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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 It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.

Challenging the neo-liberal agenda in South Africa.

The present South African political transition process is occurring within a global context in which neo-liberal economic assumptions are dominant and rampant. Sadly, JEREMY CRONIN argues, these assumptions are having a strong impact on our own domestic situation.

The neo-liberal economic agenda poses a grave threat to the prospects of consolidating democracy and of beginning to address the social and economic crisis in which the majority of our people find themselves. South African socialists have an urgent obligation to identify, unpack and critique this neo-liberal agenda.

It is not just socialists who have an interest in criticising the neo-liberal agenda, but it is particularly from a socialist outlook that a consistent and robust critique is most likely to emerge. This last point is made not from a sense of arrogance, but to underline the huge, collective, socialist challenge in front of us.

Criticism is not enough, we need to be able to provide concrete alternatives. These alternatives may wellbe of a transitional kind, but they need, also, to have their own inherent value. We must be able to begin to address concretely people's immediate needs - jobs, housing, water, health-care, education. We need, also, to be able to popularise and mobilise around both our critique and around our alternative vision.

Clearly, within the space of a brief discussion paper, I can only hope to map out some basic themes for further discussion and action. The first objective is to outline some of the main neo-liberal myths, and to provide a brief critique of each.

This approach can then, hopefully, lay the basis for developing a series of campaigns and projects that can begin to form the basis of a coherent economic transitional programme.


Neo-liberal myth number one: "Export-led growth, and international competitiveness must be the cornerstone of our economic policy". To achieve competitiveness we must rigidly and uncritically comply with GATT agreements and other trade 'liberalisation' measures."

Key problems with this approach

The core problems with this approach are essentially threefold:

. The approach subordinates what must be our central emphasis (meeting social needs) to the imperatives of international competition. To what extent do we have to be internationally competitive? Should this override other considerations - in particular jobs? Given our major structural problems, and given the desperate internal social needs, an export-oriented growth path is unlikely to work (we are not going to compete in many areas), it will not be sustainable, and it will be unjust. (The Reconstuction and Development Programme, incidentally, commits itself to a growth path based on a major internal effort based on rural and urban infrastructural development.)

. I am not, obviously, arguing against exports. But apart from our traditional exports (where a much greater emphasis on internal beneficiation must be placed), we are most likely to have an innovating, competitive edge in reconstruction and development spin-offs. That is, export growth in SA is most likely going to be based on products and technologies that are developed out of our particular mix of assets and challenges. We refer to a civilian equivalent of Armscor's export pitch, hitech that has been tested on the developmental - not military - battlefields of Africa: telecommunications and primary health-care, computer soft-ware for distance education, etc.

. Thirdly, the overemphasis on international competition easily neglects broader challenges and responsibilities - like the need to struggle for a more just global order. We should not, and probably cannot, compete, for instance, with underpaid, non-unionised, Indonesian child labourers in the production of plastic toys for Australia. We should be struggling in solidarity with them.

The compete-or-bust approach consistently holds up the examples of the "Asian Tigers" or Newly Industrialised Countries (NICs) like South Korea, Taiwan and Singapore. In order to demystify this approach we need, then, to deal briefly and critically with the NICs.

The myth of the NICs (South Korea, Taiwan, etc.)

The NIC "miracles" have been achieved on the basis of authoritarian and often brutal regimes. Trade unions have been suppressed and many human rights abuses have occurred. Rapid growth has been secured at an enormous and unsustainable cost to the environment. These societies are class oppressive, unjust, and are pursuing unsustainable policies.

Contrary to a common belief, the relatively successful (from a purely quantitative viewpoint) export-oriented growth in the past decades of these societies did not initially involve the kind of economic liberalisation we are told we must now pursue. Indeed, their success has been based on "command capitalism": a technocratic state elite using subsidies, preferential access to credit, investment incentives and other forms of market-distorting policies and mechanisms, and the suppression of labour.

The practical effect of all these measures was to limit the access of the multi-nationals to the economies of these societies, enabling them to consolidate their own export-oriented objectives. The prime reason why these states were able to carry out such measures, without initially encountering major imperialist opposition, had everything to do with their geo-political location in the front-line at the height of the Cold War.

Which brings us to the next generally unnoticed problem with this kind of export-oriented growth.

In the course of the 1980s, as the Cold War diminished, so the imperialist powers became increasingly intolerant of the NICs - they were no longer front-line allies, but trade competitors. But precisely because the NICs had premised their growth on exports to the imperialist countries, they were now extremely vulnerable to imperialist pressures.

