About this site

This resource is hosted by the Nelson Mandela Centre of Memory, 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 It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.

16 Aug 1991: Bethlehem, Ronnie

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Click here for Overview of the year

POM     You were beginning to say that you can measure your own change in the last year.

RB     We're talking in the context of how people involved in the situation have changed and I am aware of how much my own thinking, if I may put it that way, has changed and I can measure it because I am involved in the process of doing presentations to people and I therefore have the recordings of either papers that I've written or the transparencies of overhead presentations that I've done and I'm very aware of how different the presentations that I'm doing now are from what the presentations were a year ago or a year before that. I'm aware of how, in a sense, my own view of the economic situation has become fuller and, for want of a better word, has matured in the process of the debate. Nevertheless, I do feel a little bit like Julius Caesar when he said, March is behind us, it was too close to the Ides and his assassination, when he said, "I am constant as the northern star and constant do remain." Do you remember that passage? And I feel, notwithstanding the change that I've undergone, I feel in a sense kind of vindicated because the position I took in the book that was published in 1988 and even reading it now it stands up well against that and the various presentations; I can dip back into the old ones and use things because the basic message that I've been trying to convey in the debate has been able to stand up against criticism and what I've found is that other people have come closer to the view that I seem to occupy. It sounds very arrogant.

POM     It's all right. Caesar was arrogant too.

RB     And he got assassinated! The unkindest cut of all is yet to come.

POM     In a couple of years from now you will be saying, "To O'Malley."

RB     But if I may put it to you, the one transparency that I've just asked Peter to make was conceived in a meeting with the Reserve Bank yesterday. We had a meeting between SACCOB and the South African Reserve Bank and I, being the Chairman of the Economic Affairs Committee, was there and at one point somebody on the Reserve Bank side raised this question of the economic debate and ANC and their positioning and so on and I was drawn in to actually give a picture of how the economic debate had evolved and I did it very briefly, and I've now converted it into a transparency to be used in a presentation that we're doing on a growth and development strategy for South Africa. Basically it has four tiers. The first tier stage of the debate is growth versus redistribution. That was the state we were in when I first met the ANC in Lusaka in 1989 when Joe Slovo in a discussion that we were involved in said, "Look, we don't want to disturb this thing too much. We realise that there's a kind of delicate balance." It was by implication, he didn't use such a word, but that was the implication. "But so great is the poverty and so great is the deprivation and so huge is the inequality that our focus has to be on transferring from haves to have nots. And that is it. That's the position we're in." And business, and even Government people were saying, "But the only way to deal with this problem of deprivation is to get this damn economy growing because the economy is declining. We need growth you see."

     So there was a locking in of a conflict situation. The one side was saying "Growth" and the other side was saying "Redistribution". Then the ANC as one party started to move away from that. They could see the futility of this confrontation and they were saying, "Yes, OK. What we're saying is you can have growth but you will only have growth if you redistribute." So it became at the second stage, from their point of view, growth through redistribution. If you start redistributing you're going to make it possible for this economy to grow. And we latched on to that by saying, "Yes, we need actually to restructure, not just the economy, but the body politic becomes an essential pre-condition for restructuring of the economy." And so it's a comprehensive kind of thing. So we are now then, both of us, into this argument about growth through redistribution but the more conventional or neo-classical economists particularly hanging back and saying, "But, it is growth that is the thing that would provide the major benefit." And the other side now coming back and saying, "But when you look at the kind of growth that South Africa has had in the past that trickle down has been very disappointing. When South Africa had a high rate of real GDP growth it had a low rate of employment growth. And therefore it's not sufficient to argue growth."

     So now we're into the growth through redistribution or redistribution through growth tiers and we're moving, and I've always been at the bottom end of it in a sense, although not as explicitly as I am now and that's what the debate has done for me. That's how my evolution in all this has been because it has forced me to articulate beyond that futile debate, growth through redistribution and redistribution by growth. What is really necessary? And what is really necessary is a comprehensive national growth and development strategy and the emphasis is on growth and development. You can't have growth without development and you can't have development without growth. Those are essential ingredients.

POM     You're using development in the sense of?

RB     If I may say, development economics is a very special area of economics. And the people who reside in the area of development economics tend to be social engineers in their basic thought processes because they are not now dealing with individuals, they're not dealing with micro issues. They are dealing with the macro economy and they are thinking in terms of the shifting around of macro resources. And in a sense even though they, and many of them will resent this terribly, in a sense they are not very different from old Verwoerd because old Verwoerd was a social engineer, sitting back from the economy, not examining basic motivations of the individuals but looking at the economy as an aggregate of demand and supply and resources and population and skills and money and saying, "Well you want to get the thing moving, you need to move resources from here to there" and that's exactly what Verwoerd did. He said, "You want to have our vision of what South Africa should be, we'll just take these black people and lift them from one side of the country and put them somewhere else. Whether there's a tap there for them to drink water or not, I do it." That was a pretty dreadful demonstration of what social engineering is about.

     But in a sense the development economists are in danger of drifting into that kind of mental mode and what I'm trying to argue with regard to the growth and development strategy is that for South Africa the economy has to be a market economy. And it's not that South Africa has a choice. We don't have a choice. It's easier now to argue that. It wasn't so easy in 1989. It's easier now to argue that because Russia and Eastern Europe have collapsed and the whole experiment of central planning and command economy is in discredit. I'm quick to remind my business friends that government intervention is in discredit also in western countries, not only in the socialist world that the role of the state is questioned today. And business people, if I may say so, don't like markets. They like to try and find ways of suspending the judgements of markets and the disciplines of markets and the punishments that markets impose for taking the wrong decisions. And that's why you have anti-trust because you have people who conspire against the market at the expense of other people.

