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 It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.
18 Aug 1992: Mboweni, Tito
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POM. Tito, maybe you could begin perhaps by taking me through the evolution of ANC thinking on matters pertaining to the economy and economic strategy. I think when the ANC was first unbanned you had all this emphasis, at least by the government, it said that the ANC stood for nationalisation of this, that and the other. Even at their Indaba last year there was a kind of a mix up when there were two scripts released, one which shouldn't have been released which was reiterating nationalisation policy and then there was one actually delivered by Mr Mandela. Then there is another economist here called ... Pillay, this was in February 1990 where there was a plan released for the radical redistribution of wealth, including minimum wages and things like that. Then you moved to the point where ...
TM. These were his own opinions, there were not the ANC's.
POM. These were released in July at the Policy Conference, they were very moderate, even Business Day endorsed the policies as being realistic and wise. What was the evolution along those lines?
TM. I think three critical phases. A number of organisations came together including the ANC and they adopted the Freedom Charter at Kliptown and the main economics clause there was, "The people shall share in the country's wealth", and it goes on to say, "The mineral wealth beneath the soil, the banks, the monopoly industries shall be transferred to the ownership of the people as a whole" and so on. And that in the minds of many people, it would be in the mind of Mandela, meant that the ANC and all those who adopted the Freedom Charter were committed to the nationalisation of the mines, the banks and the monopoly industries. But that's one interpretation of the Freedom Charter clause. Other interpretations are saying that is not what the Freedom Charter is saying. All that the Freedom Charter was trying to convey was that in a country where there are major inequalities something needed to be done in order that the majority of the people can also share in the country's wealth. So when you say that the mineral wealth beneath the soil is a heritage for all South Africans, it's a statement of nationalisation. And when you say it will be transferred to the ownership of the people as a whole it doesn't pre-suppose that the state is going to take over. It means it is transferred to the ownership of the people as a whole, it could mean that it is transferred from a monopoly control to a more disperse and popular participation. There could be all kinds of ownership patterns ranging from state to more accessible mining by individuals away from monopolies. It could also mean state share holding, like in Botswana where there is a joint partnership between de Beers and the Botswana government and they formed a company called Detswana(?), a 50% share. There are many interpretations which you could give.
. Of course the dominant interpretation becomes that one of the nationalisation and in a sense I will explain what I call the second phase which is from the Freedom Charter, through the exile years, the dominant thinking in the sixties and the seventies and to a large extent in the eighties, was that nationalisation was a key component of economic policy. In many countries, not just those supporting the ANC but many other countries, Kenya, Tanzania, Brazil, Malaysia, everywhere the thought was that Western Europe, France, Britain, Norway, Austria and so on, the thought was that the state needed to play a key role in the economy through nationalisation. By so doing people thought that there will be participation by the nation in the running of the economic affairs of the country. In terms of the ANC, I'm saying that was the second phase, those were the exile years.
POM. Was thinking then influenced by the fact that the SACP was such an important part of the organisation?
TM. No. It was influenced by the international mood at the time. The international mood at the time was the one I described, it had nothing to do with the Communist Party. It had to do with the going wisdom of the time and there were nationalised industries in countries which you may have described as not revolutionary at all. As I say, no ways, did social democratics nationalise some corporations overhead. I am saying this also influenced the ANC, no doubt about it. In 1969 the ANC had a conference in Morogoro, Tanzania, one of the things that happened there was an elaboration of the Freedom Charter. I don't know whether you can get that document, something happened to mine - it got lost in the process. In 1969 at the Morogoro conference it came out with what it called an elaboration of the Freedom Charter and there the kind of emphasis on nationalisation was fairly prominent in that document. But this was 1969. The going wisdom of the time was that that's how you went about organising the economy, that was the trend in Tanzania, Kenya, the trend in many African countries.
. Of course somewhere in the middle of the eighties, when we began once again to tighten economic policy thinking and as our development internationally was taking place in Latin America, in Africa itself, looking carefully, for example, at the Zambian experience, looking carefully at what was happening in Zimbabwe and looking carefully as well at what's happening in Brazil, Mexico and so on and of course what's happening in Western Europe too. The growing wisdom in the economic sphere now is that you don't need that kind of nationalisation programme for you to be able to achieve the kinds of objectives which people thought they will achieve by nationalisation.
