[DEBATE] : Cosatu's 10-step programme for the economy
hein at marais.as
Fri Sep 19 15:00:16 BST 2008
Walking through the doors
ZWELINZIMA VAVI - Sep 11 2008 06:00
In the first of a two-part series, Cosatu general secretary Zwelinzima Vavi,
drawing on the expertise of a panel of economists convened by Cosatu, argues
that capital must be disciplined
We want to walk through the doors and use the new environment created by the
Polokwane conference to begin to debate about economic and other policy
By drawing together a panel of leading progressive economists as part of our
“Walking through the doors project”, we want to position the labour movement
to use the emerging space.
We gave our panel the task of answering this question: is the economy moving
in the right direction, and if not what are the key problems which need to
The economists questioned the mantra that government’s economic policies
have been a “success story”, achieving “macro-economic stability” which
paved the way for a period of sustained economic growth, and that this is
beginning to reverse the tide of our inherited legacy.
A deeper analysis shows, in fact, the opposite: that macro-economic and
other policies are deepening the structural problems of the economy,
entrenching inequality, and making the economy ever more vulnerable and
dependent particularly on financial markets.
Even with current policy shifts, overall economic policies continue to be
inappropriate, are based on fundamental misunderstandings of the real
economy, and ignore lessons of international comparative development in the
The recent “consumer-led boom” is not addressing, but rather exacerbating,
the negative features of our economy. The major difference now, is that the
relatively small black middle class, weighed down by debt, is being
incorporated into the apartheid enclave of luxury consumption by a minority.
The majority suffer the ravages of unemployment and poverty wages. The
“boom” has created an economic bubble, financed by unsustainable debt, which
threatens to implode and leave us even worse off than before. As the
productive sector of the economy has been undermined and the “resource
dividend” squandered, we are now more vulnerable to economic shocks,
inequality is being worsened, and the majority have been made more dependent
on social grants.
These patterns are not despite relatively high growth, but a direct product
of the type of growth we are pursuing.
The panel has identified the following challenges of current economic
The growing financialisation (domination by the financial sector) and lack
of productive investment in the domestic economy, combined with the growing
outward internationalisation of South African firms.
This is exacerbated by the character of our financial sector -- banks tend
not to finance long-term investments, unlike the East Asian model.
Government policy has not intervened to influence the allocation of capital
and financial markets have subverted our development goals.
We are witnessing a problematic change in the structure of production and
investment. This has seen the decline of the manufacturing sector and
Instead, we focus on sectors such as tourism, services, real estate and the
financial sector. As labour we are concerned with the associated growth of
atypical, unprotected and badly-paid work. Free-market policies have
encouraged inappropriate investments like state incentivised minerals
processing, and smelters; “easy rent” service sectors like mobile phones,
bubble-induced property development, speculative financial services and
private security services.
The cycle of speculation, consumption and unproductive investment is
promoted by conservative monetary policy and high real interest rates, which
continues to dominate other areas of policy. Crude free-market policies are
unable to deal with the contradictory goals of policy which are to curb
rampant conspicuous consumption while, at the same time, promoting
productive investment. Liberalisation of exchange controls has subjected
South Africa to destabilising inflows and outflows of capital, which affect
our domestic asset base.
This unsustainable debt-driven consumption was financed by short-term
capital inflows (themselves dependent on high interest rates). These
resources have been squandered in largely unproductive investment in the
In 2006 investment in the top 10 sectors was in non-manufacturing sectors.
An alleged growth-driven boom has left the SA economy possibly poorer, with
large outflows of capital in dividend payments to foreigners.
The current-account deficit is a function of the lack of diversification of
the economy. We are over reliant on imports for capital and intermediate
goods, as well as consumer goods. We have failed to capture our “resource
rents” from production and export of our raw materials.
At the same time, our exchange rate (the relative value of the rand) is
artificially high on the back of cheap energy and resources, despite our
high trade deficit.
Inflation targeting entrenches this pattern, and boosts high interest rates,
because depreciation in the exchange rate would raise inflation.
Large firms in South Africa are using their power, and the space given to
them by government policy, to entrench their monopoly positions.
This continued monopolisation and concentration in some areas of the South
African economy raises the challenge of disciplining capital.
This needs to include subordination of finance capital to developmental
goals, the control of capital flows, consideration of various instruments
which can be used to discipline firms and state ownership in strategic
Conservative economic policies have mainly benefited a certain section of
capital. Less powerful fractions of domestic capital, particularly smaller
domestic producers, share some of Cosatu’s unhappiness about elements of
The BEE strategy is reinforcing the current growth path and buying into the
existing business model. BEE has not been realigned to the emerging
industrial policy.• While apartheid agrarian policies tended to favour
farmers, power has shifted in the last decade to agro-processing, with the
abandonment of regulation through marketing boards, and the consequent
domination and abuse by cartels in this sector.
Trade patterns under liberalisation have retarded structural change, and
subjected industry to unfair competition from abroad.
Opening up to the “chill winds of competition” has reduced our economic
policy autonomy. We have abandoned the use of trade policy as a way of
altering relative prices in our favour, by failing to strategically use
import tariffs and export duties.
There is no coherent regional development strategy. This is necessary to
deal with regional imbalances, and to unlock a regional industrial strategy
which could make South Africa a hub for intermediate products, capital
equipment and consumer durables, as opposed to the current one-sided export
The emerging industrial strategy is being contradicted by fiscal and
monetary policy. The prospects of developing a coherent strategy for growing
productive activity and employment in the manufacturing sector, and
broad-based industrialisation, is now being undermined by resistance from
treasury to resourcing the new industrial strategy, and a lack of alignment
of other areas of policy with this strategy.
