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This resource is hosted by the Nelson Mandela Foundation, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.

25 Aug 1990: Gelb, Steve and Mboweni, Tito

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POM. I'm talking with Steve Gelb and Tito Mboweni. In the talks we've had with people so far, they differentiate between two things: the creation of new political structures and the creation of new economic structures. And in many quarters we found a fear that while there might be a universal franchise granted and majority rule, that it would make no significant difference to the economic structures. And that what one must do is to devise an entirely new system of economic structures for South Africa. Could you just, say, in these minutes we have, just today, give me a flavour of the nature of the debate that's going on and the kinds of options or alternatives that are being considered?

SG. Well, I mean, this really represents my personal view, that the debate around the economy is being carried out in terms of the relationship between growth and redistribution. And I think everybody accepts that there's a need to restore economic growth in the country over the last fifteen years or so, particularly during the eighties, but that there's also a need to move the economy towards a situation where resources are distributed on a more equitable basis than they have been in the past. I think where the difference lies between the two sides in the debate is how they see growth and redistribution relating to each other. If, on the one side, you've got a business view coming from the present government, coming from many white economists in South Africa, who argue that growth must be prioritised, that measures must not be taken which they would argue damage the growth prospects of the economy that remains, it means that they are fairly far-reaching in terms of restructuring the economy and that, in effect, that it should be encouraged on more or less the same basis as it has occurred in the past. And once growth is restored, some of the fruits, a large proportion of the fruits of that growth, as they put it, should be distributed towards the black population, especially the poorer element of the black population. I think on the other side, coming, broadly speaking, from the ANC, the trade unions, and COSATU and here, at least some economists, that the idea that growth and redistribution should be more integrated with each other, that in order to achieve higher economic growth, then the means of achieving higher economic growth should be policies which would redistribute wealth and incomes in the first instance. You know, with the growth path, the kinds of economic growth that occurs, the emphasis within the economic growth should be really moving the economy towards greater equity. So there would be a closer interaction between the two sides, both in the redistribution and the growth objectives.

POM. What are the assumptions that are being made, assuming that the system stays more or less as it is, what are the assumptions being made that would suggest there will be economic growth, or sufficient economic growth, to overtake the rate of increase of the population, of growth of at least 5% a year?

SG. Well, I think a lot of emphasis from that side is being placed on inflows of foreign capital, both in form of loans and direct investments on the one hand, and an increase in the level of investment from domestic sources on the other, that would, I guess, be based on that view. So that suggestions that certain kinds of taxes should be put in place where, you know, for example, something that's come forward is a more effective tax system for the corporations, suggestions like there should be some kind of limit placed on the activities of foreign corporations in South Africa, some process of negotiation. Those are criticised from that side on the grounds that they would reduce the level of confidence or keep it at a low level and in that way affect investment and prospects.

POM. I suppose what I'm asking is, what would lead one to believe that in a world where there is such fierce competition for scarce capital, that a sufficient level of inward investment would occur that would spur an economic growth rate that must be at least 5%, just to keep standards of living at par. It would have to increase by more than that to increase... [Tape off, then on]

SG. From our point of view, why would investment increase?

POM. Yes, why would it? What if, when you say, well, if inward investment increases by this amount, and that the rate of increase in savings is this amount, then this will happen from that. What would lead you to believe that you can, in fact, generate a sufficient amount of inward investment, given the immense competition for capital all over the world? And the immense amounts of capital that, say, Eastern Europe and central Europe and parts of the Soviet Union are already attracting and, in many respects, a little bit more sexy kind of places to invest?

SG. Yes. Well, you know, generally speaking, our view is that most reliance should be placed on domestic savings and if we see South Africa's future economic growth is relying on foreign capital inflows, then we could well be in trouble. That in fact the key issue is to, from our point of view, is to firstly raise the level of domestic investment, which I would see as evolving certain forms of state intervention in order to achieve that. If that was successful in raising the level of economic growth in the kind of general perspective that I take, that would, in itself, generate sufficient domestic savings to cover that. But the main answer should be on raising the level of domestic investment and also, I think, steering it in directions which are different from current directions. You know, steering it towards the sorts of industries and activities which would begin to meet basic needs of the population for housing, consumer goods, basic consumer goods. Try to raise the general living standard and quality of life.