     So the market is an impersonal thing. It can be manipulated very often by crooks, just look at what's happening in Japan right now. It's not beyond abuse, but it's very important because the market is most importantly not just a place where people exchange, where buyers and sellers come together and exchange but they do so at an agreed price and when prices move it reflects the change in the relationship between demand and supply and when prices move and they are seen to move information is disseminated. The important point about markets is that they disseminate information. They are generators of information into the economy which other people receive and then use to adapt their expectations and their plans, etc. That's the importance of markets. And if a government goes into a market and controls the market or suspends the market, it's as bad as shooting the messenger with the bad news because he'll never get the information then in the future that he wants if he does that. And governments that interfere with markets distort them. The market gives them the information, not what they should have, but the information that they want to have and that leads to bad decisions when it comes to allocating resources. And it becomes very complex when you have cross-subsidisation and all sorts of things through the economy and that's why globally there is this withdrawal from that sort of thing.

     So we've got to try and argue this now into the South African debate and it's easy to do so in a number of ways, and one can do so in a number of ways, because South Africa is a small country. It trades over 55% of its GDP. The critical variables for the macro economy are exogenously determined. They are not determined by any South African government. They will not be determined by the ANC. They will not be determined by a power sharing government. They are not determined by the present government. And our experience, to the extent to which we've had economic failure and policy formulation failure, and we've had big doses of it, has been when the judgements of the global market have been ignored. The 1980's, for example, is a history of that with the collapse in the gold price, the constant belief that the gold price was going to recover, the failure to adjust to what was happening, the attempt to deal with problems of the balance of payments by borrowing because the gold price was to recover and take you out of the trouble that you were in. And one thing led to another. We did not receive the messages. We did not make the adjustments that were necessary in view of the changes that were occurring and we made a wholesale mess of our economy and I don't think that there is an economy in the world that had such resilience and had such potential and South Africa demonstrates this by performing in producing surpluses on the balance of payments for extended periods of time in the most adverse circumstances. But I don't think that there's an economy in the world that is operating so below its potential because of the failure on the part of policy makers and administrators and even the business sector to make the adjustments that are critical and necessary.

     Coming back to the point, the most important variables that affect policy, macro economic policy, are not determined domestically. The exchange rates, the import prices and the export prices, the interest rates, all these things are determined by global markets that are fluctuating every minute of the day. And therefore it's a matter for South Africa to adjust to that, not for South African policy makers to think that through intervention, through the manipulation of the exchange rate which is in the interface of South Africa and the rest of the world, that we can adjust the rest of the world to us. The important thing is going to be to try to persuade the ANC and other people who have dirigist vision of how to manage a macro economy, that this is a critical discipline and a critical reality that they have to come to terms with. I think though that there is a measure of success in this. It's helped by what has happened in Russia. It's helped by what has happened in Eastern Europe. But still there is that problem, the problem of that huge deprived constituency out there that needs its problems to be addressed. In a sense this particular transparency, which is not going to come out on your tape recorder, sums up a big dimension of our problem. We've got a rural dimension. We've got an urban dimension in South Africa. We've got a net population transfer from rural to urban. And there is the danger of that population transfer overloading the urban industrial area.

POM     That's growing at about 72 per cent?

RB     The black urban population is growing at over 72% per annum and one needs - well I've mentioned these figures before to you in a previous interview so I'm not going to repeat them now, but that's a huge burden. And in a sense the problem can be summarised as follows. In terms of a picture of let us say three or four drowning men. They're off shore, off the beach and they're in trouble and the lifeguard has gone out to save them. One thing for sure is that if those drowning men all descend upon the lifeguard simultaneously all four of them are going to drown and the lifeguard will drown with them because he can only save them one at a time. And he can't go out there when he arrives and tell them, Gentlemen, I can only save you one at a time and therefore I'll take one now and I'll come back and get the others. The others are going to be so desperate in their anxiety that they won't be there when he comes back to fetch them that they are not going to reason with him. They will be grasping desperately to clutch on to him. So he must know that that's the situation that he's going to confront when he gets out there and that he had better go out there with a few pieces of wood or inflatable objects so that he can leave them hanging on to this while he takes one back at a time. That is what we've got to do to prevent the overload of this because the industrial economy is going to be the principal salvation of South Africa.

     And in a sense what you've got to do in order to alleviate this pressure is when you formulate a growth and development strategy in a market related context, you can't just think in terms of industrial strategy. You can't just think in terms one-sidedly of a strategy for the urban industrial first world dimension of South Africa. You've got to formulate simultaneously a strategy and relate it to a strategy for rural upliftment and development. Not that you want to stop that net population transfer. On the contrary, you want that to continue because in a sense the one thing that the black dimension of South Africa is productive about, it is very productive in population increase. It produces people in the rural areas not unlike any other country in sub-Saharan Africa or in South America. People have got nothing else to do and there's a lot of population pressure coming out of this. When there's a heavy drought like there was in the early part of the 1980s that compounds that flow from there to there because people don't want to starve alone. They would rather starve together with a lot of other people because there's more chance that there will be some response to their needs in such circumstances. So you've got to formulate a rural strategy simultaneously with an urban strategy. The two are inter-linked. Very important. You cannot neglect that one. But that is South Africa's economic position in a nutshell.

POM     Now do you want to slow down that rate of transfer?

