**********
The Current Global Economic Crisis and its implications for SA
The nature of the crisis
The current instability and volatility in the global economy over the
last year is seriously affecting the economies of both developed and
developing countries. The current acute manifestations of crisis
began in Asia towards the end of 1997, spreading with remarkable speed
to Russia, Eastern Europe and Latin America. The crisis now engulfs
almost all "developing countries" and so-called "emerging markets".
Among the most immediate features of this crisis are:
* A contraction in export markets, especially in South East Asia; *
Massive capital outflows from "emerging markets"; * Deepening economic
recession with huge exchange rate and asset price declines, which have
destroyed more than $1,5 trillion of financial wealth in the East
Asian economies alone.
Behind these economic statistics lie social crises of enormous
dimensions. In Latin America, and especially in East Asia and Russia,
unemployment, underemployment and poverty are rising. According to
UNCTAD calculations "the proportion of the Indonesian population
living on incomes below the poverty line in 1998 is expected to be at
least 50% greater than in 1996". For the people of Russia, living just
a decade or two ago in a super-power, the standard of living is now
approaching African levels.
South Africa's economy is integrally linked into the global economy
and we have not been left unscathed. Sudden outflows of short term
foreign capital earlier this year created a situation in which our
currency underwent a sharp devaluation (of around 29%). Interest
rates have shot up, and growth forecasts have had to be drastically
revised downwards.
These are some of the basic facts upon which there is general
agreement. However, if we are to deal as effectively as possible with
the crisis, it is important to move beyond the symptoms, and seek to
understand its underlying nature.
* The present crisis is, in fact, a global capitalist crisis, rooted
in a classical crisis of over-accumulation and declining
profitability. Declining profitability has been a general feature of
the most developed economies over the last 25 years. It is precisely
declining profitability in the most advanced economies that has
spurred the last quarter of a century of intensified globalisation.
These trends have resulted in the greatly increased dominance (and
exponential growth in the sheer quantity) of speculative finance
capital, ranging uncontrolled over the globe in pursuit of higher
returns.
* It is, therefore, not a temporary problem (although its present
acute manifestations might be overcome for a while in the medium
term);
* It is also, therefore, not an unprecedented reality for
capitalism. The economic recession and crisis of the 1930s had many
similar structural features. There are also, of course, new features
in the present crisis - including the much greater volumes of
speculative capital involved and the sheer speed of capital flows, due
in part to information technology. There is also considerably more
global inter-dependence.
* Although they now carry less conviction, there were until a month
or two ago, attempts to portray the current crisis in a limited light
- - as an "Asian contagion", a "Russian melt-down", or an "emerging
markets" problem. While the crisis is being felt more acutely in some
regions, it is an international crisis systemic to the global
capitalist system, and not the result of some peculiar local features
("Asian croneyism". "Russian lack of will", etc)
* It is also not merely a financial markets crisis, although its most
obvious manifestations are in the financial sector.
The melt-down of capitalism?
The fact that we are faced with a global, systemic capitalist crisis
should not lead us to conclude that capitalism is about to wither
away. There have been several preceding globalised capitalist crises
this century, in each case the capitalist system has (at huge cost in
terms of the mass destruction of capital resources and resulting mass
human misery) been able to surpass its crises, at least for a time.
There is nothing to suggest that the present crisis is paving the way
for some global leap into socialism. We should not sit around
passively expecting the present crisis to deliver a new utopia out of
the ruins of economic collapse. Indeed, previous globalised
capitalist crises have been associated with some positive but also
many negative phenomena (including the emergence of fascism in the
1930s).
Nevertheless, the present crisis creates both the possibility (and the
necessity) for the progressive movement in South Africa to question
what was until the most recent period the unquestioned economic global
paradigm. We have, in an engagement with many other international
forces, to find our own solutions to this crisis.
The crisis of a paradigm
As the depth and relative durability of the crisis have become
apparent, the dominant economic paradigm (the neo-liberal "Washington
Consensus") has fallen into increasing disrepute. Perhaps the core
feature of this paradigm was its belief that globalisation had ensured
that capitalist economies had, more or less, surpassed boom and bust
cycles - a vista of endless economic growth lay before us. In 1970 US
Nobel prize winners, Solow and Samuelson were proclaiming that "the
old notion of the business cycle is not very interesting any more".
