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The reality behind the neoliberal rhetoric in SA 2006-03-15
Patrick Bond and Ashwin Desai

* This article is an extract from a longer article on uneven and combined development in South Africa that will appear in mid-2006 in Bill Dunn (Ed.), Permanent Revolution: Results and Prospects 100 Years On, London, Pluto Press


Today in South Africa we are seeing the interrelationships between so many processes of sustained inequality in the context of persistent overaccumulation of capital (and unemployed labour) and rising financial volatility, with devastating consequences for low-income people, especially women.

        To illustrate the persistence of economic crisis, three currency crashes were witnessed in South Africa over a period of a few weeks in February-March 1996, June-July 1998 and December 2001, ranging from 30 to 50%. Each led to massive interest rate increases which sapped growth and rewarded speculators.

         Meanwhile, the drivers of capital accumulation were based less upon real 'productive' activity, and increasingly within financial/speculative functions that are potentially unsustainable and even parasitical. The contribution of manufacturing to GDP fell from 21.2% in 1994 to 18.8% in 2002. Real estate speculation led to housing price increases over the period 1997-2004 of 200%, far higher than other major economies (Ireland was next at 170% with the US at 60%), according to the International Monetary Fund.(2) Overaccumulation of capital is evident in the lack of new domestic fixed investment over the past decade.

        The capital strike was based upon systemic overproduction for the limited local market, not upon worker militancy. Labour productivity increased steadily after 1994, with productivity increases far outpacing wages after 1998. The real unit cost of post-apartheid labour dropped at around 2% per year (with the exception of 1998).(2) The number of days lost to strike action fell, the latter in part because of ANC demobilisation of unions and general hostility to national stayaways for political purposes (e.g., the labour movement's mild-mannered national anti-privatisation strikes).(3)

        The results of the system's continuities, not change, are witnessed in resurgent corporate profitability associated with successful crisis displacement. (The basis for crisis - overaccumulation - was not resolved, but corporations used various techniques of crisis displacement to pass the costs elsewhere.) South Africa's pre-tax profit share recovered during the late 1990s to 1960s-era levels associated with apartheid's heyday.

        Meanwhile, most of the largest local companies were given permission to delist from the Johannesburg Stock Exchange or relist their primary stock market residence in London and New York during the late 1990s. Ironically, to encourage businesses to invest, Pretoria had cut primary corporate taxes dramatically (from 48% in 1994 to 30% in 1999, although a dividends tax was added); the 'supply-side' effort was notably unsuccessful. Pretoria also offered tax concessions mainly to higher-income individual South Africans worth R75 billion in the first ten years of liberation (offsetting by many times a new capital gains tax). The regressive, controversial Value Added Tax (VAT) - which catalysed a massive 1991 strike - was also retained in the post-apartheid era, and revenues increased from a value equal to 5.8% of GDP in 2001/02 to 7% of GDP in 2005. Since total tax revenue rose by just 1% of GDP during the early 2000s (from 23.7% to 24.7%), the entire relative increase in social spending was funded by VAT, a tax that hits the poor far worse than the rich. Repeated popular demands for a tiered system to redress inequity in that tax or to zero-rate essential commodities were ignored.

        Moreover, another important issue, too often overlooked, is the nature of state capital spending. While updated figures are hard to acquire, the trends from 1994/95 to 2002/03 are disturbing. Disaggregating the state's 'gross fixed investment' in 2002, only 33.4% went to social infrastructure (schools, hospitals and administrative services), down from 38.7% in 1995, while other economic infrastructure (roads, bridges, dams, electricity and water) dropped from 45.8% to 44.1%. In contrast, other 'economic services' - spending by business enterprises not included in the categories above - rose from 15.5% to 22.5% of the total.

        Amplified unevenness is also evident in income inequality and poverty data, as even the state agency Statistics SA confessed that what was amongst the world's worst Gini coefficients actually degenerated after 1994. Across the racial divides, the poorest half of all South Africans earned just 9.7% of national income in 2000, down from 11.4% in 1995. The richest 20% earned 65% of all income.(4)

