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Timothy Swett
July 3, 1998
[There is also available a footnoted version of this paper in text format.]
Hein Marais, in his book South Africa Limits to Change: The Political Economy of Transition, asks the fundamental question facing South African policy-makers today:
Will the new society perpetuate the highly divisive social elitism of the past but on a more non-racial basis? Or will it tend towards a more egalitarian system that strives to muffle inherited frictions by redistributing resources and institutional power?
Critics of Gear, the government’s macroeconomic strategy for Growth, Employment, and Redistribution, claim that the policy is leading the nation to the former.
The key strategy behind Gear aims at slashing public spending, maintaining single digit inflation and a stable exchange rate, reducing corporate tax, phasing out exchange controls, encouraging wage restraint by organized labor, and speeding-up privatization in order to encourage foreign direct investment. "Gear is being applied conservatively as a redistribution through growth, or ‘trickle-down’, strategy in the belief that if a country grows for a sustained period, it can deliver on redistribution." The problem is that since Gear’s implementation, it has failed to live up to its promises of job creation and real growth. Gear estimated the creation of 400 000 new jobs a year by 2000, yet last year alone 130 000 jobs were lost. Johann Nel in the Mail & Guardian writes that, "if Gear fails it could lead to political mobilisation against the government…," while Marais warns that the country "is sitting on a powderkeg. The rich are staying wealthy while the ranks of the poor keep growing." Nel further points out that at best, Gear merely provides a framework within which growth can take place, while not necessarily guaranteeing growth. Even Joseph Stilglitz, chief economist of the World Bank, has criticized IMF austerity packages, which closely resemble South Africa’s Gear policies in their single-minded focus on inflation and budget deficits, stating that the cavalier adherence to macro-economic stability often ignores growth and jobs. "The history of those countries that have successfully transformed their economies shows that the appropriate macro-economic policy is only a necessary, and not a sufficient, condition for economic success."It is clear that the neo-liberal economic paradigm that has been exported by the IMF and Western economies to developing countries has failed to address many of the economic and social needs of those countries. The huge gap between the rich and the poor is one of the major issues that government policies need to address, since neo-liberal economic policy often fails to benefit the economically disadvantaged. The desirability of some government intervention in moving economies to the free market model is clearly illustrated, according to Marais, in the cases of ‘the first- and second- tier NICs, [which] emerged not from neo-liberal policy scripts but, as the World Bank was forced to admit, from ‘government interventions [which] appear in some cases to have resulted in higher more equitable growth than otherwise would have occurred.
The South African government has come under harsh criticism not only from the trade unions but from a growing number of voices in civil society as well for its adherence to its tight management of the state budget in the hopes of attracting foreign direct investment during a time of increasing unemployment and slow growth. Critics predict that the adherence to the tight fiscal policy will fail to create jobs but may send South Africa into a recession. Nel warns that "overall, the impact of a rapid reduction in government expenditure could be very disruptive," while James Hinds of the labour think-tank Naledi, points out that it is the jobless who are worst affected by a tight monetarist policy.
Is there an alternative path that the Government could take to improve employment and growth? Critics believe so. They argue that by concentrating on job creation, rising levels of income will create greater demand for domestic products which in turn would lead to greater employment. They believe that the government should increase public spending through investment in human capital and through the funding of labor-intensive rather than the capital-intensive industry. The World Bank would agree with at least part of this prescription. In its report, Reducing Poverty, the World Bank "criticized the capital-intensive character of [South African] industry [and] the heavy state subsidy support for large-scale capital intensive projects." Few jobs are created by capital-intensive industry. Policy-makers need to encourage job creation and environmental sustainability through labour-intensive industry like tourism, which also has the potential of being eco-friendly. The recent decline in the Rand against major Western currencies offers the South Africa an excellent opportunity to cash in on the world’s $62-billion tourism industry.Peter Bruce, editor of the Financial Mail, goes so far as to suggest that South Africa forget about trying to compete with the world’s manufacturers and design the country’s economy around a serious mass tourist industry. Bruce writes that "we milk rather than care for tourist while the government chases the smokestack dream and the job queues get longer." James Seymour, the information and research manager of the KwaZulu Natal Tourism Authority (KZNTA) can attest to this. Seymour claims that "community-based tourism [is] an area that ha[s] been neglected, both in this province and in other areas in South Africa. There [are] many communities in South Africa with significant tourism assets but which d[o] not have the necessary resources and skills to develop and market them."
The country is beginning to see some greater importance being placed on the potential of tourism. The Western Cape Government is currently seeking a R21-million from private investors for accommodations, service roads, rest camps, and restaurants in eight of its nature reserves. The provincial Minister of Trade, Industry, and Tourism, Hennie Bester believes that "With a resolve to work hard and provide spectacular service, we should be able to snatch a sizeable share of the world’s $62-billion tourism industry by 2010."
The Government of the National Unity must now move from its increasingly embedded defense of Gear to the exploration of alternatives that can create jobs that benefit those whom Gear is increasingly leaving behind. It is doubtful that an egalitarian society will result from the South African government’s current economic strategy encapsulated in Gear mainly because the government is unwilling to deviate from the neo-liberal orthodoxy and invest in job creation, and because the governments anti-inflation policies discourages the creation of labor-intensive industries. It is the small and medium size firms have the greatest potential for employment, since they rely on labour-intensive practices, but the high interest rates needed to stabilize the rand and fight inflation prevent the entry of small firms into the market and discourage medium-size firms from expanding. If the Government is serous about redressing the wrongs of the past that have created the current unacceptable income gap between the rich and the poor, it must develop a strategy that encourages labor-intensive industry that can set the country’s poor on a path of future prosperity.