THE COMING SHOWDOWN

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RW Johnson writes on how the SACP has been staking out a position against IMF-style reform.

As the lockdown wears on, the economy suffers greater damage by the day and the national debt inexorably mounts. As a result we can now see some of the actors taking their positions for the crisis to come. They all know that the economy, weakened by years of corruption and misgovernance, cannot really take the strain and that the debt is rapidly growing to a point where an IMF bailout looms as the likely outcome. But this is an utterly explosive matter: for the ANC it is an existential issue, for SACP and Cosatu it is probably a survival issue. There is an overwhelming feeling that we are all strolling slowly towards the gunfight at OK Corral which will settle it all.

All the major actors – the parties, the unions and business – are taking up position, knowing that the outcome to the debt crisis will shape the country’s future for many years to come. In this article I will consider the position of the SACP which is, almost definitionally, also the position of Cosatu. Without much doubt the EFF will take the same line as also will various “progressive” voices in the media and civil society. Although they may be uncomfortable bedfellows, this Left consensus will be shared by Ace Magashule, Blade Nzimande, Julius Malema, the Daily Maverick, Bheki Ntshalintshali, the Mail & Guardian and, initially at least, by most ANC MPs.

What has to be decided is whether South Africa asks the IMF for a bail-out, accepting the consequential structural reforms. These would involve large cuts in the pay and numbers of the public service, the reform, and possibly the privatization of the SOEs so that they would no longer require subsidies, the liberalization of the labour market and probably the removal of other anti-competitive measures such as that incorporated in the Mining Charter, BEE legislation etc.

A second alternative might be for South Africa to embark on these reforms on its own, without involving the IMF – though probably the debt will be too big for that to be possible. If both these alternatives are refused the only other clear alternative is to just keep printing more money to pay for everything, though this risks a Zimbabwe-style outcome of capital flight and hyperinflation.

The lure of South African exceptionalism

In a sense this showdown has been coming ever since 1994. The ANC accepted the economy as it was: nothing was nationalised and all the major players in the economy remained as they were. Which is to say South Africa remained a medium-sized mixed economy, one of some 190 states trying to make their way in a globalized world economy. This worked exclusively on capitalist lines, with Russia, China and Vietnam now full participants in the system.

The name of the game in this closed system is competition. But this was not how the ANC and its alliance partners thought. Always lurking at the back of their minds was a socialism-in-one-country South Africa and all their planning for a National Democratic Revolution presupposed exactly that. There was a romantic wish for South Africa to be part of some larger “global South” but this lacks coherence.

In this, as in so many other ways, the ANC was following the National Party model. The Nats too had happily assumed that South Africa was their fiefdom and that they could ignore the rest of the world when they framed their own laws. Hence the whole saga of white supremacy and apartheid. Even in 1945 Smuts was shocked to find that in the new United Nations Organization that he had helped design South Africa was very much on the back foot when India launched its attacks on South Africa’s treatment of its Indian minority.

But this was nothing compared to the onslaughts against apartheid which became a regular feature of the UN General Assembly. In every case, South Africa obdurately insisted that this was simply not their business and that South Africa would go its own way. Similarly, South Africa held out for years against the introduction of television, insisted on Christian National Education, on treating Japanese as “honorary whites” (and Taiwanese as “honorary Japanese”) and penalised inter-racial sex – among many other affronts to the wider world. All this ended, of course, with international pressure growing to a point where change could not be resisted, with De Klerk collapsing completely before it.

Thus the great lesson of 1990, that South Africa was part of an international political economy and that it could not simply ignore that. But, as Samuel Huntington put it, “democratization is inherently parochializing”, and this was certainly true of the democratization of 1994. South Africa under the ANC thumbed its nose at the West, despite the fact that its major trading partners and investors came from there, and insisted on alignment with Cuba, Russia, China, Iran and Venezuela simply because they were popular with a tiny coterie of ideologues in their party. Domestic policies were framed with the same blithe rejection of what the rest of the world was doing. The great lesson of 1990 was ignored with aplomb.

So the ANC saddled the economy with more and more requirements which paid no heed to the competitive imperative. Companies were effectively forced to appoint black directors, regardless of ability. They were forced to give away large proportions of their equity in order to bring in BEE partners, many of whom contributed nothing to the company. They had to accept a Labour Relations Act (LRA) which gave labour advantages unheard of by any of their competitors. They were continually bullied to “transform”, making appointments on the basis of race and gender rather than merit.

