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 It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.

Towards Democracy 1996

Growth - The Number 1 Priority

In this article Jacques Magliolo describes a number of steps the government has taken to encourage growth. The Constitution, the Bill of Rights and legislation regarding the status of the provinces set the scene for the advent of the government's Macro-Economic Policy.

Since the beginning of 1994, South Africans have seen and encountered astounding change in the policies of our ANC-led Government of National Unity. That year saw a national election to alter the political course of this country and the following year continued the process with newly formed local election boundaries - the incorporation of white and black-run municipalities.

This year, however, saw two significant reforms that will take the country out of the financial third-world environment and promote economic growth and, therefore, social upliftment, to the forefront of all political priorities and agendas.

Ø     The first was to change the nature of wealth distribution between our provinces through constitutional methods; and

Ø     The second was to introduce an economic package to show the world that the South African government is serious about em-powering its people through higher Gross Domestic Product, while maintaining wage increases to reasonable limits.

Once these two reforms are achieved, the new Government will be able to hold its head up high and show foreign investors that this is, indeed, a place worth investing in.

Growth enshrined in the new constitution

On May 8, 1996, National Assembly chairman, Cyril Ramaphosa stood in front of the media and said: "This is the day when South Africa is truly born. Through this constitution we hope to transform our society from one that is based on injustice and strife to one based on justice and peace."

Not only did the final constitution give South Africans a Bill of Right (to state democratic values for all its people), a new system for our courts (Constitutional Court), mechanisms for a co-operative government and placed independent organisations to protect all these rights, but thefinal constitution also set up a new structure for parliament. This was the first step in trying to create an environment that would become conducive to creating growth within the borders of South Africa. The second step would be to attract foreign investors to set up shop in this country.

     Reasons for the introduction of the NCOP:

     Before 1994, allocation of revenue to the provinces was almost conducted at the whim of central government. Significant funding of the military took prefernce over education or social-welfare etc. Economic imbalances were created throughout the country, with extremely undeveloped areas (TBVC regions) being used in political power plays. This caused infrastructure to deteriorate, unemployment to rise and poverty to be-come the norm. The new NCOP aims to change and reform these imbalances through a fair and equitable distribution of national funds. Provinces will have to argue for more funds through the NCOP.

     The bottom line is that, out of nine provinces, seven range from poor to extremely poor. the Western Cape and Gauteng are the richest, but - unless something was done to change the present situation - these could face impoverishment as the unemployed moved to these regions to find work. A financial strain would be placed on the province's health, social welfare and other systems.

     How bad was the situation in 1995, when the GNU sat down to draft the final constitution? Statistics obtained from the Development Bank of SA, the South African Reserve Bank, the Bureau of Market Re-search, The National Productivity Institute of South Africa and numerous financial institutions's economic monitors, outlined a shocking scenario of poverty, unemployment, low growth and, thus, despair and little hope for a better life for all South Africans. Despite a new, non-racist constitution and government significant disparities between the provinces would remain unless these were immediately addressed and prioritised.

          Here are some of those statistics: Gauteng, the smallest province in this country, has the largest population per km', but contributes 37% of national GPD and nearly 50% of all tax revenue. The Western Cape, the second richest province with the lowest unemployment in the country, contributes 13% of GDP. The Eastern Cape, KwaZulu-Natal, Northern Province and North West each have unemployment rates of above 22%. The South African average is 50%, which means that half of the labour force is not employed in the formal sector.

          Auditor General

          Whose task is to audit and report on the accounts, financial statements and financial management of all national, provincial and local state departments and administrations.

          Commission for Gender Equity

          Whose task is to promote respect, to protect and to develop gender equality.

          Commission for Promotion and Protection of Rights of Cultural, Religious and Linguistic Communities

          Whose task is to promote respect and tolerance among cultural, religious and linguistic communities.

          Electoral Commission

          To manage elections of national, provincial and local legislative bodies.

           Human Rights Commission

          Whose task is to promote respect and development of human rights.

           Public Protector

          Whose task is to investigate all aspects of government that is suspected of improper undertakings.

The State's Growth Package

One indicator of how "busy' our markets are (i.e. indicator of economic activity), is to look at the Johannesburg Stock Exchange Overall Index and to assess how it has moved - and forecast how it will in the near future. Between 1988 and 1990, this index was virtually at a standstill. Then political parties (ANC, SACP and PAC) were unbanned and their leaders released form prison.

The markets reacted immediately and, between 1990 and 1996 the Index has climbed by nearly 200%. That growth indicated local and overseas investors' faith and strong support for our new dispensation, but this year - suddenly - the value of the Rand fell by over 20%. Investors were saying that the ANC-led Government would have to prove that they can run this country before they continued their support. The State's answer was to introduce an economic pack-age, which analysts believe will bolster our flagging economic cycle.