. Of course it's different to state intervention. A tax policy is state intervention. It affects people's pockets. So therefore the growing wisdom now, from the 1985 period, I think, is that you need other means and the record of state owned corporations internationally has not been just a rosy picture, there have been lots of successes but there have also been many failures. Of course there's been very little doubt that there's been a growing domination about the kind of anti-nationalisation doctrine, which is also a passing phase I think because it's very pragmatic. So we came to the conclusion then, as I mentioned, in 1988 we came up with a document which was called a Constitutional Guidelines document. In the Constitutional Guidelines document there was a clause there on the economy and it said that the economy of the post-apartheid South Africa will be a mixed one, with a private sector and a public sector and a corporate sector. It didn't quite characterise in detail what was meant by this state sector but the growing interpretation of that within the economic community and the ANC was that reference was being made here to in particular public corporations, public utility corporations and perhaps very few and selected areas where there may be a need for government ownership, state ownership in partnership or wholly state owned.
. I think that's what was called the third phase, which is a phase which I think has continued up to now. We had the basic approach of mixed economies. Of course because we haven't had a policy conference there are all kinds of statements from time to time and perhaps causing some confusion here and there, but the basic approach post-1980, 1988, was that of a mixed economy and I'm saying that's what it is at the moment. All that was done now is to tighten the whole thing up a bit and to work in a more presentable fashion.
POM. In one way in the early eighties nationalisation became, I won't say synonymous, but it became associated to a large degree with command economies, the state running a lot of things, having its hand all over the place which went out of vogue with the collapse of communism in the late 1980s and the enormously poor performance of Soviet bloc economies. To what extent did that have an influence on the direction of thinking?
MB. It affected everybody I am sure, internationally, no doubt about it. But the point I have to make, that point of view is too simple to just pre-suppose that because Eastern Europe had a command economy therefore nationalisation. No-one would suggest that the tendency was a command economy, state operated deliberately meant to bring development which would normally not have come about as a result of any private sector imperative. So it's not quite analytically correct and also to do with communism or the state and so on. I think from our point of view we shouldn't overstate the impact of the collapse of Eastern Europe. The collapse there was the culmination not just of economic mismanagement, it was a combination of an undemocratic political system, communism as a whole falls to pieces. I think the combination of a whole host of issues and I normally think that when we analyse perhaps we shouldn't over-emphasise the impact of capitalism and socialism. Anybody who analyses anything must be bound to come up with conclusions, as I say, whether they are capitalists or socialists. So I wouldn't give too much, we never sat down and said let's analyse these things.
POM. Just again, not trying to put it in simple terms but trying to evaluate the importance of different factors, to what extent did the continuous din, so to speak, from the international community that if South Africa began, if the ANC had economic policies that called for broad scale nationalisation that there would be no foreign investment, foreign investment would not come into the country. To what extent did that play a role?
TM. It could have played a role but very minor. Every time the ANC Executive came into the office here and started lecturing us about how specific policies would affect foreign investment we just switched off.
POM. You just switched off?
TM. Yes. Just started thinking about a football match or something. The need to relax.
POM. You mentioned this before. It's still going on after two years?
TM. Yes. The need to relax. Economics as bad economics as if they analyse them, some of them probably don't understand economics anyway. I just switch off. And some you tell just shut up let's talk about the business that you're supposed to hear. That's what you hear then, thank you very much I've got other things to do. I think the assumption these people make is kind of ignorant. I am not suggesting that one obviously doesn't listen to other people, listen to other people's opinions, but when it becomes very pretentious, strong, with no content attached, just slogans against everybody. I think our own analysis, the policy guidelines which we have adopted at the conference will be made on our own analysis of the situation because our own analysis in collaboration with whoever we work with primarily, those guidelines that we have adopted are the ANC ones. And all the ANC, as it were, commitments, what made the ANC what it is, it's commitment to socio-economic development, it's commitment to maintaining a rapid and growing economy, it's commitment to maintaining macro-economic balances, it's commitment to deracialising any aspects of ... all those questions, they are there irrespective of what people say. And I am sure that will be indicated ...