All these companies were subject to myriad regulations and red tape. And their workers got more public holidays off than any of their competitors. The cherry on the top was the abolition of all investment protection treaties despite the strong warnings from the country’s major trade and investment partners. No sooner was this done than Ramaphosa discovered that the country desperately needed more foreign investment and sent emissaries to plead for it – in vain. As the old saying goes, there is no compensation under the Industrial Injuries Act for the self-inflicted wound.

The cost of uncompetitiveness

To this was added the huge burden of a bloated public sector of corrupt and loss-making enterprises and a vast public service whose pay climbed at exponential rates. All this had to be paid for in extra taxes and rates. On top of that the ANC elite was largely corrupt and creamed off money in all directions. The result was a huge drop in competitiveness. In 1974 South Africa had had the 18th largest GDP of any state in the world. By 2019, on IMF figures, it was 35th.

No other country in the table has suffered so large and rapid a descent. Moreover, while it had industrialized rapidly under apartheid – in the 1945-64 period manufacturing output grew at an average 10.6% a year – now it was rapidly de-industrializing: manufacturing now accounts for only 10 per cent of GDP.

What of the competition? They must have laughed. China, Vietnam, Ethiopia, Indonesia – more or less whoever you choose – did not impose affirmative action or BEE or minimum wages, let alone have anything like the LRA. They knew only too well that they had to be competitive. The Chinese quickly wiped out the South African textile business. Cosatu nonetheless persecuted those textile workers who wished to remain competitive by working for less than union rates. It was the same in universities. Despite the whole external world being based on meritocratic competition in South Africa’s universities the word “merit” itself became unacceptable. Unsurprisingly, standards fell.

This drastic loss of competitiveness – measured socially by ever-increasing unemployment – was ignored by the ANC elite while it could continue to cream off its own handsome rewards and keep its major clients happy, viz. a crony capitalist BEE elite, public sector unions and the really poor, kept in a state of semi-feudal dep4endence on government handouts.

This was an expensive job and after 2009 the country began to borrow hugely abroad just to pay public sector wages. All the major international bodies – the World Bank, IMF, OECD and the ratings agencies – began to warn frantically that this had to stop but they were all ignored. Moreover, the Zuptas were responsible for massive capital flight.

They stole billions of rands but they wanted their money to be safely in dollars in Dubai or some similar easy-to-launder watering hole. They could hardly do such a transaction through the banks so the traditional gangster and apartheid route was preferred and planes flew out of Jo-burg laden with gold bars.

For those with offshore bank accounts (and the ANC elite still have them) this was all great fun while it lasted. But it obviously couldn’t last. At some point South Africa’s failing competitiveness would mean that it was unable to pay its way in the international economic system. It might be unable to pay for its imports, its currency would collapse or it would accumulate unpayable debts. Or perhaps a mixture of these: troubles don’t come singly. But then the balloon would go up and there would have to be a fearsome reglement des comptes.

Amazingly, even now most of the government behaves with complete abandon, ignoring the tidal wave of debt which is building up. When Nkosasana Dlamini-Zuma forbade the sale of tobacco and alcohol, she was pushing that debt up. Ramaphosa talks of setting up a sovereign wealth fund, a state bank and NHI – all vastly expensive projects which would further balloon the debt. When Ebrahim Patel forbids the sale of certain shoes and clothes he is contributing to the debt. And every day of lockdown increases the debt by cutting tax receipts and killing more small businesses. All these people are hastening the showdown.

The SACP and the IMF

The SACP has for decades now provided the ANC with its agenda. For some time now, as this showdown approaches, it has been obsessed by their own interpretation of what an IMF bailout might mean. So on 1 April Blade Nzimande launched an SACP Working Paper on the crisis.[1] His slogan was “We Can’t go back to the Crisis before the Crisis”. In his introduction Nzimande tried to lay much of the blame on GEAR: “GEAR left the economy increasingly dependent on volatile and speculative investment which now in turn has left us exposed to the credit rating agencies and their doctrine of self-destructive austerity…the GEAR-linked growth levels further widened inequalities and took the Gini coefficient measure of income inequality to new levels.”

