Hope After State Capture – Towards an Agenda for Change

Mcebisi Jonas

The sacrifices and struggles of our forebearers, such as Ahmed “Kathy” Kathrada and
Comrade Laloo “Isu” Chiba , have not only being significantly eroded, but are under direct
attack from the perpetrators of grand corruption, the collapse of the state that these great
men and women helped to create, and the rise of nationalist populism. These are the
tendencies we must collectively fight against as we build a new consensus around which
society can cohere.
Right now, the US is undergoing a watershed moment with Biden the certain winner in
the Presidential race against the racist, homophobe Donald Trump. How we got to a
situation where a narcissistic right-winger took charge of the world’s greatest economic
and military powerhouse, is something that we need to ponder over. It is something that
all democracies need to ponder over.
It is indeed an understatement that we live in volatile times. The COVID-19 pandemic has
accelerated the collapse of the global political and economic system, which has been in
place for the past 40 years. This system – most commonly referred to as neo-liberalism
– was already approaching the end of its life and has simply been expedited by the
unprecedented challenges of 2020.
We thought in 2008, with the onset of the financial crisis, that this neo-liberal system
would have transitioned into something better, something greener, something more
humane. Instead, we got what UNCTAD, in their Trade and Development Report 2020,
refer to as the lost decade. (So it is not just us who has experienced a lost decade)! The
period since the Great Recession – the last 10 years – has been characterised by a
number of features that have collectively made the developing world wholly unprepared
for the COVID catastrophe.
At the centre of the lost decade has been rampant financialisation, with declining real
investment in fixed capital driven by a rapacious culture of quick returns through mergers
and acquisitions, speculative activities, and an overfocus on dividend payments. This was
aided by an easing of monetary policy in developed countries, contrasted against tighter
monetary policy in developing economies. The result has been rocketing inequality,
obscene wealth accumulation for the global super-rich, and a huge increase in foreign
currency denominated debt in developing countries.
Developing countries (and private firms) took on this debt assuming output and revenue
growth would recover to the levels of the noughties. This didn’t transpire. With the Chinese
slow-down, a commodities down-cycle from around 2012 has constrained aggregate
demand and growth. This has led to growing debt in a number of Latin American and
African countries.
The onset of the COVID pandemic compounded this. Debt servicing obligations, primarily
in developing countries, have seriously weakened their ability to manage the pandemic,
meaning that scarce fiscal resources are being directed away from critical health
spending and economic relief. More worrying is that these developing countries – with the
exception in the main of China and South Asia – do not have the fiscal capacity to
stimulate economic recovery. And it is not only governments. Many public and private
companies in developing countries also carry high debt and no longer have the balance
sheets or risk appetite for investment.
Extraordinary economic recovery will be necessary. Global economic contraction, as a
result of the Great Lockdown, will be between 4%-5% for 2020. Most developing
countries – again with the exception of Asia – will be worst affected. This is especially the
case for commodities exporters and tourism economies, many of which are experiencing
double digit contraction. South Africa’s contraction for 2020 is estimated a 7.8%.
This will set off a vicious cycle of reduced tax revenue, greater fiscal distress, and
ultimately less public investment on healthcare, education and economic recovery. This
in turn will prolong the economic recession in the developing world, and may mean we
are in for another lost decade of austerity, rolling back of services, and growing wealth
inequality within and between countries.
So what could change this bleak picture?
First, a rapid global bounce back that returns global aggregate demand at least to pre-
COVID levels. We had hoped this would be the case in the first half of 2021, but with the
2nd wave of infections and consequent lock-downs in Europe, this is unlikely. The COVID
denialism we have witnessed in some parts of the world is not assisting.
Second, a Biden victory will go some way towards restoring trade relations between the
world’s two economic superpowers. We really need a sustained uptake of Chinese
demand for commodities. As a country, South Africa remains dependent on commodities
exports as its core source of growth.
Third, we need a fresh approach to multilateralism. Again, a Biden victory might be a
necessary precondition for this to happen. We must accept that the old multilateral
architecture is unfit for purpose, and a new architecture and development approach is
necessary to change the global trajectory.
Fourth, the world is pivoting towards the necessity of Climate Change solutions. We need
new impetus to give substance and resourcing for a global climate change deal. As a
start, Biden has promised that the US will rejoin the Paris Climate Agreement within days
of his victory. Indeed the future of our economic recovery and survival is inherently
dependent on coherent policy direction on issues such as green energy and water. The
perception that the climate change agenda is a nice to have add-on to policy, is dangerous
and short-sighted.
IN addition, we need a global debt deal. I like the proposal currently being advocated by
the UNCTAD for the establishment of a new Global Debt Authority, independent of
creditor or debtor interests, and focussed on assisting developing countries with, for
example, sovereign debt restructuring and work-out mechanisms. Such an authority could
also regulate private hedge and equity funds that are investing in distressed debt.