What is this plan and what is it supposed to do? Firstly, the economic plan, called Growth, Employment and Redistribution - A Macro-economic Strategy, does not state anything new, i.e. it is a concerted effort to carry out policies that the government has been talking about since 1994. In fact, it is their objective to inextricably associate growth to productivity and to lessen its responsibilities in provincial and local authority matters.

However, before it can be determined whether it can achieve its economic targets, it is necessary to understand what the state is trying to do. Through strict monetary and fiscal policies and restricted civil service wage increases, the aim is to create a competitive, fast-growing economy that is conducive to providing sufficient jobs for all those that seek work, to redistribute in-come and opportunities in favour of the poor, create a society that has sound health, inexpensively available education and other services, to significantly reduce crime levels and a highly productive business environment.

It may sound like this is just another "RDP". This Economic Plan does not, in fact, replace those outlined in the Reconstruction and Development Programme. Although the new Plan does not mean that the state has abandoned its strategy for re-building and restructuring the economy, it now focuses on confronting basic human needs, developing human resources and in-creasing participation in the democratic institutions and civil society.

There has been new thinking taking place in government. Instead of pure re-distribution of wealth to the poor, the state now realises that real, accelerated re-distribution

(without destroying the economy and scaring foreign investors away) can only come with increases in productivity. This can only be achieved through improved education and skills, from both labour and management. On the labour front, Cosatu has been asked (or is it told?) by government to negotiate for "reasonable" annual wage in-creases, while business has been asked to negotiate in good faith. These facilities are at present being undertaken by Nedlac.

To date, economic growth has still to be translated into significant employment creation. In 1993, the economic cycle turned and investors were able to witness a positive change in Gross Domestic Product (GDP) and Gross Domestic Fixed Investment

(GDFI). the first indicates growth of what is being produced (manufactured) in the country as a whole and, while the second denotes the amount of infrastructure being made in the country, i.e. building of roads, bridges, hospitals, schools etc. both were negative before 1993.

Yet, employment figures continue to fall, while the unit cost of labour continues to rise. The following two graphs highlight this:

To some extent, this can be expected. After years of negative growth, many companies had unused capacity. By 1993, economic restructuring had begun and firms had to face domestic competition and an international onslaught for a slice of the South African market. This required cost reductions, which included retrenchments and, of course, this worsened unemployment levels. Higher economic growth, linked to employment creation is therefore the only answer to a continued progress towards an equitable distribution of income and improved standards of living for all.

The government's plan to achieve higher growth is to first get its house in order. This they intend to do through tighter fiscal and monetary controls, sale of state assets (privatisation), restructuring the civil service through an amalgamation of black and white-run municipalities (already completed), restructuring tax collections and better budgetary controls.

The most significant of these - and the issue that will tell the world whether they can take the South African Government seriously or not - is greater fiscal discipline. The National Party promised this for years, but seldom delivered.

If the Rand-US Dollar exchange rate is maintained at the present rate of around R4,39 to the dollar, then major benefits will be obtained for South Africa from the expansionary impact of higher (increasing) ex-port performance. In this way, the inflation rate should be kept at less than 10% and domestic resources could thus be released to finance capital projects.

The state believes that it can lower its debt (relative to GDP) from 4,5% to 4,0% in the 1997/98 fiscal year, followed by two more reductions of 0,5% of GDP in each of the subsequent years. this would bring the deficit (what the state owes to investors) to a satisfactory long term target of 3,0% of GDP by the turn of the century.

To achieve these targets, the Minister of Finance has already undertaken an audit of government spending and RDP allocations, so that it can identify what government spending patterns can be cut. Analysts suggest that these targets may be wholly realistic. After all, while few believed that emotive issues like changing the Flag, National Anthem and names of our provinces could be undertaken without significant civil unrest, they were handled with diligence and care.

There is no reason to suggest that our new government will not do the same in restructuring our economy.

Organised Labour and the Macro-Economic Strategy

The government's macro-economic strategy sets itself the ambitious targets of achieving an annual 6 per cent growth rate and creating over 400 000 jobs per annum by the year 2000, which is just over three years away.

Under the circumstances, one would expect organised labour to be ecstatic about this strategy, since its offers a vision to pull South Africa out of its current malaise of "jobless low growth". If the macro-economic strategy works, some 833000 new jobs will be created over the next five years. Although this will only marginally reduce unemployment over the short term - frompresent levels of around 33.5 per cent of the economically active population to about 32,7 per cent by the year 2000 - estimates are that by the year 2020 unemployment will have been dramatically reduced to about 8 per cent.

However, despite the obvious benefits to labour of stabilising and ultimately reversing the rising unemployment trend, organised labour has not welcomed the strategy.

Cosatu initially expressed "serious reservations over the conservative fiscal policies that the document intends to implement". However, Cosatu's general secretary, Sam Shilowa, subsequently went a lot further in his critique, labelling the strategy as "neoliberal" and arguing that it was "unworkable and unwinnable".