This was, of course, untrue. Nzimande admits that GEAR had produced high growth rates for a while. That meant pulling large numbers of extra people into the labour market which decreased inequality. Moreover, Nzimande passes without comment on his party’s role in putting Zuma into power and then protecting him from all criticism and votes of no confidence: the SACP were the great facilitators of the Zupta experience and Nzimande himself was rewarded for it with ministerial office, large cars and all the perks. He is not keen to talk about this.

The Working Paper, the fruit of the collective efforts of party leaders, begins by declaring that the world faces another Great Depression as a result of Covid-19. Moreover, it said, the world faced the crisis without “the Centre for Disease Control – a key institution that had been dismantled by the

Trump administration”. This too was untrue: the Centers for Disease Control and Prevention (the correct title) have been major Trump targets but they are very much alive, employing over 20,000 people (mainly in Atlanta) and are far bigger than its European counterpart.[2]

South Africa, the Paper said, was particularly vulnerable because it was already in recession due to the aftermath of the 2008 crisis and “the lack of structural economic transformation post-1994 to rid our economy of colonial features”, the great enemy being something called “neo-liberal austeritisation”.The Working Paper returns obsessively, again and again, to the threat to national sovereignty, to independence, to national liberation and, in a word, all that is dear, posed by the possibility of South Africa having to call upon the World Bank and the IMF (ie. and become subject to IMF conditionalities).

There is also great agitation at the thought of taking loans in dollars and then having to pay back in devalued Rands. In such accounts a devaluing Rand is treated as if it is a work of nature, like rain or rainbows. There is no understanding that devaluation reflects internal weaknesses which ought to be remedied: they’re your own fault.

China is seen as a model because it has never gone to the IMF, but the Paper’s authors might have reflected that the Renminbi is a strong currency. Indeed, China’s opponents bitterly claim that China is artificially keeping the Renminbi weak and that really it should be much stronger. So China (and the BRICS Bank) happily trade in dollars, unworried by fears of Renminbi devaluation.

Rolling back de-colonization

In the view of the SACP the purpose of the World Bank and IMF is to undermine the newly won independence of ex-colonial countries by lending them money which they find it hard to pay back. They are then forced to implement the IMF’s conditionalities in order to put their house in order so that they can pay back. That is, these are heartless bodies of sinister purpose, dominated by US and West European capital and the servants of these imperial masters. If they extend soft loans without conditions to South Africa to help with Covid-19 this “will not likely be out of charitable concern”, though quite what sinister purpose could lie behind such loans is hard to descry.

So, what to do? Instead South Africa must exert firm political will – the Covid-19 National Command Council is seen as a perfect example of how things should be done, with strong top-down government: rule by decree with no Opposition and no parliamentary scrutiny. Such decrees must be immediately and, if necessary, harshly implemented. (These are one party state enthusiasts, after all.) The state must insist instead on a programme of re-industrialization and the localization of manufacturing (these themes were immediately parroted by Ramaphosa, it should be noted).

The SOEs are crucial to this and, the Working Paper argues, they must be strongly supported “with adequate capitalisation and developmental finance. It is inconceivable that SOEs will succeed to deliver on a developmental mandate without developmental finance”. In effect, this means all SOEs are expected to run at a loss and that they must be subsidised forever from taxation, thus preserving the jobs of Cosatu members.

It is, the Working Paper, says, highly undesirable to see an SOE (SAA and SA Express) in business rescue. This should not be allowed. What is needed is a new overarching law, the State Owned Entities Act which will govern all SOEs and clearly make it impossible for them to be put into business rescue (Cde Gordhan may have contributed this paragraph). As for the problem of corruption in these permanently subsidised behemoths, well an SOE Code of Good Governance should be introduced. Armed with this, all the SOEs will be turned around without business rescue.

Enter Cronin in protective gloves

This blast was followed by Jeremy Cronin’s “There’s no Going Back – but Where are We Going To ?” Cronin echoes Nzimande’s “We cannot go back to the crisis before the crisis” and he is also pleased to see that Ramaphosa has picked up on some of the SACP themes in just the way he should, if the Party plays its vanguard role properly. But he is alarmed that Ramaphosa also commits to “structural reforms” for he fears that might be interpreted to mean the sort of “neo-liberal austerity measures” which the IMF and the ratings agencies talk about. So he hopes Ramaphosa means other kinds of structural reforms.