        These kinds of statistics have been either denied by government officials who claim an offset from the social wage, or explained as the result of 'two economies'. Even President Thabo Mbeki - once a star student of the Lenin Institute in Moscow - divides the South African economy into first world and third world components. The former is the modern industrial, mining, agricultural, financial, and services sector of our economy that, everyday, become ever more integrated in the global economy. Many of the major interventions made by our government over the years have sought to address this 'first world economy', to ensure that it develops in the right direction, at the right pace. It is clear that this sector of our economy has responded and continues to respond very well to all these interventions. This is very important because it is this sector of our economy that produces the wealth we need to address the many challenges we face as a country. The successes we have scored with regard to the 'first world economy' also give us the possibility to attend to the problems posed by the 'third world economy', which exists side by side with the modern 'first world economy'. Of central and strategic importance is the fact that they are structurally disconnected from our country's 'first world economy'. Accordingly, the interventions we make with regard to this latter economy do not necessarily impact on these areas, the 'third world economy', in a beneficial manner.(5) (emphasis added)


This approach  become the prevailing discourse in government circles by 2005. At times, the idea is presented as a radical divergence from classic neoliberal or trickle-down economics in that it provides for substantial state intervention. The idea is that the first economy can get on with the business of following the global pattern of integration into the global economy, becoming increasingly capital intensive, with high technology and high skills while 'the second economy must be targeted by government intervention directly'(6). These interventions will provide and unlock resources for those stuck in the second economy and perhaps then eventually allow them to enter the first economy either as workers or entrepreneurs.

        This two-economy thesis-as-solution has been challenged by a few researchers. For Andries du Toit, the issue is not that there are 'not enough linkages' but the nature of those linkages, and the extent to which they serve either to empower poor people or simply to allow money to be squeezed out of them.' (7) Du Toit argues that labour on the farms of the Ceres Valley are not people trapped in a second economy, unconnected from the first economy. Farm workers in Ceres, far from being excluded, are thoroughly incorporated into the first economy. Their poverty is produced and created by the normal operations of the market in that economy. This should give us cause to think twice about the simplistic notion that all South Africa needs to end poverty is growth. What matters is the kind of growth and the kinds of power relationships that shape the terms of economic exchange.(8)


Gill Hart adds another angle to the debate arguing that Mbeki's shift should be seen as part of an effort to contain the pressures emanating from the rise of oppositional movements protesting the inadequacies of service provision, the snail's pace of land redistribution, failures to provide anti-retrovirals, and the absence of secure jobs-as well as pressures from within the Alliance. The operative question, then is not whether the First/Second Economy is an accurate portrayal of reality, but rather how it is being constructed and deployed to do political - or perhaps more accurately, depoliticising work. What is significant about this discourse is the way it defines a segment of society that is superfluous to the 'modern' economy, and in need of paternal guidance. They are deserving of a modicum of social security, but on tightly disciplined and conditional terms.(9)


The first/second economy thesis in its present incarnation marks a return to liberal modernisation theories of the 1960s. While income and resource transfers to the so-called second economy remain an important and fashionable debating point, at the heart of any discussion on poverty alleviation and at the forefront of most plans to do so in South Africa, still lies the creation of jobs in the 'first economy'. Falling tariffs on imported industrial machinery meant that the small degree of automation that occurred replaced hundreds of thousands of jobs, while many more tens of thousands in vulnerable industries were eliminated thanks to imported consumer goods from East Asia. The migrant labour system did not end with apartheid, so many of the same processes by which urban capital is subsidised in the reproduction of labour power continue, with only a slightly expanded social wage (a pension and child grant system now reaching into rural areas) providing an even greater social subsidy to employers.

        By way of claiming the possibilities of a 'ladder' between the alleged first and second economy, Mbeki and his colleagues made extravagant claims, e.g., that 2.1 million net new 'jobs' were created between 1994 and 2004. This illustrates some ingenious 'accounting', as journalist Terry Bell exposed:


Homemakers who help sustain themselves and their families out of backyard vegetable plots or who keep a few chickens are part of the new employed class. In fact, that vast army of the barely hidden jobless who stand forlornly on street corners for hire or who sell coat hangers, rubbish bags or handful of sweets at traffic lights or railway stations in the hope of making a few rand all add to this two million jobs figure. According to the latest statistics, in September 2001, 367,000 workers earned nothing for their labour, while a further 718,000 were paid between R1 and R200 a month.(10)


Another key area of disagreement, which flows as much from ideology as from spin-doctoring, is how to understand the informal economy as a provider of sustenance to the unemployed. Are people selling sweets behind a table or who farm for subsistence even to be considered (self) employed? There are those who argue that much of what is described as the informal economy consists of very poor and desperate people engaging in essentially survivalist strategies to eke out some sort of existence.(11)