Through the 1980s the US has used a barrage of measures against them ("anti-dumping" legislation, enforced "voluntary export restraints", enforced currency appreciation, and ongoing pressure for greater liberalisation). This is not to say that the South Korean economy is collapsing, but it underlines the vulnerabilities of this path.

To summarise the main points:

. A transitional economic programme in South Africa should be focused on meeting social needs and on international solidarity, not on a mindless international competitiveness;

. The only Third World export-oriented economic "successes" of recent times have been based on authoritarian, capitalist-command systems, that have abused worker rights, human rights, and the environment. This path is neither just nor sustainable. What is more, every country in the world is now being advised to follow the TIC export-oriented path, the space that the TIC countries had twenty years ago simply no longer exists.

. These "successes" have not been built on the kind of economic "liberalisation" we are being asked to implement. They occurred in a specific Cold War conjuncture, and export orientation has left these social formations increasingly vulnerable to imperialist manipulation.


Neo-liberal myth number two: "The key tb getting reconstruction and development going is foreign investment, and in order to win foreign investment we need to send the 'right messages' out to the world."

The "right messages" amount to indicating that we are prepared to slavishly and mechanically follow the neo-liberal economic model, including, liberalisation (see above), privatisation, reducing government expenditure, wage restraint, strict monetarism, and a strong law and order focus.

Most of these neo-liberal themes are dealt with in other sections of this paper. Here we wish merely to note the delusions of this slavish attempt to impress the world.

There are several basic flaws in this approach:

. It is mistaken in its understanding of why direct foreign investors are less than enthusiastic about coming into SA. This wariness has much less to do with high wages, or worker militancy, or communists in the cabinet, and much more do to with the nature of capitalism in SA. As the London Financial Times (18/7/94) (in a survey of SA's investment prospects) observed: the main factor inhibiting foreign investors is "the presence [in SA] of big conglomerates without a proper anti-trust legislative framework." Secondly, and related, foreign private investors are waiting to see signs of South African firms making large internal productive investments. This is simply not happening, as millions of rand continue to be disinvested, or used speculatively on the stock exchanges and in shopping mall development.

. As we have already noted in the case of the Asian NICs, over-reliance on the goodwill of the major imperialist powers is seriously misplaced. Each attempt to please will simply produce more and more demands. Our economic policies need to be based on our own needs, and as much as possible on a struggle to redistribute and restructure existing resources and capacity within our country. We cannot base ourselves on what we presume to be popular in Western capitals.


(Sorry, we'd like to, but we can't.) Neo-liberal myth number 3: "The social and economic programmes envisaged in the RDP are totally unrealistic and will plunge the country into a debt trap. The only answer is a massive slashing of government spending and the privatisation of state resources."

Perhaps the most common stick with which we are hit, in order to persuade us to accept neo-liberal "medicine", is the threat of a future "debt trap" (largely on foreign financial markets), and the present massive existing government debt (largely owed on the local market).

Clearly, it would be demagogic and short-sighted to be carefree about high-levels of indebtedness. Nor should we argue for fiscal indiscipline. However, a great deal depends on what is understood by "fiscal discipline"; and a correct understanding of the present government debt situation and its root causes.

Socialists should certainly not be in favour of a bloated and inefficient state sector. We should be the first to support "fiscal discipline" if it means the effective, efficient and accountable use of public resources, within an overall reconstruction and development programme based on meeting social needs. In its neo-liberal use, however, "fiscal discipline" tends to mean a low (and arbitrary) level of government spending and the cutting back of social spending in the name of "market efficiency". We must resist this interpretation strenuously.

The present government debt is essentially an internal debt. SA's level of external borrowing is not particularly high. The dangers, or otherwise, of falling into an IMF-enforced structural adjustment programme need to be seen against this reality.

However, the internal debt of the government is now very high. The apartheid regime and its state and parastatal bureaucracies have cynically and deliberately allowed the state debt to run away. The massive ballooning of debt can be closely correlated with the NP's decision to negotiate with the ANC in the late 1980s. There has been a deliberate hobbling of the new government. This escalation of government debt from R91,3 billion in 1989 to R221,0 billion today has been fuelled by, amongst other things, a R6,9 billion stock issue to top up civil servants' pension funds, and huge tax-free lump-sum payments. (For example, Pik Botha, received a tax free lump-sum of R560,000, and he receives R180,000 p.a. under his pension scheme, while he is also earning his salary as a full cabinet minister in the GNU - see the London Economist 1/10/94). There is also the debt mountain inherited from corrupt bantustan regimes (R15 billion). This is the real gravy train.