RB     Can I just say this? There's a dreadful danger here. I mean I had to check a colleague of mine who is busy writing something that JCI's going to put out in the form of the Chairman's speech and he was saying that what we need to do is to de-couple the urban and the rural South Africa in order to save this from overload. And I said to him, "Just be very careful because that's exactly what Verwoerd was all about. Verwoerd wanted to de-couple it for different reasons. You're concerned about the failure of the economy. He was concerned with what this rural inflow into the urban areas would do to the established European civilisation in this part of the world, that the urban areas were white, they were the extension of Europe in Africa and Verwoerd wanted to defend that from a black rural invasion that would change it's character. You've got a different motivation. You don't want it to be over-loaded industrially but if you talk in terms of de-coupling you're talking about separate development at best or apartheid at worst and therefore there's no question of thinking of the rural and urban as apart because a lot of these people, these black people, who have made that journey from rural to urban South Africa still have family here. They are not separated. They have an intimate connection with that. They float backwards and forwards between that all the time. It's a matter of getting the balance of development right.

     But there is the danger that overload could threaten the rate of growth of urban industrial South Africa. And what one wants to do, I don't like to talk in terms of optimisation because it's a failed concept in many respects, what do you optimise and what time frame do you optimise and so on? But what you want to do, whatever your time frame, whatever it is that you're talking about, whatever the trade offs that you're talking about, that you want to get the optimum growth out of urban South Africa, and you can only do that if you simultaneously address the needs of rural South Africa too and create employment here and opportunities for personal development here that can bring that balance.

POM     You want to slow down the rate of growth of the transfer?

RB     Yes indeed, but not with the ulterior motive of what was in the mind of Verwoerd or even what is in the minds of people who have other such notions. But in order to enable this, I don't want to reduce the pressure entirely because it's under pressure that you get the development here, but you need ...

POM     But you want to relate it to some kind of ?

RB     If you have a policy of benign neglect as far as rural South Africa is concerned, what will tend to happen is this, that the rural dimension, I think the ANC would agree with this because they have a concern about the development of rural South Africa, but I think it needs to be conceptualised in the way in which I have done that. If a man from Mars descended on South Africa, who has none of our racial prejudices because he's a little green guy with antennae sticking out of his head, but he could undertake a rational evaluation of the situation, I believe that it wouldn't be very far from what I've just described.

POM     So would I be correct in saying what you want to do is to develop a rural development policy that would slow down the rate of transfer of the population to make it more compatible with the absorptive capacity of the urban sector. That you don't overload, but at the same time you keep pressure on.

RB     Yes. I think you've summed it up correctly but I don't like the way you've summed it up because there is the emphasis on the negative. I am motivated to do for the rural because I'm concerned about the industrial and I'm a self-interested capitalist exploiter and I live in here. I think that we need to see it in terms of a balanced development strategy. I would like to leave it on that basis. Also if I may say so, Padraig, one must make a distinction between policy and strategy. We are going to have to restructure our economy and we are restructuring indeed our whole society and that restructuring is being driven by population growth, demographic shifts in population and a need to maintain South Africa's relevance as an export into the global economy, it's competitiveness in there. So political and economic restructuring are inter-twined. We've got to restructure society. But I think what this guy down here illustrated, that you do not actually restructure through policy. You restructure through strategy. It's not that policy decisions do not have some impact on restructuring, of course they do, but the most import impact is via their reinforcement of strategy. What is the difference between policy and strategy? Strategy is concerned with the long term achievement of goals, of objectives. It's concerned first with the identification of long term objectives and their realisation whereas policy is very much more short term orientated. In South Africa's case because we're on the threshold of a major political restructuring policy and strategy, the critical relationship is very much greater. You cannot do anything in the policy area now without knowing that it's going to have an impact on strategy or without knowing that strategy might change. The strategy of this government, the F W de Klerk government, is different from the strategy that is going to be of the future government. Let us assume, I'm pretending to be realistic, that it's going to be a power sharing government in the transition, with the ANC and the National Party as major participants.

POM     When you say transition you mean in a government post new constitution?

RB     No, no. I think that what is going to have to happen is that out of the Multi-Party Conference will come a transitional government under the umbrella of which the negotiations on the new constitution will take place. So I envisage a transitional government in place before there is any agreement on the new constitution and indeed before even the formal negotiations on the new constitution have started. I think that's necessary. That's implied in what the ANC is arguing for in terms of an interim government. The National Party has a difficulty with that because they see that as a call for their abdication and their replacement by something else with a different constitutional basis and De Klerk is saying you can't do that. We are the constitutional government and until there's an agreement on the new constitution our constitutional authority must prevail but we are prepared to find some transitional mechanism to accommodate your, in inverted commas from an NP point of view, your "valid" criticisms of our not being able to be both referee and participant at the same time. I think it's not beyond human ingenuity that they will find a way to satisfy that so that a transitional government of national unity will come into existence and it could be in existence before March next year. I would like to suggest that if all goes well the Multi-Party Conference will have been instituted in September or October, or maybe latest November. If that were to happen we could have a transitional government in place before March 1992 so that the next budget that is delivered, even though it might be Barend du Plessis who is delivering it, the next budget that might be delivered might be delivered by a government of national unity. And that's very important. And that brings strategy right up to policy because that government is going to be concerned with taking strategic initiatives in order to achieve these basic transfers from haves to have nots, the restructuring that needs to take place.

POM     Like for example? How would the strategy of that government differ from the strategy of this government?

RB     This government is too locked into, at best, a neo-classical mould. If I may, are you an economist? If I talk about neo-classical economics you know what I mean? But it's very much the economics of econometric models. We are into a situation where we don't know what the future is going to be and we don't know how the model is going to change because we're in the business of changing the coefficients of that model. So if we were to try and get answers from our existing econometric model as to what would be the consequences of certain initiatives that we have in mind, the models wouldn't be able to tell us. And we have to go into it with that kind of humility. But we do know one thing, that if we do not grow jobs, if we do not close the gap between real GDP growth and employment growth and in South Africa real GDP growth in the best decades for years has always been higher than employment growth. Employment growth has always under-performed relative to GDP growth. You've got to,, as a matter of policy and strategy, close that gap. We've got to do it in a market related way. We can't go in there and say "You naughty boys. You've been investing too much, you industrialists, your businessmen. You've been investing too much in machinery and equipment without regard to job consequences. Therefore now you must take directives from the state." You can't do that. The only way to do that is to do it through incentives and that means that the state has to have a sense of awareness of the role of the market and how it can intervene, not by suspending the market but by influencing market forces either through its own direct participation in the market or by adjusting the institutional framework within which the market works. Markets are not neutral, institutionally neutral or ideologically neutral things. They operate within a framework that is political or institutional or ideological.