POM. The one part of the policy that I was surprised at was on the delegates opting for a living wage campaign rather than insisting on a minimum wage. It struck me that even such a capitalist economy as the United States has a minimum wage legislation.
TM. $4.25 an hour.
POM. Is it $4.25 an hour?
TM. Yes.
POM. It struck me as ironic that a movement associated with the broad mass of people who are impoverished wouldn't have as part of its economic programme some minimum base below which no employer can go.
POM. I want to talk for a minute about the role of monetary policy particularly in relationship to a central bank and let me give you the background to it: there was a delegation from the ANC who went on a tour of the United States to look at federal structures.
TM. I was in the States at the time.
POM. They came to my university where we did a day's programme for them on the New Deal, precisely on this kind of thing you told us about, and the thing was to address the question of state intervention having an impact on the economy. How do you do it, where is it successful and where is it not successful? In the course of one of the talks the question of an independent central bank versus a central bank under the control of the government came up particularly in an economy where the primary export is gold and in which fluctuations in the currency do not reflect maybe the underlying value of costs. Do you follow me? How do you use the exchange rate as an instrument to promote economic growth?
TM. It's very complicated. It depends, sometimes when you devalue the currency for specific purposes, as you know sometimes when you devalue, imports become more expensive and exports cheaper. That's the theory of it but the practice is sometimes it's not, but the economic theory is that sometimes if you devalue say by 20% imports become more expensive by 20% and exports cheaper by 20%. But theoretically it's meant to boost your domestic production for export and it's meant to bring in the imports at par with your domestically produced commodities. There can be a big debate whether currency devaluation which impacts on the exchange rate has actually been good for a number of countries. For example has it been good for Zimbabwe, has it been good for Tanzania and so on, and has it been good for Brazil? So it's a big debate in the development, the role of the exchange rate in the economic development. But I suppose the main point that you may be interested in is: what is the thinking in the ANC regarding the setting of this monetary instrument? The exchange rate is just one of them. What about the interest rates? What about controlling money supply and so on? At the end of the day those are technical questions. Sometimes if you think your rate of inflation is going very high you will opt for a tight monetary policy, try and clear out money from the economy. Sometimes you deliberately suck out currency from the economy when you think that your inflation is getting out of control.
POM. My question would be on the relationship between the central bank and the government, or whether the central bank should be an independent entity?
TM. I'm coming to that.
POM. OK.
TM. I'm saying all these monetary instruments can be used depending on the objective that has been set. All the governors of the banks would have to do is apply one instrument or the other at any one particular point in time. So theoretically the current South African Reserve Bank is independent, theoretically, but practically of course, under PW Botha in particular, it was very, very political. He would inform the governor it is time to increase interest rate or you would have to cut the bank rate and so on. We have debated this issue from time to time. We didn't make a specific political decision on it because we thought that decision depends on so many political factors in the ANC now.
POM. But the present government is pushing strongly for an independent bank?
TM. In terms of the statute of the bank it is independent.
POM. They're looking for something in a constitution that would guarantee an independent central bank that would not be under the aegis of the government.
TM. But it's meaningless, it's meaningless because the Bundesbank in Germany is independent and the status of the Bundesbank is less independent than South Africa's Reserve Bank. You see what I mean? It's a relative thing. We could have in the constitution a clause that would say that the Reserve Bank will be independent and it's main function would be to protect the value of the currency and it would be responsible for monetary policy. But the State President can still say, "Look, hang on, Governor we appointed you there, we would like you to bring down interest rates". ... didn't resign just for nothing, I think, he resigned because of clashes with the government. But that kind of thing happens from time to time.