Dr Duncan Innes is director and publisher of The Innes Labour Brief, a human re-sources and labour relations consultancy service.

Key Differences

Given that the macro-economic strategy does seek to promote economic growth and job creation, why are Cosatu and other elements of the organised labour movement so hostile to the strategy? The answer lies both in the different philosophies that underlie the ANC's and Cosatu's respective approaches to economic restructuring as well as in the contrasting methods that the two organisations are advocating to achieve their objectives.

For instance, where the government's macro-econonic strategy is committed to "a programme of asset restructuring with respect to the ownership and governance of state entities" (p.16), by which they mean inter alia privatisation of certain state as-sets, the unions are totally opposed to fullscale privatisation and are at best lukewarm towards partial privatisation. Ideally, Cosatu would prefer to retain state owner-ship and regulation of key assets.

Where the macro-economic strategy emphasises the need for an "outward-oriented industrial economy" (P6) - that is, export-led growth - to enhance South Africa's global competitiveness, the unions want the focus to be on expanding domestic demand through "policies which will expand the in-come of workers". (Social Equity and Job Creation, p16)

Where the macro-economic strategy calls for fiscal discipline and "a tighter fiscal policy" (p7), Cosatu wants to see an expansionary fiscal strategy that also redirects existing fiscal spending.

Where the macro-economic strategy pro-poses "tax reforms aimed at international competitiveness and minimising the distorting effects of taxation on economic behaviour" (p6) - that is, tax reductions - Cosatu calls for the introduction of a variety of new taxes on the wealthy and an "increase in corporate taxation". (Social Equity, p.22)

As the above points indicate, the views of government and the unions diverge significantly on a number of key areas of economic strategy. In each case, the divergences may be related back to an underlying ideological difference between the two parties: whereas the government is seeking to place South Africa on a sound capitalist footing which will enable the economy to become globally competitive, Cosatu proposes an alternative socialist vision for the economy which seeks to build domestic markets be-hind a wall of institutional barriers.

One of the main reasons Cosatu is unwilling to embrace the macro-economic strategy is because the process of restructuring that it involves will be painful for many domestic players, including uncompetitive businesses and certain categories of workers, especially those in uncompetitive industries or businesses. As the government's own figures contained in the macro-economic strategy document suggest, al-though the strategy may halt the rising unemployment trend in the near future, it will be some years before it begins to fall significantly. Organised labour is clearly unhappy at the prospect of embarking upon a strategy that promises short term pain in return for promises of employment growth in the next century. On the other hand, while the unions' policies may protect employment in the short term, they will undoubtedly destroy any chance the South African economy has of ever becoming globally competitive and therefore could lead to even higher unemployment in future.

But if significant differences exist between the broad economic proposals contained in government's macro-economic strategy and those of organised labour, the most serious divisions occur around the labour market.

The labour market debate

The macro-economic strategy correctly points out that "South Africa's labour market is extremely fragmented". (p 16) About one-third of the economically active population are unemployed or "derive sporadic earnings from informal self-employment", another third are in "unregulated low wage employment and the remainder are in regulated formal sector employment".

But even among this latter category, "irregular, sub-contracted, out-sourced or part-time employment on semi-formal contractual terms is becoming the prefered source of labour for many employers". (p17) The reason for this trend is that "where regulations raise the costs of job creation, employers turn to unregulated forms of employment", which in turn results in "a growing gap between the wages and benefits in the regulated and unregulated parts of the labour market".

The challenge, according to the government, is to strike "appropriate balances" in the labour market "in respect of job creation between regions and sectors and between maintaining existing jobs, protecting those in employment, and creating opportunities for new entrants". The solution pro-posed by the macro-economic strategy is "a policy of regulated flexibility" which involves regulating the labour market "in a manner that allows for flexible collective bargaining structures, variable application of employment standards and voice regulation (collective agreements)."

While Cosatu would agree with the government's analysis of the fragmented labour market as well as the trend towards unregulated forms of employment outlined above, the policy solution provided by the macro-economic strategy tends to undermine a number of key union campaigns and initiatives.

Essentially, Cosatu's solution to these problems is to extend the regulatory frame-work across all economic sectors, thereby preventing employers from making use of unregulated employment. However, this does not provide an answer to government's concern, which is spelled out in the macro-economic strategy: namely, that "where regulations raise the costs of job creation, employers turn to unregulated forms of employment". If this avenue is denied them, the very real danger exists that employers will either mechanise their production processes at the cost of labour or they will simply go out of business. Either way, the effect on jobs is devastating.

As far as wages are concerned, many unions are very sceptical of the macro-economic strategy's arguments that "it is important that wage and salary increases do not exceed average productivity growth", that "a sudden upsurge in nominal wage demands" would be counter-productive to economic growth, that "private sector wage moderation" is necessary to create 30 per-cent of new employment opportunities, and that there should be "a less onerous wage schedule for young trainees". (p18) These kinds of arguments are seen as an attack of the real wage increases that unions have won through decades of struggle.