     The important thing though that is when you've set that framework you've got to allow demand and supply to do their work. If you want to influence a price in the market, if you're the state, the way to do so in my opinion is not to go and regulate what the price must be but rather intervene in the market and subject yourself to the discipline of it so that if you set the price incorrectly you take the punishment that the market then dishes out. For example, if you want to set the price of maize at R100 a bag, you'll buy at R98 and you'll sell at R102. If you find that you as the state are now accumulating too much maize then the thing to do is to lower your price and you send a signal to the farmers and you say, "Gentlemen, at this price we are delivering too much maize, more than the domestic market wants, more than the international market can take and therefore .." What we do at the moment is that we fix a price at the beginning of the season and at the end of the season when the maize is delivered if there's an oversupply or an undersupply, a profit or a loss, the farmers get what is called an 'agterskot', something that comes after that, and once a year they fix the price. But if the price of maize was moving every week or every day because the Maize Board or the government agency that was concerned with it in some way, with this regulation of the price or smoothing of the price, they would be getting their messages. They would be diverting their production away from maize to production of sorghum or something else. We wouldn't have so much land devoted to the production of maize when it's not even justified. We're subsidising farmers in a huge kind of way. They owe 16 billion rands worth of debt. We're in profound .. (can't write that down there what I've just said.)

POM     I've got the sentiment.

RB     The four letter word that I used silently.

POM     I'd like you to talk a little, or do you have more of this kind of presentation?

RB     No, no. Well these are new transparencies that are going into a presentation that I am doing on the question of a growth and development strategy in southern Africa. I'm working on that now and have been involved in showing it to ANC and government and business people.

POM     There are a couple of things I'd like you to address. One is, one does hear a lot about the need for a market economy and yet if one takes the statistics that are available, the oft repeated one of four or five conglomerates controlling the shares traded on the Johannesburg Stock Exchange and over 80% of production and output through a network of interlocking companies, which is really the furthest thing possible from - South Africa is not a market economy. Must these be broken up?

RB     Must the conglomerates be dismembered?

POM     Broken up? Or can you do that when they're multi-national?

RB     I'm very familiar with this particular thing and I'm going to try and be as objective as possible. I believe what I'm saying to you. I'm not now going to be giving you answers which my employers would neatly require me to say because we are a company, we are one of those conglomerates. We happen to be older than Anglo American but they do control us, they have 51% of our shares and the important strategic decisions in JCI are taken at 44 Main Street and nobody doubts that. I think that there is a lot beyond that. I think there's a lot of misunderstanding as to how much there is a corporate conspiracy going on with regard to price fixing, inflation and all the rest of it. I'm very sensitive of course to the ANC calls for the dismemberment of the conglomerates or at best their regulation by pretty punitive anti-trust action.

     Now, Pat, I know you come from the Democratic Party and therefore your inclinations I suppose would be perhaps a little bit away from some of the things I'm going to say. I think there's a place for anti-trust but in South Africa's case, we're not the United States, we need anti-trust here, we need anti-monopoly legislation here. We need to ensure that people behave properly and don't exploit consumers. We have a more effective lead than perhaps you do in the US to make sure that that doesn't happen and that is by opening our economy because we're small in relation to the total global economy whereas you're very big in relation to the total global economy. Unless you do that through anti-trust you might not be able to do it at all. Whereas if our economy were to be opened, if consumers here could satisfy their needs from any producer in the world, not just a local producer, the local producer is going to have to toe the market line and be disciplined by the market. So there's a lot of scope for actually introducing the kind of discipline and protection of the consumer through the pure process of opening the economy.

     Let me just put the picture to you, however, before developing this argument further of what a company like JCI has to face in terms of its own strategic decision making and I think that might help you to understand why I have the view that I do have. South Africa is a small country. The conglomerates, or the mining companies, the mining financials (we've always called them mining financial companies) they've tended to conglomerate in recent years but there's a reason for that. The mining financial companies like JCI and Anglo American operate within the context of South Africa. At the present time because of exchange control they cannot operate beyond that unless they are able to shift funds abroad. Some of them have over the years established some overseas presence but predominantly they are South African companies. Assume, however, for argument's sake, that you've got a mining financial company that is focused only on mining inside this insulated economy, if you do not allow it to go abroad to exercise its talent as a mining company in an international setting you force it to do one of two things. You force it to say to its shareholders, look here, either we are a manager of wasting assets, mines are wasting assets and know this, we are managers only of wasting assets. Therefore, you, the shareholders must amortise your own investments. You must realise that what dividends you receive from us and the companies in which you invested, you must amortise those investments because at the end of the day there's going to be nothing left. That's your responsibility as a shareholder. That's the one possibility. The other possibility is for the shareholders to tell management, we want you to do that amortisation for us because we're not as technically efficient to do it. Therefore, we impose on you a strategic obligation to amortise those investments for us. Now if we've run out of mining opportunities in South Africa as we are now beginning to do, then the retained earnings must be used to diversify away from mining into other things. As part of the process of the survival of the enterprise, because that's the requirement of the shareholders, you have to conglomerate. The alternative to those two choices is to say, look, we are a mining company first and foremost. If you examine our strengths and weaknesses, our strengths are in mining. Our strengths are not in retailing or in beer manufacture or in anything else. We can make our best contribution by adding value, by exercising our strength as mining engineers and mining managers, and we can mine as well in South America or in the United States or in the Urals as we can in South Africa. Therefore, we must go abroad and do that.