. If you look at the Board of Governors of the Bundesbank for example, which is very independent, there is a high level of political presence there including the Minister for Economic Affairs, the Minister for Finance and a number of other people and they are not there just to drink coffee and what they say is pretty substantive. So it's relative. Among ANC economists the general mood is to have an independent central bank if you want your monetary policy to be of substance. You need a counter-balance in the Reserve Bank but the independence of that, the government is still the major shareholder but if it's independent it can still determine who can be governor and who cannot be governor so their independence is really relative. But the critical thing for us is that whatever the outcome it has to be a Cabinet decision eventually, or it can be decided by the constitution making body. But even if the constitution making body agrees on an independent central bank it's meaningless. At the end of the day it will depend on the actual operations and the relationship of that to the Cabinet. If the future Cabinet decides to maintain a more interventionist financial policy from the Cabinet side they will do it. The critical thing is that there should be co-ordination between fiscal and monetary policy. There has to be co-ordination. You can't have a situation where fiscal policy is going in one direction and monetary policy in the other like in the current situation in South Africa. There is a clash between monetary and fiscal policy.
POM. The clash being?
TM. The clash being the following. Monetary policy is focusing on curbing expenditure, high interest rates, dampening on borrowing because interest rates are rather high. By definition if the interest rates are very high people don't want to spend, they want to save as much as they can. In the process that is bad for investment, people can't afford the interest rates which are very high. On the other side what happens on the fiscal policy side? The government keeps on spending, it keeps on spending and the deficit before borrowing in this budget was about 4,5%.
POM. 4,5% of GNP?
TM. Deficit before borrowing as per the budget March 1991. As I say, there is no co-ordination between fiscal and monetary policy at all and I think what we have said in our policy conference is that we want to see a co-ordinated approach of fiscal and monetary policy.
POM. One of the questions that is always being asked, how do you jump start an economy? Was the New Deal successful in terms of its massive intervention in certain sectors, public works programme, in pulling the country out of a depression. The short answer is that it wasn't, what pulled it out of the depression was the war not the New Deal. One of the conclusions being reached among the groups was that if you were to have successful state intervention in a way that would jump start the economy what you need is one strong central government that would have in fact a direct impact on various sectors of the economy by direct action and that the more federal the system of government, the more powers that were vested in the regions, the more important state government was, the less the probable impact of the central government in trying to jump start the economy. I know that the ANC policy calls for, after the policy review, for regional government with powers devolved from the central government to the regions. The ANC in the Charter of Principles adopted that, or agreed upon at CODESA 2, it was agreed that regional governments would have their powers defined by and entrenched in the constitution. So you have this battle on between kind of weak regional government and what the government would be looking for, strong regional government. How do you relate the possibility of strong regional government with considerable powers for independent action entrenched by the constitution in the regions with ANC economic thinking?
TM. I don't know how the lawyers see it, I'm always scared about how lawyers see things because they think that they can run everything including the economy. Yes lawyers and businessmen are not my favourites. I don't see any conflict. Given the nature of South African society and the danger that economic development may always concentrate in a few regions of the country to the total neglect of others, it makes economic and political sense particularly socio-economic sense as well to encourage the development and flourishment of regional forms of government which, of course, must find an apt constitutional description which we can leave partly to the constitutional lawyers, but from an economics point of view that would be absolutely wonderful. How else does somebody sitting in Pretoria know what the housing needs of the people in Namaqualand are and not sending in some experts, flying into Namaqualand for a day and go out to Pretoria and make a report about the housing needs of people in Namaqualand? The local authority in Namaqualand knows better and it is the one that must make representation to the national parliament in terms of resources to be allocated. So in that sense I don't see any conflict between the role of central and local government. I see them being complementary and with the major development focus played to be played by local government. I don't like the term 'jump start' the economy because it gives an impression that the economy is sleeping. It's in a crisis but it's not sleeping.
POM. In a crisis but it's not sleeping?
TM. Sleeping, the economy. It's in a crisis but it's not sleeping. For example, here is a major investment, 1,1 billion rand, diamond mining in the Northern Transvaal. That 1,1 billion will have, because of this mine, a full production, it equals 75% of the current South African diamond production. You see? It's a big mine. 1,1 billion. The first mine that Anglo-American has opened in 2 or 3 years, diamond mine. It is situated in the far Northern Transvaal which, in terms of the economy of that area, will be a major boost. It will create immediately about 700 jobs, with a multiplying factor, that's another triple that amount in terms of other jobs related to or indirectly created by. It's very important. So something is happening. What would we have done as a government? Most probably we would have thought about opening the same mine for kick starting the economy. So I think we should look for another word, be it more dynamic or whatever.