POM. You're talking about a redirection in the kinds of goods and services produced, there'd be a redistribution.

SG. In South Africa.

POM. Yes, with maybe more emphasis being put on goods and services that would generate a higher level of value-added, would be more labour intensive?

SG. Yes, more labour intensive. And, well, there's a debate about whether it would be a higher level of value-added in the first instance. But I would argue that it's a process, looking at it in the long term, development of the economy is a process that has to be gone through before we can really move in a satisfactory way towards high value-added industry. You've got to raise the standard of most of the population, absorb unemployment, improve education and skills, and health, the whole situation of the population of those things are quite key, actually. You can't just move into sort of a high-tech, high value-added stage.

TM. I just wanted to add that I think what Stephen said, and I agree with what he said, but I think it's important in an analysis of this from the intention of rate of growth in a post-apartheid economy.

POM. The intention of which?

TM. Of creating a post-apartheid economy. And creating a new economy and so on. And asking questions about the types of investment patterns that we were visualising. You were asking the question about foreign investment and the competition, capital competition, for capital internationally. And the point that I wanted to emphasise was when Stephen was saying that we need to raise domestic savings, we need to find mechanisms which will facilitate the channelling of domestic surpluses into productive investments. You know, because of the leaders of our society at the moment, of our economy, whatever, actually huge amounts of surpluses are being created by very few corporations in a situation whereby those corporations actually influence a lot the extent of domestic investment. Or they influence a lot in terms of where money is being used. It's still being used in investment and in manufacturing. So we need to - I mean, these are still issues that with investigation we must look to. How, for example, to return the amount of paper money chasing paper in a global stock exchange? And influence the creation of more and more of investment.

POM. Sorry, the creation? You want to move it from, to the creation of wealth rather than just an exchange of financial services? Is that?

TM. Yes, yes. But I'm saying, with investigation of the tactical alternatives, which are useful. I'm not saying that the Jo'burg stock exchange must stop all trading, obviously not. Even that is a subject of investigation now, there are options on both sides. But the issue is that, in my view, there's sufficient capital actually in the economy which is not being invested particularly in manufacturing.

POM. OK, but you wouldn't see this increase in savings coming from the consumer, I mean, the mass of consumers, would you?

TM. The mass of consumers at the moment have no

POM. I know.

TM. All that time, of course, what Stephen was saying, he was saying that over time we want to increase also the amount of money that ordinary black people have and also encourage various means of savings. But, I mean, the major part of investment funds, really

POM. Would come from the corporations.

TM. From the big companies, yes. And I suppose what we're saying is that we need to find mechanisms through which we can encourage this type of corporation, or the big companies, to invest in productive activity, instead of using their money to invest through the stock exchange.

POM. Is there a certain kind of dichotomy here in the sense that, on the one hand, you would want to encourage the corporate sector to generate as large a surplus as possible, in one sense generate as large a profit as possible, and on the other hand, you want to have some control over the nature of corporate activity itself? That one would play against - one could play against the other.

TM. Well, certainly, see, if, for example, the surplus is dependent, just to give a crude example, on exploitation of labour, i.e. let's say it's so exploitative as to make profits higher, obviously in a democratic environment that would have to change. It can't be acceptable. But I'm simply convinced that if you take the mining sector they've been when surpluses formed, the mining sector is very high. But one could probably say given the rising price of some of the minerals, assuming an increase in the prices, one could generate enough surpluses for investment in manufacturing in particular without being an exploitative system. It may take some time, it may take some time, for example, if you take the demands of the workers that there have to be mining villages built, and so on. That'll be a cost for an interim period. The argument that the mineworkers are putting is that over the years the mining houses have been actually generating surpluses and they should have used those surpluses to invest in part in these mining villages. So, one, they may argue that, look, if you build mining houses in future, it will mean that part of that surplus will invest in housing. And therefore, perhaps we will not have enough invested in manufacturing. But I don't think that argument will hold. Of course, a lot will depend on what is going to happen in the mining sector as a whole, in a post-apartheid situation. I mean, we're investigating that. You know, the Harare document perhaps was not as clear as it should have been, precisely because the issue is still subject to investigation.