     Now if you see South African mining companies as global players they are not big. Even in the context of South Africa, Anglo American is not a big company. If you take the fixed capital stock of South Africa, the statistics are published in the Reserve Bank Quarterly Bulletin, and you can quickly work out roughly from the published figures what the current money value is of the fixed capital stock of South Africa, and you take that figure and you work out the percentage that the Anglo American Corporation's contribution is to that fixed South African stock you will find that it is less than 6%. In terms of the totality of the South African economy Anglo American is not that big. The major part of that fixed capital stock interestingly enough is owned by the state. The ANC, were it to nationalise Anglo American would just contribute to the state ... And (the man who published this Who Owns Whom book in Cape Town) that argues that Anglo American owns 45% or controls 45% of the shares listed on the Johannesburg Stock Exchange, that is deceptive in a number of ways. It's deceptive because there's no direct control of Anglo American of some of those companies that it has an indirect linkage to. The first point that needs to be said, these companies operate in relative independence, almost absolute independence of Anglo. They are not told what to do in terms of their pricing or what they should buy and sell and even what their strategic decisions should be. JCI is much closer to Anglo and therefore a big strategic position may be taken by Anglo together with the JCI Board and the Anglo view may prevail. But that's beginning to change in any event. I think the way in which things are moving it's forcing JCI to be more independent and to take strategic decisions without the approval, necessarily, of Anglo American.

     But also one needs to say apropos the Stock Exchange that the Johannesburg Stock Exchange doesn't represent the totality of business in South Africa. There are huge enterprises and hundreds, nay thousands of enterprises, that are important and growing that are not listed on the Johannesburg Stock Exchange. So, again, I think there is a tendency to distort the importance of Anglo. We all do it, we make jokes about it. You either work for Anglo or you work for the government in this country. One way or another you've got a connection with the two and sometimes it seems true to say that. But I think one can get too alarmist about that. Certainly Anglo is not big in a global context. If it's going to be an international player, if it's going to stand up against other multi-national companies, it's going to have to have - I think it's in South Africa's interests that it should have multi-national companies that are South African based that are playing the global economy, particularly bearing in mind the way in which the global economy is restructuring, where you have regional consolidations occurring and the EEC, I'm talking about the free trade association between Canada the US and Mexico and I'm thinking of that and other regions. Southern African is going to have to find its future, and South Africa as part of Southern Africa, it's future in relation to this restructuring global economy and it's going to be in the interests of Southern Africa and South Africa in particular to be strong in relation to other regions and to dismember big companies like Anglo American in the South African context could be shooting ourselves in the foot. It could be against the interests of this region to do that, to weaken them in terms of the global competition.

     So, yes, we need anti-trusts, we need to make sure that these chaps are investigated, that if there is some sort of unwritten conspiracy that's going on that is making a contribution to our structured inflation rate, yes, apply anti-trust, apply monopoly regulations against them. That is fair. But don't as a strategy set out to dismember them because that could be counter-productive and certainly against the interests of the region and of the country in particular. So I would strongly urge that the ANC re-think that just as I would also urge on the matter of privatisation that it is necessary to control the extent to which the state is beginning to crowd out the private sector in South Africa.

     We had a very rapid, under the National Party over the last 20 years, a very rapid growth of the state's share of the total GDP expenditure particularly and that that needs to be limited and that privatisation has a role to play in this respect. Now I understand the reservations that the ANC have against privatisation, particularly the reservations that are concerned with the transfer of racism from the public sector to the private sector and also their concerns about exposing people who are under-developed to the hard competition of private enterprise when they are not ready to meet that competition. I think these are legitimate concerns and I think they can be handled. What we need to argue, I think, is that privatisation becomes an important way to democratise South African society. The market is a democratic instrument. People who participate in the market vote and by expressing their preferences they are voting for or against and it's a very important democratic instrument and needs to be encouraged. We need to address the problems of our market deficiencies in terms of the under-empowerment of a great number of our people to effectively participate in markets and that is where state intervention becomes terribly important to identify.

POM     Just quickly, you mentioned the mining industry and it being a wasting asset and the redundancies in the mining industry every year running in the region of 40,000 workers being laid off on an annual basis and no new mines are being opened up, the cost of drilling is becoming horrendously expensive and if the price of gold doesn't move I think some people say that in 30 years South Africa will be mined out in terms of gold. And yet you see this kind of historic agreement between the unions and the mineworkers that seems to promise very high wage increases.

RB     If the gold price recovers.

POM     If the gold price recovers, but in the longer run will unions be prepared to tie the standard of living of their workers to the price of one commodity on a world market?