. The critical things I think will be tackling specific questions, e.g. socio-economic development, in a situation where over 7 million people live in horrible living conditions, so for me it's a major issue to tackle. In a situation where the 7 million people have a proper road to use, the infrastructure for development. In a situation whereby those 7 million people don't have water borne sewerage it's a critical issue to deal with. Electrification, a critical issue to deal with. And building around the problem of socio-economic development for most of the post-war period. When I was in Washington I went to that place Arlington in Virginia, lots of houses which look the same, red bricks, [the post-war public was ... very important, that kind of thing.] It's going to take place here. It's not going to be kick starting but it's going to be tackling a specific issue, a socio-economic issue, that is one. Two, of course, it will have to continue to dynamise and improve the manufacturing sector because the future is clearly manufacturing. The future doesn't depend on the mines or building houses. You can only build so many houses because there are only so many people. After that you must develop a viable manufacturing sector and it is that challenge of developing that manufacturing sector that we have to deal with. Now how do you go about it? We already have a significant manufacturing sector there. I think it contributes over 25% of the gross domestic product as well as overtaking mining [and other ... a long time ago, in the sixties]. I think with South Africa becoming free and independent and part and parcel of the international community of nations the influence of capital will also play a role in the manufacturing sector. So it will be critical.
POM. Have you made estimates yourself of what inflow of foreign capital might be required to sustain different levels of growth?
TM. Well there are all kinds of estimates going around. I haven't made any specific calculations myself, but if you look at Donald Lachman's calculations, he did a simple calculation and he came to the conclusion that to reach a growth rate of about 4% the investment/GDP ratio must move from its current 19% to 27%.
POM. From 19 to 27%. That would be capital?
TM. That would be investment/GDP ratio.
POM. That would be the proportion of GNP spent on investment? GDP. Is his name Donald Lachman? Is there an article somewhere?
TM. No, this was produced for Economic Policy for a New South Africa, an IMF publication.
POM. That's the figure that I think Sampie Terreblanche came up with some of his work too, around that.
TM. So what is pie in the sky will never happen. But I think he just put in rand terms what others have perhaps put in percentage terms. If you look at the current international capital flows, in terms of the report we just saw from the Bank of International Settlement , the current level of international capital flow is something in the region of 177 billion dollars. Of that over 60%, two thirds is within Europe and a very small proportion of it is going to developing countries. So there's no way that we can expect any major flows. We will have to do something that's so attractive. A German or Japanese investor would normally want to go and invest in Britain not in South Africa. That's the major powers.
POM. Two quick things before we finish. Last year the Nedperm scenario was the rage, so to speak. What was your analysis of their analysis? It has the worst case scenario, best case scenario.
TM. That was too descriptive I think because it tried to channel people in a specific direction, trying to create a bit of scare scenario. But there were some good aspects of it. I came across some analysis by ... Schwartz(?) and he's written a book called The Art of the Long View, an American so it should be easy to get the book. He sent me a copy but I don't know where it is, we're just busy doing my filing system. It's a mess. But his answer is there, I think I agree. One is over focused on - one seems to end up by saying that ... is only once now, we must build houses, so it's been criticised. I don't remember the details of it very much. I hope you will come across the other scenario which has just been finished, which has been done from the University of the Western Cape. If possible make contact with Peter le Roux at UWC, Institute for Social Development.
POM. OK Tito. Will you try to put your papers together as you said a year ago, you were going to publish the collected works of Tito Mboweni?
TM. You never reminded me.
POM. Before I went last year, about 5 times. I didn't write specifically and say ...
TM. You didn't write. I respond to the written word.
POM. You do? You would be unique in here. I want to tell you something, I send out over 100 letters a year, maybe 50 to this building alone and I can tell you ...
PAT. When you get here nobody's heard of you.
POM. If you responded I will keel over with a heart attack! Will you be in Boston?
TM. I was.
POM. You were?
PAT. On a trip, at the same time as the Constitutional Committee.