Conclusion

The above differences between the parties are significant and should not be under-estimated since, as mentioned above, they are differences grounded in ideology as well as in policies and strategies. Yet there are also areas of common ground between the par-ties, which provide a potential opportunity to bridge these differences. These include issues such as their mutual support for "productivity-enhancing training" and a common belief that "an enhancement of the level and effectiveness of training across all employment sectors is central to this growth strategy". (p19)

Furthermore, the unions will welcome the macro-economic strategy's support for collective bargaining (p18), its commitment to "ensuring that labour market rules are fair and that there are appropriate measures for dispute resolution", as well as its commitment to human resource development. (p17)

These areas of common ground are also important and provide the basis for a trade-off in negotiations between the parties. Undoubtedly the unions will try and resist those key elements in the macro-economic strategy with which they disagree but, given government's determination to implement the strategy as a whole alongside a willingness to develop those elements of the strategy that have unions' support, it is highly likely that the unions will eventually give in. They will not like it and they will kick against it, but ultimately they will concede - because in the final analysis the macro-economic strategy is the only way for South Africa to go.

The Road Ahead Will Not Be Easy!

In recent key speeches made by Congress of South African Trade Unions General Secretary, Sam Shilowa, labour's very important contribution to the economic debate has been outlined.

On 27 April 1994, South Africans went to the polls for the first democratic elections. Sixty two percent of the electorate gave their mandate to the ANC. Contrary to belief, this was not done on liberation movement sentiments, but on the basis of acceptance of the RDP as presented by the ANC led alliance.

The democratic miracle has raised hopes for an economic miracle. This has led to various proposals being put forward, the latest being the government's Macro-Economic Strategy.

There is broad agreement on the objectives of the Macro-Economic Strategy.

There are however differences on the framework, the approach and the details. The process of transformation will obviously have to deal with certain constraints. Such constraints are not god given. Neither are they of our choosing. They have been thrust upon us by history. These include the legacy of apartheid: we all know the long catalogue which includes mismanagement of our economy, the debt burden, destruction of our human resources, a deformed public sector, vast unemployment and poverty, marginalisation of the majority from economic activity, massive income and social inequalities.

The new world order: The so-called unipolar world has been characterised as one in which there is no serious alternative to the power wielded by the G7 countries, and their international financial and trade institutions. The process of globalisation has trampled the sovereignty of nation states. Capital has unprecedented mobility, aided by new technology and the information age. The world economy has been organised into powerful trading blocs. We are told that those who don't play by the rules of the new game, will be forever marginalised and fall by the wayside.

In developing economic policies, the following questions arise: Is it possible to achieve equity and growth under the constraints inherited from apartheid and imposed by the new world order? What role is there for labour, business and the government in such policy formulation? Can the parties deliver on the undertakings?

We do not reject opening up our economy, if this is done in a way which promotes our industries. We do not reject fiscal discipline, if it is subsumed to economic development, rather than the other way around.

The attempt by powerful domestic and international interests, to force us to accept laissez-faire, unfettered capitalism, flies in the face of the entire developmental experience of the 20th century. All successful re-construction and development in Europe, America, Japan or East Asia, has entailed massive state involvement, the creation of domestic demand, huge investment in human development, and policies to direct in-vestment and industrial activity. Some, if not all, even introduced todays' dreaded drastic measures, such as nationalisation of key sectors (South Korea), running of massive deficits (eg. Malaysia, more than 20%) and other measures which we are now told are heresy. None have relied exclusively on the market or attempted to remove the state from leading the development process. In other words, restructuring of the state sec-tor encompassed redefining the role of the state as well as increased involvement in the economy in certain areas.

The involvement of our people who have been excluded from the mainstream is a corner stone of our new growth path. The unleashing of the domestic market's untapped power is one of the the underpinnings of the RDP strategy.

Yet there seems to be growing emphasis on a one sided export-orientated growth strategy. While increasing exports is important, not least to stabilise our balance of payments and to finance technology, an expanded regional market should be considered as the foundation for sustainable growth.

But a one-sided obsession with exports will not create the jobs we need. A study by the National Institute for economic Policy has established that between 1960 and 1996, most production (more than SO percent) in the US, Europe and Asian countries was geared towards domestic use, despite vigorous promotion of exports for many years. The institute has shown that increased ex-port production in a number of countries has created 2 to 4 times fewer jobs than similar increases in production for domes-tic consumption.

Our industry policy needs to be proactive and dynamic, rather than concentrating on or reacting to world pressure. Indications that we are anxious to lift tarriffs faster than our international obligations, signal that we are more anxious to please the international community than to build our own industries.

World trade is a ruthless monster. No one is going to look after our interests as a country if we don't do so ourselves.