These are realities that we now have to confront. We cannot allow these realities to become an excuse for a whole-sale and mindless privatisation of public assets, or an equally mindless and purely mechanical fiscal discipline. As socialists we reject the idea that socialism is the equivalent of a large, bloated state sector. This is a caricature of our position. We do, however, seean effective and democratic state sector as an important component of socialising and democratising our society, and of removing fundamental social and human rights (education, health-care, housing) from sheer market commodification.

A short-sighted "selling off of the family silver" in order to cover the present government debt must be countered. There may be arguments for selling off the old apartheid National Intelligence Service head-quarters in Pretoria, or white elephant government projects from the apartheid past, or unused government land. There are certainly good arguments for substantial demilitarisation of our society. But:

. We must fight at all cost the selling off of state and parastatal resources that are essential to meeting social needs in the framework of reconstruction and development. In particular, the retention of public utilities like ESKOM, TELKOM, the POST OFFICE and TRANSNET is essential, as is, of course, effective government support for the public broadcaster. (This is not to say that there must not be massive restructuring in all of these institutions).

. In so far as state resources are sold, there is no reason why these should always be privatised. We need to criticise the automatic assumptions about selling off to "the public" (which in practice means the big conglomerates), or to "new black entrepreneurs" (not to mention US Afro-American business interests). We need to advance, where this is practical, other possibilities - housing and farming co-operatives and other forms of social ownership.


Neo-liberal myth number four: "The greatest threat to economic growth is inflation. Inflation can be checked by controlling certain money supply aggregates by mechanically adjusting interest rates."

The current Mission Statement of the Reserve Bank describes as its primary goal ensuring that "South Africa has a vigorous economy based on the principles of a free market system, private initiative and effective competition." In the entire Mission Statement there is not a single reference, however vague or broad, to the general ideals of reconstruction and development.

The approach of Reserve Bank Governor, Stals, is best described as "sado-monetarism", the "dour pursuit of an excessive reliance on variations in the rate of interest to sustain control over movements in certainmoney supply aggregates." (Pillay). The policy rests on shaky grounds:

. the assumption that money supply is being accurately measured, in a world in which there are more and more complex credit instruments;

. that there is an automatic trade-off between price inflation and economic growth.

. that an increase in some (probably unreliable) measure of money supply automatically ends up as an increase in prices;

. this last assumption, in turn, leaves completely out of the picture the role of the pricing policies of cartels on the inflation rate.

Stals has elevated the fight against inflation above all else, regardless of the cost in terms of an already unacceptable level of unemployment and the decline in business activity

I am not arguing against the relative independence of the Reserve Bank. There are good arguments for ensuring that monetary policy is not manipulated by politicians (or any-one else) for short-term tactical needs. We do not want monetary policy being adjusted in unsustainable populist ways on the eve of elections, or to distract attention from a government blunder.

The present Reserve Bank and its governor are, however, not independent. The "independent" policies of the Reserve Bank closely reflect the strategic interests of this privileged minority in our country. Stals's obsessive, one track strategy (keeping the interest rate high) strikes heavily and disproportionately at ordinary consumers and small business. Large corporates, with direct access to the money markets, avoid much of the pain. The essential problems in the South African economy are deep-seated structural problems, requiring major transformation. Instead of working in tanclem with this general policy of major restructuring, the Reserve Bank's "knee-jerk reaction", Millward and Pillay write, "is to pressure the most vulnerable sectors - consumers and small business - by reducing disposable incomes."

We need to campaign for a transformed Reserve Bank board, more representative, and more in tune with the reconstruction and development needs of our country.


Neo-liberal myth number 5: "Wages are too high in SA, the militancy of workers is a major disincentive to foreign investors, workers in SA are an elite whose wage demands diminish our ability to implement the RDP" ***

First, some basic facts:

. Average hourly earnings in South African manufacturing (including wages and salaries) are less than one quarter of the average paid by the top ten developed countries. They are also lower than (about one-third of) wages paid in newly industrialised countries (NICs) like South Korea and Taiwan (according to the World Bank).

. The National Productivity Institute recently estimated that 60% of these average earnings is made up of salaries (management and white collar workers), the remaining 40% going to blue collar workers. In a similar vein, if we plot the average on a racial basis, it is clear that the average white earnings are high by international standards. If we make the reasonable assumption that the majority of whites in manufacturing are supervisors and managers, then it is clear that these categories are indeed overpriced by international standards. The same simply does not apply to the mass of black workers. As Lael Bethlehem and Neva Makgetla conclude: "it is impossible to maintain the argument that unions are 'pricing SA out of the market'.

But what about the productivity of South African workers?