RB     Padraig, let me just say, apropos this, we have a mine, JCI, Randfontein Estates, it's over 100 years old now. When it was first established it's life was thought to be something like 14 years and in terms of the published reserves of the company it has never had a published life of more than 20 years. It's still going strong. We're still opening new areas. Whether the gold mining industry survives into the next century will depend on what happens to the gold price and that again depends on what happens to global inflation and depends what happens to the world. I'm not a determinist. I don't believe that one can forecast. Short run forecasting is difficult enough. Long run forecasting is just about impossible. The world will be what it will be. However, we've got to face a reality. We have got gold reserves. If you took any of our mines and put them in Canada or in the United States they wouldn't open up. The cost structure in the US and Canada would be far too high for these mines to be operated at the given state of technology. If we want those mines to produce then we've got to have the right cost structure for them to operate and this agreement that has now occurred in the mining area is a very important one because it acknowledges the necessity for costs to be realistic in relation to what can be produced at a price or sold at a price. It brings revenue and costs into a proper relationship having regard to the needs of employment and all the rest of it. We have watched, in the mining sector in particular, but also in the South African economy as a whole, given the importance that the gold mining industry has had to the South African economy as a whole, we have watched our cost structure shift upwards in a perverse kind of way undermining the viability of our economy. Every time the gold price went up the cost structure followed it upwards because it was a windfall to the country and everybody wanted to participate in that windfall, and the end result of everybody's wanting to participate in it was that the cost structure moved up. But then when the gold price collapsed the cost structure wasn't flexible downwards and that meant that either you had to accept cuts in wages or you had to find some other adjustment mechanism and because of the nature of trade unionism and the confrontational industrial relations that we have in this country, like you have in yours, there was resistance to taking nominal cuts in wages and that meant that the only way we could solve that problem was to find some other macro mechanism for adjusting and that was to allow the currency to collapse so that the rand price of gold could be increased relative to the dollar price of gold in order to restore the lost profitability of the mines because if that had not happened then the mines would have had to go out of business.

     We let that happen on successive occasions in the 1970s and 1980s only to find that it had a compounding cost/push effect on our inflation rate and inflation itself started to be a threat to employment. So we couldn't escape in the end the necessity for adjustment in the gold mining industry unless we want to pursue the policy of imposing upon those people who are least capable of bearing the burdens of deprivation or unemployment that burden of adjustment. In other words you say to people living very close to the poverty datum line, "You are going to be the candidate to carry the burden of adjustment for the whole of our society. You have got to go out there and suffer unemployment so that all of us can keep our jobs and keep our high incomes." It comes back to something that the IMF, a point that they made in the discussions we had with them, in talking about this they said, "People in South Africa have got to realise that it's a question of relative wages, wages relative to the price of gold, wages relative to the price of labour in other countries." South Africa cannot have a high labour cost relative to the prices of the things that it is selling into the global economy or relative to the international costs of labour. If you want to preserve those labour costs at an unrealistic level the end result is that you're going to have unemployment and we can't afford unemployment, not given our population growth and not given the demographics that we've experienced.

POM     Two last things, Ronnie. One, the tax base of the country. It's a narrow tax base and the rate of taxation is extraordinarily high even by European standards. How narrow is it and how high are individual rates and what leeway is there if there is any leeway at all for increasing personal taxation?

RB     Well let me say this, I think that this is an extraordinary problem of South Africa. There's great inequality. [We have a very high ... efficient.] We're all aware of that. We're aware of how high the incomes of white South Africans are relative to black South Africans for example. Yet if we make international comparisons white South Africans, white business executives are not paid all that much compared to, say, the United Kingdom or Britain or other developed countries. We're dealing here with a mobile population. A population that is critical in terms of its professional and other skills and particularly the young members of it have the option of getting jobs in other countries unless you want to put an iron curtain around South Africa. So we've got a difficulty. We need these people and we need to keep them here and to offer them inducements to stay and to be hopeful about the future. They carry a very big burden of tax and there is a limit to the extent to which you can increase that tax burden without provoking a withdrawal of their skills from this country. The tax base is very narrow. How do you extend it? There is in other words, in our case there is a tax constraint on what you can do. Now you may argue that you can increase the tax level on the white population or on the more privileged elements of this population, not just white, but even if you could do it to a limited extent there is a limit to the extent to which you can do that. If you push it too far there are going to be lots of counter-productive responses.

     I'm not uptight about that because I think that there are other ways in which to solve this problem and they are internationally respected ways. Even Nelson Mandela in a recent interview with Stanley Uys published here in The Star acknowledged this problem of the tax constraint, that you can't - people will up and go where taxes are lower if you try and overtax them. Mandela made that point and I think he's correct in having made it. And I'm encouraged that he made it because it shows an awareness of a tough reality that we have to face. I think that a developing country like South Africa needs to have low tax rates rather than high tax rates if you want to get the maximum returns from entrepreneurial initiative and development.

     And also, interestingly, you need to bring about other adjustments which tax can help you bring about things that are important to South Africa's development. For example, over the last ten/twenty years there has been a shift away from investment towards consumption expenditure in South Africa, investment has declined and consumption has increased. One should say that within consumption the big increase in consumption has come from the government sector rather than in third world South Africa. There are still too many people living at the poverty datum line. You need to bring about a correction in this drift away from investment towards consumption and tax can play a role in that, so can interest rates play a role in that.

     Tax can play a role, for example, by punishing expenditure less than punishing the earning of income, in other words making the shift that way. That would mean actually going regressive with a shift towards indirect taxes and away from income taxes. Now I personally am in favour of that, and I'm not in favour of that because I want to destroy the jobs of black people. On the contrary I've got a way of handling that particular problem. But we've got to actually, we've got to low rev, we've got VAT coming up and the ANC making a big fuss about it at the moment, at 12%. In Britain there's a 17% VAT, In Zimbabwe, I think I'm right in saying that the GST level there is 25%. We actually have a low level of sales tax or VAT in this country. I mean you don't achieve this kind of an adjustment overnight so what I'm going to now suggest is done a little bit tongue in cheek, but if I were to recommend a tax system for South Africa I'd say give a flat tax of 25%. 25% VAT, 25% income tax, 25% withholding tax. Everybody knows tax is 25%. If your personal rate is lower than 25% the responsibility is on you to go back to the Revenue authorities and claim back.