POM. One of the mechanisms used in Boston to get housing built or neighbourhoods renovated has been one in which any developer who's given a contract, who gets to develop a choice piece of land, that's linked to a programme must undertake to build three, four or five or a thousand units of housing. Could you envisage mechanisms that would give encouragement to an industry, or a help or incentive to industry, to invest in certain areas, that they link that with performing some socially acceptable investment tool?

TM. I don't know what Steve thinks about that.

SG. Well, yes, I think that is the kind of thing that's being discussed, although it's not just a question of saying, well, you know, you can do what you like on this side, as long as you also do something on the other side.

POM. Sure.

SG. But rather that incentives and pressures must be placed on corporations to direct their major investments towards what I would regard as developmentally desirable which in the first instance would be housing, but also to produce other sorts of goods. It's a way of - in general, the argument is not so much that corporations should not be allowed to make profits, but that the use of those profits should not be sort of free and unlimited, that profit should be channelled back in directions that are seen as important not only for the improvement of the population's living standard but also for the future development prospects and growth prospects of the economy.

POM. I've asked only two questions before I go today and both will give me room to develop more questions. One is on when you look at the absolute disparity between what have been expenditures, per capita, for whites and for blacks, and not just a big gap, but a huge, huge gap between the two, and given the narrowness of the tax base itself, how can funds be generated so that there will be a redistribution of income or services in a way that the average black family can see a change in their standard of living or in the quality of services they receive in a relatively short period of time? You know, say, four, five, six years.

TM. But I think a lot would have to do with, one, job creation. Job creation is also related to the question that we talked about earlier on. Increased investments, particularly manufacturing arrangements are a factor which I think is the one that is going to carry South Africa into the next century if we are really going to be a competitive economy. Of course, it should be viewed without its original context, not just, not only in South Africa.

POM. Would the emphasis be initially more on the creation of jobs, rather than necessarily the raising of income?

TM. But, for example, in all jobs that are created, I think there'll be a trade union movement, I think, in every sector of the economy. The trade union movement that would obviously, together with the employer, set the tone in terms of the levels of wages and so on. And, this is my personal opinion, I'm more in favour of a living wage which is negotiated between the trade unions and the industries. Now that issue would deal with the question of raising of incomes. But also there's the question of the people who'll be working in the state sector, who'll be working in various other fields. I think, as well, a trade union movement has been very active, because if there is to be an ANC government or a coalition government who wants to do without that, doesn't that mean by definition that the government will be sympathetic to the incomes that are demanded by workers? Therefore, the trade union movement will play a key role in that. But that's only one aspect. Of course, there's the question of what Stephen was referring to, of what is it that we can identify as being the basic and fundamental needs of the ordinary folk in South Africa? It's housing, housing which must be accompanied by clean water, accompanied by electricity in decent supply, accompanied by a clean environment, an infrastructure. So it's going to be very pushy. So, through income levels which have been negotiated, we will be able to afford certain things, perhaps of housing. But the state, as well, has to bear the brunt on the building of houses. Some mechanisms will have to be worked out, but the state has to play a role in the building of houses. At the moment, it's massive squatting, you can't help the situation.

POM. What is it, about 5.8 million, is it? Shortage of houses?