In fact it is quite likely that Ramaphosa has no idea what sort of reforms these might be. He knows that his business supporters would like to hear that phrase, so he puts it in. Similarly, he knew the Left wanted to hear “re-industrialization”, “localization” and “radical economic transformation” so they all get a mention too. This merely shows Ramaphosa as a man of little foresight and few real ideas of his own. His main concern is to keep people happy and stay afloat.

Cronin then warms to his theme. “Opposition to the IMF and World Bank shouldn’t be based on mindless sloganeering.” So it’s alright to “explore IMF and World Bank possibilities in the midst of the Covid-19 crisis” but “do this with a great deal of caution, in short…we need to do this with full face-masks, protective gloves, and a risk-adjusted vigilance appropriate to a level-5 danger”. Cronin’s appreciation of political and economic realities is essentially literary and aesthetic, together with the moralism which has been standard for literary critics since Leavis. But his meaning is clear enough: the Bretton Woods institutions are radio-active and, almost certainly, evil.

The IMF is not a liberation movement

Next came Alex Mashilo, SACP Central Committe member responsible for media and communications, with another all-out attack – “Safeguard our Hard-won democracy, Our Fundamental Right to Self-Rule”[3]

“It is a fact that the IMF and World Bank are notorious of (sic) imposing a despotic regime of policy measures, known in critical literature by the name of their ideology, neo-liberalism, or by the dominant imperialist influence they drive, the “Washington Consensus””. By the sinister means of extending loans they “have rolled back independence in many situations, replacing it with increasing imperialist penetration and domination, and also undermined, subordinated or subverted national democracies”. Then Mashilo utters a great truth: “The IMF”, he declares, “is not a liberation movement. Approaching it…is an utter absurdity and an insult to our struggle.”

There follows a cascade of antagonistic prose, wholly swamping any explanation. Mashilo seems particularly angry that when the IMF says that it wants to establish whether “a country has established a track record of adequate economic policies”, it is the IMF that makes that judgement, not the country concerned. Unfortunately that is how banking works. If Cde Mashilo approaches his bank manager for a loan he will find that it is the bank manager’s judgement of Mashilo’s solvency that counts, not his own. Because no bank, sadly, is a liberation movement. Just the way things are.

Consulting whom?

Finally, Mashilo goes back to the holy writ of ANC resolutions of past decades and finds there the statement that relations with international financial institutions has to be “subject to consultation for collective scrutiny”, conforming with “the revolutionary principle of collective leadership”. What this boils down is that the very subject of the World Bank and IMF is so dreadful that it cannot really be discussed.

One sees here the crucial importance of Ramaphosa’s “social compacting” style of government. The idea is that all relevant interests will sit around the table. But when Mashilo talks about “consultation” he means only “within the ANC alliance”. And in practice Ramaphosa accepts this because he reports to the NEC (which includes many SACP members) and talks to Cosatu but not Solidarity or the other union federations. What this means is that if (on Ramaphosa’s definition) “all the social partners” are always brought into decision-making there can be no IMF bail-out because, effectively, this gives Cosatu and the SACP a veto. The reason why the SACP still spits with bitterness about GEAR is that to achieve it Mbeki simply by-passed the SACP and Cosatu. If he could get away with that, they were politically irrelevant: so he had to be brought down. Now they are sharply reminding Ramaphosa of “the revolutionary principle of collective leadership”.

It is important to remember that nobody is talking about democratic consultation. While a number of Communists get elected as ANC MPs, nobody at all gets elected as a Communist. Neither the SACP Central Committee nor the Cosatu leadership is elected by the electorate at large. So what “consultation for collective scrutiny” means is actually that two bodies without an electoral mandate, the SACP and Cosatu, must have a veto. But the issues which will have to be faced over the debt crisis are so big that an election or a referendum would be in order.

Just in case anyone is left in doubt, the next issue of Umsebenzi[4] carries an article, “Human Solidarity is the answer to pandemics” by one Walter Mothapo. Cde Mothapo puts at the top of his article a long quote from the master himself, Joseph Stalin, and refers to Stalin favourably in what he writes. The fact that the SACP organ is happy to carry such straightforward obeisance to Stalin says not a little. There are not many Communist parties left in the world where this could happen. The SACP is not only part of a tattered remnant of a movement but is a backwoodsman even within that.