It is true that South African workers are, generally, not highly productive. But "productivity is not simply a measure of how hard people work". In SA productivity is low because of a whole range of socio-economic factors, the legacy of apartheid and a brutal brand of capitalism: poor education; long distances between work and home, and poor and dangerous transport; authoritarian, racist, sexist management practices; lack of motivation, and lack of advancement possibilities for the majority of black workers, etc.

To blame workers for low productivity, and to call for "belt tightening" in the name of raising productivity, misses the key point. Workers will have a meaningful contribution to make to productivity when they are able to influence decisions ranging from investment plans, to eliminating waste and defects in the plants. The road to improved productivity is overall socio-economic transformation, and greater workplace democracy.

But are higher wages bad for the economy?

This is certainly the view of Leslie Boyd, the deputy chairman of Anglo American Corporation. "I can't think of an example in the world," he argues, "where higher wages have pulled up the economy. Actually higher wages depress the economy." Boyd is ill-informed. There are several significant recent examples of higher wages playing a key role in economic growth:

. The lift-off of the Chinese economy (which has grown nearly 400% since the reforms of 1978), was based on a deliberate policy of increasing wage levels in the state sector, and generally improving living standards of the population. These improvements in living standards created a market for the new private and cooperative sector.

. In Singapore the government recently imposed massive wage increases in the manufacturing sector, successfully encouraging manufacturing to move into high productivity areas (E.Patel, Worker Rights, 1994, p.13).

. Italy offers a similar, if less planned, recent example. Michael Porter argues that Italian industry, reliant on low wages and subsidies in the 1970s, "upgraded when pressure built to jolt it from this path. Wage escalation, a rising lira, the threat of low-wage NICs, and globalisation forced Italian industries to seek more sophisticated forms of competitive. advantage...[as a result] Italy has emerged with a vibrant economy in the last two decades." (Competitive Advantage of Nations, 1990, p.449).

I am not citing any of these specific examples as "models" to be followed in SA. I am using them as empirical arguments against the belief that low wages are the only route to economic growth.

The Poverty Crisis

A central factor in the present overall economic crisis is, precisely, the Poverty Crisis. According to Isaac Sam of the World Bank: "SA is among the world's most unequal economies, with 51% going to the richest 10% of households, but less than 4% going to the poorest 40%. A growth which fails to contribute more broadly to improved economic welfare will not be politically sustainable." (Business Day, 15/8/94).

It is precisely a low-wage growth path that is now in deep structural crisis in our country. This is not to say that a simple increase in wages for blue collar workers will solve all our problems. Obviously an overall reconstruction is required. But we can only concur with the World Bank's resident representative in SA when he asserts: "to suggest that labour should bear the brunt of adjustment through reductions in real wages is directly contrary to the sub-stance and spirit of the document's message". (Isaac Sam,Business Day,15/8/94. Sam is referring to the World Banks's recent Reducing Poverty in SA: Options for Equitable and Sustainable Growth).

The strategic location of employed workers

There has been a concerted attempt by our strategic opponents to drive down workers' wages and to marginalise trade union struggles, presenting them as "elitist", as selfishly eating up resources that would "otherwise go to the RDP".

I have already challenged the idea that the RDP cake would be bigger if wages were suppressed. But there is more at stake in this matter. Clearly, employed workers have relative advantages over the millions of unemployed. We have never argued that workers were the most marginalisecl, or the most poverty-stricken. It is precisely because of the double reality of massive exploitation and relative advantage (strategic location, collectivisation by the capitalist production process itself) that we have all along identified the industrial working class as the leading class force in the struggle for transformation in our country.

And it is precisely because of the strategic location of workers within the main-line economy that capital is so anxious to marginalise and disorganise trade union struggles. Big capital is very happy to confine the RDP to do-good efforts in the most marginalised communities, while maintaining the monopoly over ownership and control in the main-line economy. As Anglo's Leslie Boyd puts it graphically: "I believe in democracy but I do not believe in work-place democracy."

We need to unleash a major effort at economic restructuring and democratisation. The trade unions and workers generally have a key role to play in this transformation struggle. Capital wants us to side-line our principal social force.

The range of neo-liberal myths we have been considering all seek to drastically limit the possibilitiesfor significant social and economic transformation.

These myths seek to make the working class and broader popular forces pay for what little social and economic change occurs.

They are all designed to weaken popular forces, and divert attention away from the critical need to wage class struggle for effective redistribution, and for the reconstruction and democratisation of the economy.

This resource is hosted by the Nelson Mandela Foundation, but was compiled and authored by Padraig O’Malley. Return to theThis resource is hosted by the site.