist terms, the ANC has failed to constitute a new ruling class able to implement the national interest, even if that is defined in terms of their own class interest. Marx famously called the British cabinet “the executive committee of the ruling class”. Its job was to make policy not in the interests of this or that fraction of the bourgeoisie but of the bourgeois class as a whole. Marx admired this. In France he saw an inchoate ruling group which was at the mercy of its factions, so it built railways in a higgledy-piggledy fashion in order to suit the interests of the various landowners through whose land the lines ran.

In Britain, on the other hand, the lines connected all the major centres far more rationally because the network was built to serve the interests of the business class as a whole. It is this overall class interest which is lacking in South Africa.

Instead state-owned enterprises are diverted by the narrow interests of this or that tenderpreneur. The national interest is repeatedly sacrificed to the interest of various sectional groups. What this means is that the ANC has not been able to provide a ruling elite within which the interests of the would-be new ruling bourgeoisie have coalesced – how can it when the SACP, which remains at the core of the ANC, is determined to defeat those interests and push its own very different agenda ?

It is difficult to see how changing the leader at the top of the state will make any difference to this situation. After all, President Zuma enjoys a completely secure position thanks to his control of the KZN-Mpumalanga-Free State bloc. If anyone could stand up to pressure group demands, he could. It is difficult to imagine that any successor will enjoy a stronger position than that.

In most developing countries – Ghana, Egypt and Indonesia are all examples – the new bourgeoisie has consolidated its position by cracking down on the Communists. Clearly, the business community is hoping that Ramaphosa to act with such dispatch and implement the National Development Plan. This, though, is wish-fantasy. Ramaphosa lacks a secure enough base for such action, even if he wanted to act thus. So this “Eighteenth Brumaire” seems unlikely in South Africa, at least for now.

So we are stuck with the “policy uncertainty” which so freaks out the credit-rating agencies and local business. Again, this suggests that the changes South Africa needs will only come about through some form of decisive external intervention of the sort that IMF conditionality’s would provide.

The combination of the above factors makes it very difficult to imagine that the current downward drift can be reversed by any conscious act of government “reform”.

 

Footnotes:

* R W Johnson is an Emeritus Fellow of Magdalen College, Oxford, and was the only South African Rhodes Scholar to return to live in South Africa after the fall of apartheid. He has published twelve books, scores of academic articles and innumerable articles for the international press. His former students include three members of the current British cabinet, an editor of The Economist and a large number of leading academics and journalists. He lives in Cape Town.