Another dangerous route tempting us is that of Exports-Processing Zones. Tax exemption proposals to attract business to economically depressed regions may seem at-tractive. This is a short cut to development which international experience shows has many hidden pitfalls.

This approach undermines the integrity of the tax base, fragments national economic policy, and is a slippery slope towards undermining labour standards and trade union bashing in those zones. Poor regions will increasingly be trapped in a race to offer cheaper and more exploitative conditions. Problems facing these regions need to rather be addressed through other incentives. Otherwise we are going to repeat the disaster of the failed bantustan border industry experiments.

Without going into the complexities of fiscal policy, it worries us that fiscal discipline appears to be becoming and end in itself, rather than a tool for development.

Enormous pressure has been applied to government to rapidly cut back its fiscal deficit, irrespective of the role which deficit financing could play in development. Our friends in government seem to have swallowed this lie, hook, line and sinker.

This approach could have several detrimental consequences including cut backs in social services, cuts in public sector employment (particularly low paid workers), limitation of public sector infrastructural investment and greater pressure to privatise and commercialise public enterprises.

This approach seriously undermines the development role of the state, retards economic growth and undermines delivery of the RDP.

Instead of going this route we believe that the government should explore more creative approaches to the debt problem; intro-duce a pay as you go system for public pensions (which could immediately reduce the deficit by half). This is not a Cosatu proposal but one that comes from the Smith Commission guided by international experience; and deal with the problem of high interest rates, which are inflating our debt repayments. We must also reject the attempt to place the public pension fund into private hands in the same way that other pension funds are run. We must warn the PSA not to force the government's hand on this matter. Progressive unions in the Bargaining Chamber must reject this attempted theft of the public purse.

Further, a carefully targeted programme of expanded public expenditure, particularly on capital investment, would play an important role in promoting faster growth, broadening our tax base, and thereby creating a virtuous cycle. The opposite, restrictive approach, on the other hand, threatens to choke off growth and ironically, worsen the squeeze on our budget.

In terms of monetary policy, the present trend is towards what has been called Sadomonetarism or Thatcherite monetary policy, combined with the liberalisation of exchange controls and devaluation of our currency.

The current policy of keeping interestrates high stifles growth, raises the level of debt, frustrates the housing programme, and hits small business and the person in the street. The only beneficiaries appear to be the booming finance industry, financial speculators and the 'hot' short term foreign investors. This also makes our economy particularly vulnerable to capital movements, and the danger of a Mexico type scenario.

This is worsened by exchange control liberalisation, which both enables foreign investors to withdraw capital at will, as well as domestic business incrementally moving capital out of the country. It is hard to understand this approach when we are facing severe balance of payments problems, and low foreign exchange reserves.

Earlier this year, before the emergence of the Macro-Economic plan, labour released a document titled, Social Equity and Job Creation. What follows is a brief summary of its proposals which attempt to harmonise and integrate the objectives of social equity and economic growth. Where short-comings are pointed out, we remain ready to adjust them!

          Redirect spending towards social services for the poor;

          Increase the redistribution features of tax policy.

Proposal include:

          Finance housing and health care for all;

          Increase corporate taxation;

          Reduce consumer tax on basic requirements;

          Introduce a tax category for the super rich;

          Introduce a capital gains tax

          Introduce a luxury goods tax;

           Encourage savings through provident funds.

          Strengthen workers rights through labour market measures, including centralised bar-gaining;

          Invest in training and human resource development;

          Use public procurement policies to advance worker rights;

          Reduce wage differentials between managerial and blue collar workers;

          Use of workplace forums to strengthen shop steward structures;

          Reduce managerial prerogative through legislation;

          Grant workers 50 percent of the seats on company boards;

          Address representation on mutual insurance companies immediately.

          To assist trade unionism growth as an important instrument of social development in all Southern African countries;

          To campaign for a social clause to be part of all multilateral and bilateral trade agreements;

          To campaign for special market access to developed country markets for those developing countries with specified labour rights. The road ahead will not be easy. It will re-quire co-operation between all stakeholders.

Is the new economic plan bad news for the poor?

The RDP has been hailed as good news for the poor. But at a recent church seminar in Johannesburg the government's new economic plan or Macroeconomic Strategy was labelled bad news for the poor. Why?

That is why the church is so important to this debate, he said. Religion is the only sec-tor of our society with a strong tradition of criteria based upon moral values.

The speaker went on to criticise the government's Macroeconomic Strategy which then became the focus of everyone's criticism throughout the rest of the day.

What's wrong with the Government's plan?

The main aim of the Macroeconomic Strategy is to reduce the debt which the government inherited from the apartheid strategies of the past, explained Josie. And this was the only target it was likely to reach. He said it was difficult to see how other targets could be reached like 6% growth and 400 000 jobs by the year 2000.

In effect this means that the rich will get richer and the poor poorer. In a country like ours how can that ever be justified morally?

Three other speakers had beeen invited to respond to this keynote address.