        Much of that survival strategy is associated with the ongoing reproduction of extremely inexpensive labour power. Colin Bundy made the point that 'Despite the fact that race and class are the most frequently mentioned lines of inequality, and the urban/ rural divide a major structuring factor, there is another basic, ubiquitous, and deeply entrenched vector of historic inequality - and it runs through race, class, and regional imbalances. It is gender.'(12) As Liesl Orr argues,


Gender issues and household dynamics are almost completely invisible within the current macroeconomic strategy, contributing to the on-going marginalisation of women. While the Growth, Employment and Redistribution (GEAR) policy might be called 'gender blind', it is certainly not gender neutral. For example, GEAR calls for greater labour market flexibility in order to attract foreign investment and to improve competitiveness. The implications of this are that the most vulnerable workers (that is, women) will remain unprotected and discriminated against, and where jobs are created they will perpetuate poor working conditions. With greater labour market flexibility the position of women will actually worsen, since this implies decreased benefits (such as maternity benefits) and less working time and parental responsibilities. (13)


Indeed, one of the most striking reflections of backsliding in spite of rhetorical advance was in women's pay. Barely increasing their share of total jobs during the late 1990s, women experienced a massive decline in relative pay, from 78% of male wages in 1995 to just 66% in 1999.(14)


Finally, in mitigation of the claim that uneven and combined development are worsening, state officials typically claim that they are not pursuing neoliberal policies, as witnessed in the delivery of 'free basic services' such as water and electricity. But with roughly 1.5 million people disconnected each year because they don't pay their water bills, according to state sources,(15) and with even higher rates of electricity disconnection, even the state roll-out of basic services fits within the framework of uneven and combined development.

           In sum, the contemporary hegemony of neoliberal economic philosophy in South Africa extends even into the realms of social policy over which so many intense struggles were waged. That process has been quite long in the making, dating to international financial pressure during the mid 1980s, accompanied by the growth of domestic financial liquidity due to the overaccumulation problem, with speculative economic activity rising to unprecedented modern levels.

           What is to be done? Resistance to uneven and combined development must continue to emerge from decommodification struggles that reflect the real experiences and aspirations of grassroots social, ecological and labour movements.(16)



(1) International Monetary Fund, “South Africa: Selected Issues”, Washington, September 2005.

(2) Cited in United Nations Development Programme, South Africa Human Development Report 2003, Appendix 12.

(3) M. Altman, “The State of Employment and Unemployment in South Africa”, in J. Daniel, A. Habib and R. Southall (Eds), State of the Nation: South Africa 2003-04, Pretoria: HSRC, 2003, pp.174-75.

(4) Statistics South Africa, Earning and Spending in South Africa, Pretoria, 2002; Business Day, 22 November 2002.

(5) T. Mbeki, “Steps to End the Two Nations Divide”, ANC Today, 3, 33, 22 August 2003, See analysis at asp?WriteContent=Y&RID=1244.

(6) B. Turok, “Overcoming Underdevelopment”, New Agenda, 16, 7, 2004

(7) A. du Toit, “Why Poor People Stay Poor: The Challenge Of Chronic Poverty”, New Agenda, Issue 16, 29-30, 2004

(8) A. du Toit, “Hungry in the Valley of Plenty”, Mail&Guardian, 15 April, 2004

(9) G. Hart, “Beyond Neoliberalism? Post-Apartheid Developments in Historical and Comparative Perspective” in V.Padayachee (Ed.), The Development Decade? Social and Economic Change in South Africa 1994-2004, Pretoria: HSRC Press, 2005.

(10) T. Bell, “How 'Non Jobs' come to the Aid of Government Election Propaganda” Sunday Independent, 15 February 2004.

(11) National Labour and Economic Development Institute, “Global Poverty Network Workforce Development Study” Johannesburg, March 2004, p.61.

(12) C.  Bundy, “Development and Inequality in Historical Perspective” in R. Schrire (Ed.), Wealth or Poverty? Critical Choices for South Africa, Oxford: Oxford University Press, 1993, pp.32-33.

(13) L. Orr, “Globalising Poverty: The Gender Dimension to Job Losses, Casualisation and Poverty”, paper prepared for COSATU Gender Conference, Johannesburg, National Labour and Economic Development Institute, 2000, pp.11,22.

(14 Statistics South Africa, The South African Labour Market Pretoria, 2002, p.147.

(15) M. Muller, “Turning on the Taps” Mail&Guardian, 25 June 2004.

(16) One survey can be found in P. Bond, “The Decommodification Strategy in South Africa”, State of Nature,, December 2005.



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