Top Kennedy/Johnson adviser Okun proclaimed in the same year that
recessions "were now preventable, like airplane crashes". The OECD in
1974 envisaged uninterrupted economic growth that might "quadruple
between now and the end of the century". This optimism was reaffirmed
with great triumphalism in the 1990s. In 1993, for example, the World
Bank argued "individual developing countries, particularly smaller
economies currently contemplating an export-led expansion, could
safely assume that demand for their products is infinitely elastic."
(1993)
The dominant assumption in the 1990s has been that alignment with
globalisation would guarantee economies more or less uninterrupted
growth. The paradigm of an endlessly expanding global freeway, in
which, to benefit, individual (and particularly developing) economies
simply had to take the standard macro-economic on-ramp
(liberalisation, privatisation, deregulation, flexibility and a 3
percent budget deficit) is now in crisis.
Will the left end up managing the capitalist crisis?
In the last few years, along with the ANC's electoral victory in
1994, there have been a series of left or centre-left electoral
victories, including in many of the advanced economies (Italy,
France, UK, Germany, Sweden). In our own country we quickly realised
that we had inherited a society and economy in crisis. In our case
this has included many serious economic structural problems related
to the particular capitalist growth path in South Africa.
The prospect in our own society and in many others in the coming years
is that, once more as before in this century, the left/centre-left
will be confronted with the task of managing a capitalist crisis. We
cannot decline this responsibility. But in taking it on, we do need
to consistently pose the difficult question. How do we introduce
transformative elements that seek to counter the systemic logic and
momentum of a global capitalism? Can we introduce anti-bodies to
resist and surpass a system that periodically results in the mass
destruction of resources, that continuously reproduces huge
inequalities between north and south (and within the north), that is
increasingly volatile and unstable, and that has no clear strategies
for sustainable development?
What, if anything, can be done? There are many levels at which we
must begin to respond to the crisis. Among the most important are:
International engagement
* The struggle to introduce a much more effective international
regulatory system for speculative financial flows. Important efforts
have already been undertaken in this respect by our comrades in
government. There is clearly a growing international consensus that
something has to be done in this regard. However, we need also to
understand that some of the major economies are less affected by the
present crisis, and see in it an opportunity to deepen their own
dominance at the expense of rivals (eg. the US over Japan), and at the
expense of the South in general. We should, therefore, not harbour
exaggerated expectations in this regard.
* Joint action with other developing economies, which may provide more
immediate results. In particular we need to engage with some of the
more significant economies of the South (eg. Brazil, India, China,
etc). Can we forge a Brasilia-Pretoria-Delhi-Beijing Consensus in the
absence of any Washington Consensus?
* Continuously enhancing a southern African and African perspective.
Building a more effective macro-economic consensus within the
alliance
As an alliance we have got stuck somewhat in our GEAR debate
over the last two years (much to delight of the media and our
political opponents). There are several reasons why we can now,
collectively, surpass this situation of blockage:
* The paradigm crisis of the "Washington Consensus", noted above,
presents us all with some space to look afresh, and to look creatively
and constructively, at macro-economic policy. Of course, we should
not exaggerate the degree to which there is a global tolerance
(especially in the financial markets) for macro-economic innovation,
but the myth of a "one size fits all" macro policy has been punctured.
* The serious downturn, and danger of recession, in our own economy
creates space to argue for certain contra-cyclical measures to be
applied (if only as interim measures);
* With the last few months of international crisis, it has become
increasingly clear that many of GEAR's targets would have to be
revised. The NEC, and government, have now officially announced that
some GEAR targets will be revised, while maintaining overall policy
consistency.
* Very important progress in the preparations for the
Jobs Summit. The Jobs Summit may well produce significant national
consensus agreements on a wide range of "real" economy policies.
This will create a situation in which we will be more able to align
(and argue for the alignment of) macro-economic policy with
industrial policy.
It is not going to be helpful, now, as an Alliance to manoeuvre
ourselves once more into a raging public debate in which we argue
whether GEAR has been (or should be) abandoned or not. Much more
important is the imperative of working together to consolidate, in an
ongoing way, effective macro-economic policy. This in itself will
involve debate and some difference, but it needs to be well managed
within the Alliance. Above all, we need to root ourselves in major
areas on which we can agree. These include:
* The apartheid economy we have inherited requires major structural
changes (many of these changes have already begun to be implemented).