Ø     Sampie Terreblanche, Professor of Ecomonics at Stellenbosch University, said he did not agree with the government's plan and he did not like it at all, but beggars can-not be choosers. We don't have a choice, he thought, because we inherit a much more serious economic crisis from the apartheid government than most people realise. We are at the mercy of the international economy which we cannot take on alone.

Later in the day Terreblanche pointed out that the government's plan would not solve the unemployment crisis and that there would be practically no trickle down from economic growth, so that the only thing the churches can push for is a comprehensive anti-poverty programme . The government remains morally responsible for the poor no matter what the international pressures may be.

Ø     Vishwas Satgar, an economic researcher for the labour movement,said we were asking the wrong question. We should not be asking who has it right? but who has won?

This article was writ-ten by the Editor of Challenge magazine, Dr. Albert Nolan and first appeared in the October issue of Challenge.

The Institute for Multi-Party Democracy would like to thank the editor of Challenge for his permission to re-print this article. Challenge magazine is an independent Christian magazine and is essential reading for those interested in South Africa. If you would like to know more about Challenge contact:

About one hundred church people attended the inaugural seminar of the new service organisation ESSET (Ecumenical Service for Socio-Economic Transformation) on August 15. The topic was the three conflicting plans for the future of the economy: business' plan, labour's plan and the government's plan. And the question which was posed to the keynote speaker and the participants was: Who's got it right?

The speaker was Jaya Josie, a development economist and lecturer at the University of the Western Cape who was one of the authors of the Mail and Guardian's supplement on the same topic.

He surprised his church audience by arguing that neither business, nor labour, nor government had it right, because all three were self-serving and had left out the all important issue of morality. Each of them, he said, had its own interests in mind and wanted a bigger slice of the cake.

Josie said he was extremely disturbed by the absence of any moral indignation and outrage at our society's slide into human degradation through crime, unemployment and poverty. Macroeconomic plans must start from this social and moral reality. The economic crisis is part of a broader social

The government's latest economic plan is a clear political and ideological choice. The ANC shifted first from the Freedom Char-ter to the RDP, and then from the RDP to this "non-negotiable" Macroeconomic Strategy.

The aim of redistribution has been abandoned except for a small trickle down from growth. Wages are now seen as a problem while managers still earn 15 times more than workers. The debt is now regarded as our biggest problem while both the USA and Japan have proportionally much more debt than we have. Investment and imports are now seen as our only salvation.

Ø     Bernard Connor, a Catholic priest and economic consultant to the Catholic Bishops, was the third respondent. He said the government's plan was totally lacking in any kind of daring or creativity. All it did was try to join the global economy and that was simply not good enough. Investment and imports are not the only answer.

Rev Connor argued that for economic justice we must look to the long term. There is no quick fix. New and imaginative things will have to be tried, like encouraging local and regional economies and developing a different perception of employment and how jobs will be created in the future.

From the perspective of faith

With all these insights and opinions, the church participants spent the afternoon examining the government's Macro-economic Strategy from the point of view of ethics, moral values, justice and Christian theology. After an introduction by Ivan Joe Lloyd of ICT, the participants discussed and planned in small groups.

In the end the conclusions were all remark-ably similar and, if anything, even more critical of the Macroecomonic Strategy than any of the speakers had been.

While the RDP had been received by the churches as good news, this economic plan was unanimously perceived as bad news. The RDP, one participant said, challeged us to look to ourselves and our own re-sources to find solutions to the problem of poverty. But the Macroeconomic Strategy asks us to look outside of ourselves to national and international investors for our salvation.

Ethically and theologically we should be working for the common good of all the people of our country but this economic plan favours the rich. It asks workers to make sacrifices but it does not ask the rich to make any sacrifices. That is immoral.

The Macroeconomics Strategy promises only 400 000 jobs by the end of the century, and even that can only be achieved if the government spends less on social pro-grammes and the workers moderate their wage demands. The promised 6 % growth will bring only one third of the 400 000 jobs. Christians want a plan which is more obviously focused upon the needs of people.

What must the Churches Do?

The participants at this first ESSET seminar felt that it would be very important for the church to become a sign of hope to the people by maintaining its ideals no matter what the politicans or anyone else might say.

While the church should see itself as being in partnership with the government, it should continue to play a prophetic role in this partnership but keeping alive the need for moral values, speaking out when necessary and participating in campaigns like buy South Africa, support our workers and return to the RDP.

We communists question the growth plan but we'll talk, not storm out

This article by Jeremy Cronin sets out some fundamental problems in the government's macro-economic strategy whilst dispelling fears concerning a rift in the alliance.

In January, the finance ministry quietly assembled a team of consultants to put together a macroeconomic framework. Work was underway, therefore, before the sharp depreciation of the rand from mid-February. The rand's slide added impetus and a sense of urgency.

Indeed, a variety of private-sector forces used the slide as an opportunity. There was goading: "Where is your much-vaunted macroeconomic plan?", You're mismanaging the economy" and "Cosatu is responsible for the slide".