Dealing with debt is a small but necessary part of the global fix. We also need a global
economic stimulus and rescue plan directed mostly towards developing countries. Such
a global stimulus could direct global liquidity, currently pooled in tax havens, for example,
to green technology, digitization and health infrastructure in the developing world and
Africa in particular. I truly believe that digitalization can be a leveller – providing access
to new markets, new technologies, and providing entrepreneurs with immediate access
to networks and know-how.
Hopefully the defeat of Trump will deal a blow to the de-globalization lobby. But we also
cannot simply return to the hyper-globalization model of the past that disproportionately
benefitted China and finance capital in the developed world. A new model of globalization
must emerge that conduits Foreign Direct Investment into the productive economies of
developing countries, and allows these countries to generate export earnings. This will
entail rewriting the rules of global trade to level the playing field. As an immediate
measure, we need intellectual property rights on a COVID vaccine waived. Without
equitable access to the vaccine, it is highly likely that global recovery will exacerbate
uneven development between the developed and developing world.
While a global debt deal would be great, we cannot sit back and wait for one. In fact, if
history is anything to go by, such a deal is probably unlikely. We need more global
activism around these issues. And we need to get our own house in order first.
Unfortunately, this will take more than coming up with an economic recovery plan, or
putting new execution capacity in place (for example in the Presidency). Don’t get me
wrong, these are important measures that we need to support, as we do other reforms
aimed at restructuring our dysfunctional SOCS and tackling endemic corruption.
However, these interventions must be underpinned by a much bigger, shared national
agenda that accepts as its starting premise the nature of the crisis we find ourselves in.
Our crisis is not simply a fiscal crisis or a sovereign debt crisis. Our crisis is a fundamental
political and economic crisis that will require wide-ranging, painful and unprecedented
trade-offs. In simple terms, we are faced with another 1994 moment. But we now have
an opportunity to rewrite the compromises that were made then but which are no longer
relevant.
The 1994 consensus gave us a stable political platform to build a new democracy,
assemble a new state architecture, and deliver services and welfare to millions of needy
South Africans. A small but powerful black elite was created through boardroom deals
and access to state rents. This fragile consensus held together for the first two decades
of freedom, but has rapidly unravelled since then.
A number of factors account for this unravelling.
First, our growth model failed to deliver the output and revenue required to sustain fiscal
redistribution. We remained locked in to the global economy as a commodities exporter,
without diversifying into new sources of growth. This worked well while China was
powering forward at near double digit growth, but the plan stumbled on the commodities
down-cycle that began in 2012. Even before the onset of COVID, we were not producing
the required levels of revenue to sustain our social programmes for the poor. Almost a
decade of fiscal containment has seen a consistent decline in real spending on health,
education and policing. This is set to further decline as we enter a period of fiscal distress.
South Africa was able to weather the 2008 Great Recession because we had fiscal
reserves, a luxury we no longer have. We are close to defaulting on our debt, and neither
tax increases nor expenditure cuts are feasible. Painful trade-offs and choices are
therefore a necessity. The question is whether we have the will and leadership. Do we
cut public service jobs? Do we freeze public sector wages? Do we cut back on services?
How do we balance the interests of public servants, their unions, and the poor? And what
about the interests of the newly established black elite who are dependent on state
markets as their primary source of wealth accumulation? Is there monetary policy space
to play in, and what are the risks, for example, of monetizing the deficit (printing money)?
How do we bring in private and institutional investors to ensure continuity on infrastructure
spending? How do we deal with the Eskom albatross around our necks?
My own view on these difficult questions, is that whatever choices are made, the interests
of the poor must come first, together with issues of sustainability . We must protect price
stability, because hyper-inflation impacts the poor the worst. And if we have to cut posts
or services, we must ensure these are not front line posts. We must reverse the current
trend of cutting back on police officers, teachers, nurses and the like. If we have to cut, it
must be at the top. As budgets for procurement shrink, we must open up new
opportunities in the real economy for black entrepreneurs. Big capital must come to the
party. Business must be more active in driving economic reforms. While the structural
economic reforms put forward by government are generally accepted as crucial for
economic recovery, these cannot be left alone to the state to pursue and implement.
There needs to be more active involvement from business and labour to wrench the
economy from perpetual decline.
As we accelerate our just energy transition, and open up space for private investment in
energy generation, we must ensure that coal-dependent communities in Mpumalanga are
not decimated. Of course, we have to deal with the Eskom debt. We must find creative
ways to ensure that the projected shrinkage in municipal revenue doesn’t sink Eskom.
These difficult challenges are not for Eskom alone to resolve. Our macro-economic
difficulties are not for Treasury or SARB to resolve alone either. These are whole-of-
society issues and they require a leadership that seldom veers towards populist options.
Our collective failure to address these issues will sink us all. These times require each
one of us to contribute where and how we can. Without this mind-set shift, and our
continued expectation that “someone else will do it”, we are doomed.
The second major factor that has caused our consensus to unravel is inequality. It is
disturbing that the black share of wealth has not really shifted over the past 25 years.