An effective macro-economic policy needs to support such structural
transformation. However, what we now all appreciate better is that
these structural reforms cannot just be designed to "modernise" (to
align with global "norms") an out-of-date apartheid economy. Clearly,
in transforming the skewed apartheid economic legacy, we have also to
carry through structural transformations that enable our own economy
to survive and surpass, as best as possible, the uneven and
crisis-ridden character of the global economy. Structural reforms are
not just about "catching up", or alignment with a now non-existent
Washington consensus ;
* The need for fiscal discipline (we are all committed to the
responsible use of public funds); sustainability; and relative
predictability (insofar as we are able to ensure such predictability);
* Macro-economic policy (as GEAR itself affirmed) must be aligned with
our reconstruction and development objectives. More substance should
be provided by the Jobs Summit to concrete programmes with which such
alignment should take place;
* The need to investigate and implement contra-cyclical measures as
noted above. (We may disagree as to whether these are short-term to
avert recession, or of a more enduring developmental nature.)
* Wherever there is some relaxation on existing GEAR targets, this
relaxation should not be simply because we have been "forced
backwards". Whatever resources are released as a result of
macro-economic relaxation, these must be directed strategically to
growth, development and sustainable transformation.
We do not underestimate the possibility of persisting areas of
difference within our Alliance on macro-economic policy, however all
of the above provide sufficient space for a much more effective
intra-Alliance consensus.
Some specific areas of fiscal and monetary policy that can be taken
forward There are also a number of more specific areas where there is
space to explore alternatives, new measures, and/or adjustments in
fiscal and monetary policy. Many of these will emerge more
substantially from the Jobs Summit report. Such areas include:
* A fresh look at the funding of the Civil Service Pension Fund. Over
the past year the debate within the Alliance has tended to polarise
around a "fully-funded" versus a "pay-as-you-go" approach. Are the
options that polarised? Do we need to advance rapidly and inexorably
to the fully-funded option, or can we sustain the funding at its
present partially funded levels? An alliance mandated technical team
could help us all to understand the pros and cons of different
options.
* We need also, as an Alliance, to have a more nuanced understanding
of the key challenges in terms of Tax policy. Is the priority to move
towards greater progressivity, or are present policies basically sound
with the priority being on more effective collection? How will the
economic downturn impact on revenue? Again, as an Alliance we will
benefit from a better shared understanding of the relative pros and
cons of different options. We need to find ways of ensuring the
necessary technical work is done that will make a more informed
intra-Alliance discussion possible.
* In the context of the Jobs Summit important progress seems to have
been made around Tariff policies. There is an emerging consensus for
greater flexibility, and for the approach to tariffs to be informed by
sector specific, and even time specific considerations. As an
Alliance we need to empower ourselves to better impact on the
processes that will emerge, in this regard, from the Jobs Summit.
* As was mentioned above, there are now good reasons to argue for
basic contra-cyclical measures to be taken. Concretely, such
contra-cyclical measures could include less rigidity on inflation, and
less anxiety about defending the value of the rand - and therefore the
prospect of easing pressure on interest rates. We are talking about
relative shifts, not a demagogic indifference to any level of
inflation, or any value of the rand. Such shifts may well require
political pressure for, and a public debate on, the need for Reserve
Bank policies to be strategically aligned with overall government
development perspectives, while allowing for Reserve Bank operational
independence
A "Post-GEAR" consensus?
At the ANC's NEC of last weekend, the notion of an Alliance
"post-GEAR" consensus was mentioned in passing. Those who have been
opposing GEAR in the Alliance will probably find the concept
appealing. Those who have been defending GEAR would probably prefer
to speak about an emerging consensus around an "adjusted GEAR" in
which its core structural transformation logic remains intact.
We can certainly engage polemically with each other along these lines.
Much more important, in the face of a global economic crisis and in
the face of very serious structural problems in our own economy, is
the ongoing Alliance development of an effective, sustainable and
relatively flexible macro-economic policy framework. We have tried to
argue here that, for many reasons, this is more possible than before.
***