Much of this was less than honest, especially if one recalls that the South Africa Foundation's Growth For All document, in the name of sound economic fundamentals, explicitly called for a devaluation of the rand of roughly the same magnitude as the actual depreciation.

All this goading was designed to sow panic to force concessions.

With these pressures on government, there was a real danger that the soon to be unveiled macroeconomic plan would be more about sending the right signals to the right people and a little less about a plan.

These pressures were certainly evident in the finance ministry's assertion that the plan tabled in parliament in mid-June was non-negotiable. Or, at least, as it was qualifieda few days later, it was non-negotiable in its fundamentals.

In the week before the plan was made public, the Communist Party and Cosatu leadership were briefed by senior government ministers. From the outset there were real misgivings. But in the SACP and Cosatu, although I cannot speak for them, there was an understanding of the pressures and constraints on the government.

Both alliance partners were also well aware that the private sector and its apologists would seek to exploit any debate within the alliance.

We knew debate would be used to goad the government into "proving who is really the boss", as if macroeconomic planning was some kind of arm-wrestling contest. We also knew that intra-alliance debate would be used as an excuse for the private sector's own inability to drive resconstruction and development: "We're getting mixed signals" is the favoured refrain.

Both the SACP and Cosatu served notice, however, that we intend to engage actively, but constructively, with the proposal. It should, then, have come as no surprise when Sam Shilowa opened up the debate.

From the side of the SACP leadership, our misgivings about the plan relate to at least three significant areas:

Ø     Without questioning the technical competence of the process, we are concerned that it did not have sufficient political oversight. Progressive politics is no substitute for technical competence, but any macro-economic plan has to be encased within an overall strategic perspective.

Jeremy Cronin is the Deputy General Secretary of the SA Communist Party and a member of the ANC executive.

This article first appeared in the Sunday Independent 28 July 1996.

Ø     Related to this, we are concerned that the macroeconomic models - including two World Bank models and the Reserve Bank model - deployed in the exercise all belong to a particular paradigm. Other models more attuned to the redistributive principles of the RDP have been ignored. We believe the present proposal may well choke off the very growth it requires.

Ø     Finally, we are concerned about the centrality within the model of what is an entirely external factor - domestic and inter-national private-sector investment.

That we need such investment is incontestable, but is it investment that comes into the "right signals", or is it more likely to come into an effectively developing economy? We would like to see a growth plan driven more by the public sector and assisted by the market. We have the inverse: a market-driven and government-assisted plan.

We do not believe the 20th century contains any convincing examples of this latter path, especially in countries emerging from Third World underdevelopment, war-time ruin or severe economic decline. We have the honour of combining, in varying degrees, all three disadvantages.

But where does that leave the alliance? Is it about to fall apart? An alliance is an alliance because its different components share a common strategic committment, but from the basis of somewhat differing perspectives and ideologies, or different, if overlapping constituencies. An alliance is not a monolithic entity.

What holds together the present ANC led alliance is a common commitment to over-come the deeply entrenched legacy of white minority rule. This transformation process is broadly outlined in our RDP.

The government's macroeconomic proposals are explicitly designed to create a framework for the delivery of the RDP.

I do not doubt the sincerity of this, but I do have misgivings that the present plan will live up to these intentions.

How, from within the alliance, do we go forward? I believe that we need to avoidfundamentalism. Any macroeconomic plan must stand or fall on its own merits and these need to be tested in practice and in continuing debate.

Meanwhile, the world does not stand still. Many of the crucial areas outlined in the plan are already in the process of transition, negotiation and reform. One obvious example is the restructuring of state assets, in which the debate is now firmly within the bilateral - government and the trade unions - national framework agreement process.

In short, we need to pursue constructive debate at two different levels - both at the macro and at the more specific, process levels.

For instance, is a budget deficit reduction from 5,1 percent to four percent in one year, as envisaged in the plan, desirable?

We need to debate this. But assuming that such a reduction is desirable and possible, its nature must also be scrutinised. Can the deficit be reduced by addressing the continuing legacy of white minority rule rather than through a slashing of social spending?

The Smith Committee, for instance, suggests that switching from the present fully funded system in public-sector pensions to a more typical pay-as-you-go system would halve the present government deficit.

But to transform public sector pensions will require alliance unity in the face of powerful bureaucratic obstruction. In my view two things are, therefore, certain. Both the alliance and the debate will continue..

In some of the articles in this issue various commentators have bemoaned the fact that the government's growth plan relies heavily on the possibility of foreign investment occuring on a scale large enough to promote growth and address the problem of huge unemployment. Fortunately there are more strings to the government's bow than this. This can be seen in the efforts of a new crop of organisations that are encouraging the growth of small, medium and micro enterprises.