Financial asset inequality has a gini co-efficient of 0.92, and property asset inequality is
0.88. Remember 0 represents equality and 1 represents perfect inequality. There is still
a racialized element to this inequality. White South Africans make up more than 60% of
the country’s elite, and Africans just 20%. This plays directly into unhelpful racial populist
narratives, which in turn lead to the flight of know-how and capital. We cannot afford to
become more racially polarized and divided as a society.
We need well considered ideas about how we can deal with the inequality scourge in our
country. Again, I feel we must look more closely at our growth model – our high
unemployment, the small size of the SMME sector, and our failure to build a black
entrepreneurial class. Our poor education and human capital outcomes, worse for
example than Zimbabwe, have also been a major contributor.
The solution is far more complex than direct asset redistribution. This could be one of the
measures, but we must ensure it does not lead to aggregate contraction in investment
and productivity. At the moment, we cannot afford any more knocks on the revenue side.
Big capital must get involved in the solutions – establish skills hubs, platforms for sharing
innovation and technology, and SMME incubation. Banks must restructure debt and
develop fit-for-purpose financing instruments. Business must open up market
opportunities in value chains where they are dominant. They must be part of a national
project to build inclusivity. The measure of success must be the increased share of black
wealth in the markets, increased labour participation and growth. The state must enable
this to happen.
We need to create jobs at scale in the low skills end of the labour market, while we
transition to a higher productivity economy. We need the state, business and unions to
work together to see how we can improve competitiveness in these segments. Can we
think about wage subsidies in labour intensive sectors?
And how do we improve our schooling system? Again, I think we cannot just lay the
solutions at the door of government. Unions and communities must play their role in
strengthening school accountability and performance. Business can contribute in
digitizing schools to ensure online education opportunities are available to all.
The third trigger of our diminishing consensus, which I would want to discuss here today,
has been state failure, largely as a result of state capture. We all had high expectations
of the democratic developmental state we established. It was going to drive economic
development, address market failures, and deliver quality basic services to the poor.
These expectations have come crashing down with the realization that the state was
systematically repurposed for looting. Vital institutions like SARS were destroyed in the
process, and the NPA and the security cluster became lame ducks, allowing pillaging at
all levels of the state.
Key technocrats and professionals left the employ of the state. Evidence-based planning
and budgeting went out the window. Monies meant for the poor were redirected to
networks of corruption. Corruption has also heavily impacted economic competitiveness,
causing huge inefficiencies in critical network industries like transport, logistics, telecoms,
and energy. This has driven up the costs of doing business and has lost us investment.
Worryingly, the state has lost legitimacy, affecting the leadership role it needs to play in
brokering consensus and trade-offs with other constituencies.
There are clear signs of restoring governance in SOCS, and revitalizing SARS and the
security cluster. But the state remains a shadow of its former self and is still plagued by
high levels of mistrust by citizens and key stakeholders in unions, business, and civil
society. As necessary as the Zondo Commission has been in revealing the dirty workings
of state capture, the everyday stories of abuse and malfeasance continue to undermine
the state’s credibility.
The capacity of the sphere of government closest to the people – local government –
remains a real concern. I don’t think we are talking enough about this, and the catastrophe
that awaits many municipalities with likely budget cuts on the horizon and no own revenue
to speak of. We must make sure that services to the indigent and the maintenance of key
assets are protected. I think it is incumbent upon the higher spheres of government to
step in to ensure basic services are rendered and assets maintained. Local businesses
must also find a way of contributing, and we need to create the right regulatory
frameworks for this to happen.
I would like to conclude with some thoughts on political agency. We have come through
a major political transition from apartheid to democracy, in which the governing party led
society through an incredibly difficult process of political and institutional change. The
movement was a beacon of hope around which society cohered. In many respects we
are back in 1993. We need to take a new development path, and we need a new vision
around which society can once again cohere.
This time around, though, we no longer have the same kind of credible and embedded
political agency to lead us. Underlying this is the realisation that the governing party has
not adequately filtered who rises into leadership. It has to rebuild its own ethical
foundations before it can lead a broader campaign for a new moral order in the state and
society. Speaking as I am here today, paying tribute to great leaders like Cde Kathy, Cde
Isu and others, we are also at a moment in our history when it is incumbent on us to move
beyond the Messiah complex, which remain a perpetual feature of our politics. It is
unrealistic, and frankly delusional, to think that a single person can save nations and lead
us to the promised land. We were lucky to have a golden generation of leaders, like
Mandela, Kathy, Isu and others, but even they constantly reminded us of the power of the
collective and the imperative of building consensus. We must also break out of the belief
that what we have in our politics right now is as good as it gets. Our country has and
deserves better. But until we get better, civil society needs to step up and define its role
in galvanizing society around a new vision. We need to take the initiative as a joined up
society to begin earnest discussions about the difficult trade-offs and compromises to
kick-start growth, tackle inequality, and forge a common, non-racial future. This is what
Comrade Kathy and Comrade Isu would have expected of us.

Mcebisi Jonas delivered this Ahmed Kathrada Foundation Annual Lecture.