     Now in itself that would be terribly damaging to employment and very punishing to great masses of people. How do you address that particular problem? You have to address it again through the state and through job creating initiatives of the kind linked to housing and public works. I say that what we really need here in this country is a very big initiative in terms of job creation and the widening of employment and the growing of employment opportunities. If you do that the adjustment will actually come about, the kind of sweeping tax reform that I've just suggested, one obviously wouldn't do it overnight. I'm trying to give an idea of directions in which you want to go. You actually need to move in this country in the direction of indirect taxes, to punish the earning of income less, to punish the expenditure of income more.

POM     How about profits? What proportion of profits would be distributed in dividends? What proportion would be retained and of the proportion retained what proportion might go into R & D?

RB     I can't comment on R & D, I've done no research. If you want a quick one we can just give you an answer from the daily newspaper. Let's take the industrial average and the earnings and dividends and you'll get an idea of what - let's take the industrial - the average dividend yield is 3.5% in the industrial holding sector and the earnings yield is 8.3% which would indicate a payback or a dividend distribution of less than 50%. Take some other sectors, in most cases if you cast your eye down the page it is less than 50%. For example, I'm going to quote a few figures, beverages and hotels it is just under 50%, in building and construction it is also more clearly under 50%. This is the dividend payout compared to the earnings, the distributable earnings. In chemicals and oil 3.7 against 8.7, again it's under 50%. If one goes to retailing, just to take another example, here it is also under 50%, 2.5 as opposed to 6.1.

POM     How would that compare ...?

RB     I don't think it would be very different from other countries. It may be a little bit higher in some cases because we've got the need for retention. This is important actually because it comes back to this whole question of the financing of fixed investment in South Africa. If you look at the table of the financing of fixed investment you will see that the major contribution to the financing of fixed investment in South Africa happens through the corporate sector, through it's generation of surplus, in other words that plough-back that we've just been talking about. In the case of the state in the 1980s the state became a negative contributor to the financing of a fixed investment. The state, that is general government not just the central government, its surplus became a deficit for an extended period in the 1980s. Personal savings in South Africa were 12% approximately of personal disposable income in 1979. They are currently under 2%. Now in the US there was a tendency for that ratio to fall very low as well and I think I'm right in saying that in the US it's back to something like 6% or 7%. It's 30% in Japan. The main categories of the financing of fixed investment come from personal savings, government savings, corporate savings and the balance of payments, financing fixed investment. Government savings became negative, personal savings are very low, balance of payments was a constraint, we were shifting money out of the country, not into the country in terms of forced debt repayment. The whole burden of financing fixed investment in South Africa has fallen on the corporate sector. It's an amazing situation really. So we have to have high levels of plough-back.

POM     Last question, it's not really a question. I told you I'll be seeing Du Plessis next week. If you were me and you had five questions to ask him regarding government policy, not on a day to day basis but in terms of strategic objectives and its analysis of the future and the manner in which resources should be moved, what should be done? What would be the key things you would ask him?

RB     OK, the first thing I would say is that we must know that we've got to restructure our economy. We can only do that through strategy. At the moment we're not addressing our minds to that. There's a lot of talk about the need for it. The government has actually put out a document, a rather superficial document, into the debate. It's not a helpful contribution really.

POM     Is this a kind of a planning?

RB     The strategy needs to focus on three things, growth, development and market related, and I know from my involvement in this that the public sector people under our prompting are only just beginning to address this matter and that growth and development strategy must have as its prime objective two things, or I should say one, job creation. South Africa on the threshold of political democratisation cannot tolerate mass black unemployment. It's got to find a way to grow jobs. That doesn't mean again that you go and regulate that business and invest in capital. You bring about that critical adjustment of the relative cost of labour which the IMF referred to through the market. In the past the reason why we've had a capital intensification of the South African economy has been because the relative price of labour and capital has been out of kilter. We made the relative cost of labour expensive by pushing up wage rates higher than productivity would have justified it. That produced unemployment not only in the mining industry. It produced unemployment there. We made the cost of labour expensive relative to capital when we kept interest rates artificially low, negative in real terms so that people were induced to invest in capital rather than anywhere else. We biased this decision in favour of capital relative to labour too when trade unionists pursue industrial action for political reasons and go on strike in a manner that ordinary industrial relations can't regulate. That biases the decision to invest in machines rather than men because machines don't go on strike and machines don't throw stones and agitate politically. If we're going to correct that thing over a long term the relative cost of labour and capital has to be changed. You can't go to people at the poverty datum line and ask them to consume less. So the way actually to do this is to increase the cost of capital through pursuing positive real interest rates. That punishes investment in capital rather than labour. Some people may say in business that that will drive the growth rate of the economy into the ground. No it won't. It will increase the inducement to save. It will encourage first world consumers to consume less and to save more which is making a contribution to the financing of investment. It will see to the efficiency of investment and the better use of scarce resources. Whether we go up or down as a country depends less critically on these kind of relationships than on the state of the global economy at any particular time and on what other initiatives we take in order to grow jobs in South Africa.

POM     Question one. Question two?

RB     What would I say to him? I've focused on this question of the restructuring of the economy. I would say that policy must be formulated with a clear vision as to where we're moving politically. I'm very concerned, for example, for one thing, about inflation. Very soon we're going to have a new government in place compelled to take massive strategic initiatives in order to address the problem of unemployment. It will be a tragedy for South Africa if we are doing this from a base level, at the bottom of a recession of 15% or 17% inflation or even 20% as some people are warning us because of the consequences of VAT. We cannot afford to launch the economy on to a new growth path from a base of 15% inflation. Therefore, it is absolutely vital that before the new government is in place that it sticks to its guns of managing monetary and fiscal policy properly and seeing to it that there is a policy bias against inflation because we do not create a single, solitary job in this country by allowing inflation to run rampant.