The Macro-Economic strategy states clearly that: "The promotion of small, medium and micro enterprises (SMMEs) is a key element in the Government's strategy for employment creation and income generation. Due to obstacles of the past, the SMME sector is severely under-developed. A major effort will be made to optionalise and implement the policies outlined in the White Paper on small business promotion. The relevant legislation is under consideration and various programmes and institutions have been established to give effect to the strategy."

One of these newly established institutions is the Ntsika Enterprise Promotion Agency (NEPA) which is charged with providing the necessary impetus to effectively implement the small, micro and medium enter-prise support strategy. NEPA functions as an intermediary by liaising closely with government, the private sector and with non-governmental organisations and institutions that support SMMEs.

Ntsika's goals are to develop a thriving and vibrant SMME sector and to ensure that small businesses are no longer confined to the margins of the economy. Ntsika also seeks to create an environment for disadvantaged sectors of our society to be em-powered to play an important role in the economic growth of South Africa.

To carry out its mission Ntsika has developed a structure consisting of six divisions. Apart from two divisions that concern themselves with the administration of Ntsika itself, there are four divisions which

Innovation is the key to growth provide the core service committment of the organisation. The 'Business Development Services Division' concerns itself with creating a network of service providers to ca-ter to all the business needs of SMMEs. This is done through:

Ø     The creation of a network of service providers to supply SMMEs with advice on de-sign, production, processing, quality and packaging.

Ø     Capacity building of service providers in the area of counselling and advice on business opportunities and markets.

Ø     Creation of a network of Manufacturing Advisory Centres (MAC'S) which will ad-dress technology and technical needs of small manufacturing enterprises.

Ø     Provision of funding and technical sup-port to strengthen these service providers.

Ø     Monitoring of retail intermediaries.

The 'Management and Entrepreneur Development Division' is charged with improving the training capacity and delivery systems of agencies involved in training and counselling. This would be achieved through:

Ø     Institutional capacity building of training suppliers in the area of management and entrepreneur development.

Ø     Developing and facilitating the accreditation of training material and manuals on management and entrepreneur development.

Ø     Developing and providing training pro-grammes for entrepreneurs through intermediaries.

Ø     Development of an entrepreneurial culture among different target groups through training interventions.

Ø     Providing financial assistance to the training of intermediaries in order for them to carry out specific kinds of training

Ø     Monitoring and evaluating those intermediaries who are already receiving support.

Ntsika also plans to increase and expand marketing avenues for SMME goods and services through its 'Marketing and Link-ages Division'. This will be accomplished by:

Ø     Encouraging appropriate tender procedures so that SMMEs can participate in public tenders.

Ø     Providing incentives that will encourage the corporate sector to stimulate small businesses in their sectors and to trade with small businesses.

Ø     Establishing business opportunity centres and sub-contracting exchanges that will provide information on SMMEs such as what SMMEs can manufacture for big businesses.

Ø     Increasing the export potential for SMMEs who can export goods.

Ø     Providing infrastructure and other sup-port services to assist small businesses to market their products more efficiently.

The Ntsika 'Policy and Research Division' provides all stakeholders with information which guides decision making, policy formulation and review. Measures to ensure success in this area include:

Ø     Developing policy proposals on important SMME issues.

Ø     Gathering and analysing data on SMMEs to establish trends in sector, size, class, region etc.

Ø     Publishing policy documents, organising seminars, compiling a Small Business Handbook, and developing and maintaining an SMME resource centre.

Ø     Interacting with other agencies in joint re-search, developing existing research studies and collating statistical data bases.

In its short history Ntsika has been successful in establishing a number of fully accredited service providers which they call Local Business Service Centres. The aim is to establish these organisations in each lo-cal authority area throughout the country.

Ntsika has also carried out research on government procurement practices and staged the Enterprise Africa Expo which drew a crowd of 2000 participants. Manuals on "How to do business with SMMEs" and "Guidelines on Government Procurement" are currently in production. A survey on suppliers of marketing services to SMMEs is being conducted.

Apart from the above there are several other areas where Ntsika is beginning to deliver. These range from co-operating with SASOL on establishing downstream petrochemical processing industries to pioneering a range of courses and programmes for tertiary institutions and high schools around the concept of entrepreneurial skills.

Ntsika also has a clear committment to empowering women, the disabled, youth and rural communities by supplying skills.

Ntsika is not the only organisation involved in stimulating growth in the country, a number of others are mentioned in the government's Macro-Economic Strategy documents. This clearly underlines a committment to transforming the economy from its narrow confines, with wealth concentrated in the hands of the few, to a more open economy with opportunities for far more people to participate.

Coming from a past characterised by an overwhelming lack of innovation, cohesion and plain common sense in terms of the economy, the efforts of the government to create organisations like Ntsika which help to orchestrate a holistic vision for nurturing SMMEs must be applauded. Innovations like this will truly transform our society for the better..

(Above): Women working in a small enterprise, producing high quality printed fabrics using their own original designs.

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.