Vetoes, voluntarism and avoid the positive

Where does this leave us? First, it shows what an impossible task Ramaphosa has in carrying his Alliance with him as he approaches the showdown. The SACP and Cosatu know that an IMF bail-out would mean liberalisation of the labour laws, that SOEs would have to pay their way or be privatized, and that public service numbers and salaries would have to be cut. And they know that they could probably not survive that. So they will fight tooth and nail. Indeed, the very mention of the IMF sends them into paroxysms.

Secondly, one is struck by the fact that, for all its reverence for dialectical materialism, the SACP attitude is purely voluntarist. The answer to the approaching crisis is one of absolute political will. There must be a Command Council, strong in its ideological rectitude, which simply refuses to consider an IMF bail-out. Instead it will forge ahead towards socialism. What about bankrupt SOEs? Well, a new law will deal with that: we’ll just make business rescue impossible. But what about the horrendous losses of the SOEs? Well, the taxpayer must just keep paying for them. As for runaway corruption in the SOEs, well the answer is a new Code of Good Governance.

But most of all, of course, the SACP answer is purely negative. It doesn’t want an IMF bail-out but it doesn’t suggest how on earth the country is to escape from its debt trap.

This is Alice in Wonderland stuff. The reality is an enormous and growing debt which the state cannot afford to pay. This is a highly material fact and voluntarism just doesn’t cut it: there have to be material answers. And who believes that a Code of Good Governance would really deal with corruption in the SOEs? Believing in Father Christmas seems a better bet.

A perfect example is that at the moment Cde Gordhan is trying to make SAA (and SA Express) fly again in the absence of the large amount of capital required either to pay SAA’s debts or to re-launch it. There is no money to pay the staffs of either of these airlines and doubtless those who can slip away to other jobs are already doing so. Gordhan can shout and declare all he likes – and a new State Owned Entities Act could be passed – but the material fact is that the government does not have that capital and there is no likelihood of any private investor coming to the rescue. Ideology and political will simply have no contribution to make. Perhaps Gordhan really does believe in Father Christmas.

Is the IMF a monster?

What to make of the SACP vision of the Bretton Woods institutions as imperialist monsters set on undermining national independence? This is not, of course, how they see themselves. The IMF is a lender of last resort which steps in to assist countries in trouble. But it doesn’t offer them loans: they have to ask for that. And they have to agree the terms of the loan so they know exactly what they’re getting into. These bail-out loans are made at very favourable rates of interest – less than half of what South Africa is currently paying on its debt.

From the IMF’s point of view it is operating in a 190 state universe and some of those states are unable to compete and meet their obligations. The IMF’s own idea of its role is that it intervenes in order to try to help that state in distress and then prepare it to re-launch itself in a healthier state so that it can compete more successfully in that 190 state environment. Thus far a whole 80% of the IMF’s members have had loans from the Fund and they all (including South Africa) remain keen to stay members, which is not cheap. It is a highly expert and successful organization and it is not going away.

At which point the SACP would doubtless interject that the IMF thinks in terms of capitalist competition and that its structural reforms are bent on making a state a more successful capitalist competitor. This is fair enough, because the world is overwhelmingly capitalist and even China and Vietnam operate (very successfully) on those lines. But the IMF, as Cde Mashilo rightly says, “is not a liberation movement”, It has no objective of advancing socialism. It works with the world as it is. It’s the only way that any international institution – including WHO, ILO, FAO, UNESCO and the rest – can operate. Even China and Russia accept that.

If the IMF and World Bank are so evil, would developing countries be better off without them? Over 100 of them are currently applying for IMF loans so presumably they don’t think so. Moreover, both Iran and Zimbabwe are begging the IMF for loans and not getting them. They are having to live in that really harsh world where there is no lender of last resort. It is a sort of hell and one result is that one’s citizens flee wherever they can hope to find a better life. It is hard to see why anyone would voluntarily opt for such a fate. If the SACP wishes to volunteer South Africa for such a fate it would be best if the electorate was consulted before it was consigned to hell. After all, they have nowhere to run and not all of them believe in Father Christmas.

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