TM. Somewhere around there. Which is massive numbers. But a similar thing again is the question of how the state will play a role through an existing supply commission in the provision of electricity. There's no reason why we'll not have a massive light electrification of South Africa, no reason why black homes still don't have electricity and every white home, almost, has electricity. So that's only part of the basic needs at the level before us. But secondly is the question of health, medical health, as it were. So, that will have to come into the picture as well. But we are needing to look at the whole picture, that is a mixture of private and mixture of personal and mixture of government. I'll do my point, right through. The third question is education, free and compulsory education. The other question is public transportation for people. To and from work and to and from places of holiday and also the sense of their own A public transportation system, which is affordable, also which is not just carrying people to work. We need to change that kind of situation. And I've just identified some of the things and I talk about it, really, in government early on, I mean, clean air. It means a clean environment. I talked about the question of holiday resorts, also trees in the countryside are being cut because of lack of energy. Because the women have to go out and cut the wood and so on. And that's an environmental disaster. So that will have to be dealt with as well. And also, the gender question at the same time. In that women don't have to be going out and collecting wood all the time. You know, they would be freed from that. Obviously, obviously what I talked about has implications for fiscal policies. Massive implications for fiscal policies. And that's why we also need to analyse as to how much can a new democratic state afford, in terms of your question about transition, tax base. So we are still investigating this.

POM. One last question.

TM. I don't know if Stephen may want to add something?

SG. Yes, just following up on this question of fiscal policy. I think it's fairly obvious that in the short term there's no way that the expenditure per capita on whites for health, education, etc., or, rather, given that level, that the whole population can be raised to that level. What is going to have to happen is that expenditure on whites is going to drop, and that's in fact already started in some areas quite significantly, while that of the black population is raised more slowly. The key issue, I think, over the long run is to raise productivity so that although the level of expenditure might increase very slowly the quality of the expenditure will increase more substantially. And even that, I think, ultimately is the key issue that has to be addressed by any kind of growth or redistribution strategy; what is its policy in terms of raising productivity?

. I think from our side the argument is that you can't simply talk about raising productivity in the narrow sense. You've got to talk about improving educational skills of the labour force while creating employment in the first instance. I think that is the central emphasis of what's emerging with the ANC economic strategy. But that is also raising health standards, raising educational standards, improving housing quality; all of those things provide a basis for productivity improvement. Without that, you can't really hope to raise productivity in any fundamental sense. And that's what has to be done. There is obviously going to be a lot of difficulty in steering through, the need to reduce white expenditure per capita which is going to have political implications. The need to raise expenditure on blacks, not in five or six years to white levels, those expectations can't be met and that's going to raise some political problems as well, because people obviously want that.

POM. The whites, in fact, would find themselves with the reduced level of expenditure and almost certainly with a higher level of taxation, too. Right?

SG. Yes. Well, it's not clear yet exactly where the burden of that tax is going to fall.

PK. What are the models that you look at seriously, in terms of investigating how they work, models, country models, nation models?

SG. Our comparative? Well, we've looked at a number. We've very different elements here, from my point of view, that I think that the newly industrialised countries of south east Asia have a lot to offer in terms of their emphasis on state intervention and the kind of state intervention that went on in their industry, and in finance. The often negative lessons in terms of their labour policies.

PK. Taiwan, South Korea, Japan?

SG. Yes. I think that the European social democratic economies offer some lessons in terms of bringing conflicting interests together. For me, one of the most interesting situations to look at is the Swedish one, but not Sweden in the 1980s or 1990s but Sweden in the 1930s, or 1920s and 1930s. Then it was a society characterised by quite wide disparities, massive social conflict, and so on, and they brought it together in a certain way which produced very positive results. It would be a long period, it may be falling apart now, but the ideas I think were fairly well said. I don't think we are going to say yes, you know, this particular programme, but I think there're lessons to be drawn from a number of different experiences.

POM. One last final question, that I'm just throwing at you, so I can think about what you say. The debate about nationalisation, nationalisation seems to become a word that appears, it's almost become a code word for all kinds of fears about the economy, particularly in the business community.

SG. But with all kinds of expectations and hopes among blacks.

POM. Yes. What are the parameters of the debate?

TM. I've always thought this is a very bad word, it's no good. And I believe nationalisation on the whole

POM. But they put it on top.