     The third one is going to be political rather than economic. Is that in order? I would say that the time has come for the government, that is the National Party, and the ANC to stop competing with each other for moral high ground. Fortunately Inkathagate has provided a positive contribution and it has happened largely because the ANC resisted the opportunity to retreat into a position of moral superiority over Inkathagate and said, all right, this means that we can't trust these guys and that makes the necessity of an interim government all the more urgent, we're pushing with greater effort for the multi-party conference. South Africa needs a government of national transition, a unity government and that government perforce has to be composed principally of the ANC and the NP. They are logical partners in a transition process. I think I've argued this with you before. That is the direction of salvation. There must be other participants in that, including Inkatha, and hopefully even some elements of the CP in such a transitional government. Certainly the Democratic Party, certainly the Labour Party and certainly a lot of others. They give not only credibility and legitimacy to such a government but also their participation is necessary because in a sense I don't think the country could afford an ANC/NP conspiracy behind everybody else's back. They are not to be trusted alone, separately or together. They need everybody else there. We need a government, let me say this, that the great majority of the people of this country want such a government, they want a negotiated resolution to this conflict, they are sick of it.

     Look at the survey work and you'll see that 75% of people irrespective of whether they are white, black, coloured or Asian, whether they are supporters of the NP or the ANC or whoever, want this thing resolved peacefully and they want a negotiated solution and they want a new constitution that is acceptable to everybody. So these two parties have in a sense an historical and patriotic duty to provide such an agreement and to resist this petty competition for gaining ground at each other's expense when they should be seeing each other as future partners in the transitional process. So we need to get to that transitional process as quickly as possible and my recommendation to Mr du Plessis would be not only go into that multi-party conference as quickly as possible, get out of that multi-party conference an appropriate transitional government that satisfies both you and the ANC and that you can live with, bring other people into it. Such a government would sweep the boards in a future election. It would leave the extreme right and the extreme left outside but that wouldn't matter. It would have the support of 70% to 80% of the people of this country and if it endured for three years or for twelve it would give the country stability for that period. If we could have a twenty year stability under such a government we would recover the damage done by the last generation because the new generation of young people coming through would only know life under such a government and South Africa would be a new and better place.

POM     It's a good place to end. Thank you very much. You were generous with your time and stimulating as always. Do you have any papers? I see one here right in front of me.

RB     Yes the Tucker thing. I think that there are aspects of what they are saying from an economic point of view which I'm very unhappy with and my own presentation is designed to address those aspects. One has the feeling when one watches this, and I've watched it twice, the long version of it, I went the second time to make sure I got it all right. From time to time I find myself in sessions with Bob Tucker so I hear again the story, the changing gear scenario. They are focusing very much on things that I'm focusing on like using house building and public works, if you like, they talk about electricity as a means of getting the economy going. What worries me about this is it's not sufficient to talk of kick-starts. There needs to be a much heavier focus on sustainability of kick-start. It wouldn't be difficult for the present government to get the economy moving very rapidly in a six month, twelve month time frame. It would be a disaster if in doing that we ran into heavy balance of payments difficulties very quickly and our inflation rate went through the roof. The question does reduce to this: there is a role for growth through redistribution. How much can redistribution provide in the way of a sustainable upliftment of the economy? I don't think that redistribution by itself can do that because while you can get the kick-start going without foreign financing even a kick-start incidentally needs the removal of this forced capital outflow from South Africa in terms of debt repayment.

     But while the kick-start can get the economy going you do need to have a vision as to where your balance of payments is going to go once you get beyond the kick-start phase. You start sucking in imports and if the global economy is not performing satisfactorily as far as your exports are concerned you're going to be quickly in deficit in your current account. Ordinarily you then have to start tightening up. South Africa needs to be a developing country logically in deficit of its balance of payments. I don't want to see South Africa becoming a deficit country on balance of payments with that deficit being counter-balanced by inflow of loan funds. I'd like to see South Africa return to being the kind of country that risk capital is happy to come to, that risk capital being capital that doesn't need to be services. South Africa was built on the basis of risk capital and that was in the latter part of the 19th century and in the early part of the 20th century. There's no reason why in the last years of the 20th century and into the 21st century we shouldn't return to being a country that attracts risk capital. We can become such a country if we can stabilise this country socially and politically because the opportunities for growth in South Africa are extraordinary. The widening of the domestic markets, it's got a good infrastructure, it's got a mineral base, it's on the doorstep of Africa. The Japanese know that this is the way to get to the rest of sub-Saharan Africa and while the US has still got its shoes tied together on this whole question of sanctions, CAAA may have gone but city and state sanctions are still there, it provides a marvellous competitive opportunity for the Japanese if they are going to get in here first. South Africa has got lots going for it. The thing that's holding it back is the continued conflict, political and social conflict in the country and that is why that is so important to get going on and that's why my first thing would be to say to Barend, get on with the job.

PAT     I was surprised, and maybe this was for an American audience, I don't know, at what I might call Tucker's - the sort of naiveté of Tucker's presentation. I was surprised at his surprise and the surprise he articulated for his group of people and just how deprived the situation is and how hard it is in terms of the support for the mass of the population.

RB     You know, Pat, I must say I have a problem particularly with Bob as - have you got that on still?

RB     "When the conduct of men is to be influenced, persuasion should ever be adopted. If you would win a man to your cause first convince him that you are his friend. Assume to dictate to his judgement or to mark him as one to be shunned and despised and he will retreat within himself. Close all the avenues to his head and his heart and though your cause be naked truth itself you shall no more be able to pierce him than to penetrate the hard shell of a tortoise with a rice straw."

PAT     Who is that?

RB     1842, an address to the Springfield Washingtonian Temperance Society, Abraham Lincoln.

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