TM. Other than that, what I'm saying is we're - in that interview, do not misquote me. Depending on what state it is I think what we should say instead is, what role can the state play in the new society, in the new economic framework? What role can the public sector play? What role can the corporate sector play? What role can either forms of economic activity play? I'm also saying that, look, we're emerging from a situation of massive economic inequalities, massive social inequalities, a situation of conflict. Is it possible that each one of these various actors in the economy can attempt to redress the situation single-handedly? And our answer to that question is, no, it's not. The private sector, no matter how dynamic it is, creative and so on, it cannot address the fundamental inequalities alone. If anything, the past years have indicated that the private sector is unable to do that. This is mostly a kind of family sector, we are also not going to be in a position to do that. There've been various attempts, you go into Soweto, for example, there's an amount of economic activities going on there. Very exciting, a lot of creativity. But because those activities have been confined within the township they've been unable to grow, they've been constrained, as it were. But those kind of activities will not reconstruct, as far as we know, at least in the way they are constituted. Therefore, it looks ... and they can't do it alone.

. The kind of issues that we were raising earlier on, there are a lot of demands on the democratic state but the democratic state will not be able to do it on its own. And I say that probably what we should say is that we need to build a kind of social contract through national concerns which deal with all these questions. And in our attempt to build a new economic framework, therefore, we should have greater state intervention, state intervention which would involve a variety of - which would take a variety of forms including the public sector. But also that there will be still in existence very big and very small private sector economic activity. And we want to focus on each. And probably what we will need to do in future is to have some kind of indicative plan, not compulsory, indicative plan where all these various activities in the economy through whatever mechanisms that we're going to design come together periodically to survey the situation, where the market housing shortage, how do we deal with that? What role can the state play? What role is the private sector going to play? What role can small builders play, and so on, and so on. And people say, look, we can be able to do this much. Perhaps a central bank and the monetary authorities would look at it say, what are the implications for monetary policy? The implications for collection, and so on, and so on would balance off. And then we'll look at the question of investment in manufacturing. We identify, perhaps, that we need to get into high-tech, just for argument's sake, high-tech manufacturing. How are we going to do this? What investment should the state make in education, in order for skill-building? What investment in the private sector, and so on. What can the trade union movement play in the situation, and issues like that.

POM. So you're kind of looking at a social contract between the different sectors, where almost a partnership is formed in terms of there being a common agenda in which everybody understands the role they have to play. Like, just to give you an example, that would involve the trade union saying, OK, to maintain the competitiveness of the economy and create jobs broadly, we won't look for any more than, say, a 5% wage increase next year, or something like that. And that the government would give similar undertakings with regard to prices, that as far as possible, prices will remain set.

TM. Will be set. Yes, a kind of - the model is testament And that's an ideal model for South Africa, emerging out of a conflict situation, trying to reconstruct a new economy. That would be preferable. Therefore, you see, the question becomes the role which can be played by the various actors in the economy as part of building one national economy. Of course, there'll be conflicts, I'm not suggesting that there will not be conflicts. There will be conflicts. For us, which are forces which may still be here and so on, I mean pulling out in other directions, and so on. But I think, if we say that our central approach would be to pull everyone together, that we'll build a society together. That's what I'd like to promote myself.

POM. Ireland is a country that, in the late 1960s and 1970s, did a lot of economic planning and programmes for economic expansion. But one of the things that emerged was agreement between the trade union movement and the government on a wage pact that, overall, wages would not increase by more than such-and-such a percent, and the government giving an undertaking that prices, overall, would not increase by more than X percent. And it's worked pretty well. Now, it may work pretty well because it's a small country and it's totally homogeneous, that there were very few other options. But Ireland, where there's a very high level of state intervention, very high level of state intervention, will be never characterised as a country which has key sectors of the industry, of the country, nationalised. And they are, they're all run by state companies.

SG. Yes, You see, I think that's the kind of thing that we're looking at, at the moment. It certainly suits the media and the big companies to try and keep the debate focussed around nationalisation.

POM. Sure, it's emotive.

SG. Because it seems that all these policies are pretty extreme, especially given the international climate at the moment. But I think that's a very fair characterisation.

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