Government, our social services, and the economy are suffering from the
legacy of destruction, or undermining, of state capacity, including the
shortage of key delivery personnel. Despite all the hype about massive
infrastructure investment, levels of public investment are now well below
those in the Seventies as a proportion of GDP.
Treasury and the power of capital in the state remain dominant. Fiscal
policy is used to ensure low deficits or a surplus, instead of stabilisation
of the real economy and employment creation.
Source: Mail & Guardian Online
Web Address: HYPERLINK
Ten steps to a new economy
ZWELINZIMA VAVI - Sep 19 2008 06:00
In the first part of this article we identified key structural problems in
the South African economy, emerging from a discussion of Cosatu's panel of
progressive economists. In this part we outline some thoughts on approaching
the challenge of crafting policies that systematically address the problems
identified in part one.
If existing economic policies have not only failed to address these problems
but are also deepening them, then clearly there is the need for a radically
different economic strategy.
Internationally, it is now widely accepted that the essentially neo-liberal
economic policy prescriptions on which our government modelled its economic
strategy in 1996 have failed and been thoroughly discredited. Partial,
inconsistent and often contradictory economic policy shifts have
subsequently been made in South Africa, particularly since 2003.
But those areas of progressive advance have largely been constrained and
frustrated by the persistence of an inappropriate macro-economic strategy
and a failure by the state to act effectively to address the problems
outlined in the previous article, such as domination by the financial sector
and other monopolies; the deindustrialisation of certain sectors of
manufacturing; an overreliance on minerals exports and the reliance on
imports to sustain our economy; the associated balance of payments problems;
and the cycle of speculation and high interest rates that has entrenched
Much of the failure to act decisively to address these structural problems
can be ascribed to a lack of political will to take on powerful vested
interests. This has led to the worst possible combination: uncertainty and
timidity. A continuation of this approach will lead to our government being
punished both by capital and its own mass constituency. The important
political shifts that have begun post-Polokwane have now created the space
to start to engage far more boldly in economic strategies that intervene
decisively to develop solutions to problems in the real economy. We outline
here the type of bold approach that we will be advancing at October's
economic summit of the alliance.
The first question that needs to be addressed is: What should be the central
objective of economic policy? The alliance is now agreed that the
overarching objective must be to advance policies that are deliberately
geared to the large-scale creation of decent work, the promotion of greater
equity in society, and the eradication of poverty -- that is, we need new
strategies to break from the current growth path, which is reproducing
inequality, low-paid and low-quality jobs, and poverty.
This overarching objective must be the yardstick against which all policies
are measured, evaluated and transformed if found wanting. We now need to be
brutal in applying this benchmark -- commitment to these goals must not be
confined to empty rhetoric. Any policies that do not meet this test must be
overhauled or replaced.
This test means, among others, that strategies which produce high growth
benefiting a few -- but coincide with and reproduce continued high levels of
infant mortality, poverty, illiteracy, casualisation, unemployment and
inequality -- have failed. The true test of economic policies must be that
of sustainable human and social development, not narrow economic indicators
such as the level of the budget deficit, or levels of profit. The policies
of the alliance must aim to ensure that this is promoted by all organs and
levers of state such as procurement, parastatal investment, the budget and
monetary policy interventions -- as well as levers of civil society such as
social investment, consumer power and retirement funds.
We have inherited a development path or trajectory. The choices we make
today have to confront those made in the past. Powerful industries protected
in the past continue to lobby as well as incorporate the new elite. To
change the development path thus means concerted actions against these
interests. While the bankrupt nature of our current trajectory is now
evident, if we do not take urgent actions to change, the change will happen
not in a planned way, but reactive to the crises we will face. Facing up to
the need for decisive action is in the long-term interests of all sections
Industrialisation and economic development
The second pillar of a new economic policy agenda must be the need for
broad-based industrialisation and economic development, and a break from an
excessive dependence on export of raw materials, imports of machinery,
equipment and consumer goods, and economic domination by the financial
sector and monopolies.
Not only our industrial policy, but also our monetary, financial, fiscal,
energy, human resources and trade policies need to be aligned to these
objectives of focusing on the real economy. These policies need to promote
actively the creation of a vibrant and diversified manufacturing industry,
including new and particularly labour-intensive sectors producing not only
for exports, but also for the needs of the domestic economy and the region.
They also need to promote a social sector that creates sustainable
livelihoods. This requires deliberate, systematic and targeted state
intervention in the economy in order to change economic patterns, act
against monopolies and provide alternative centres of production in
strategic areas of the economy.
The challenges of a broad-based industrialisation strategy for South Africa
are complex and difficult to capture in a short article, but have been
elaborated upon in various Cosatu policy documents that are publicly
available, as well as by progressive economists advising Cosatu.
Key among these are:
a macro-economic framework and intervention in the financial markets to
promote the type of balanced economic development tat is desired, develop
the domestic market and deter speculative and unproductive economic
measures to harness the boom in commodity prices - among others, through
increased taxation -- and to invest the "resources dividend" intelligently;
active intervention through sector strategies to promote the growth of
labour-intensive sectors, and to support labour-intensive industries that
are under threat;
measures to promote and compel the beneficiation or manufacturing of our
minerals and other raw materials into value-added products;
the alignment of trade policy and its subordination to the overall goals of
promoting broad-based industrialisation, protecting vulnerable sectors,
building capacity to develop new areas of manufacturing and so forth;
a coherent strategy to develop cooperatives in all sectors of the economy,
both rural and urban, on a large scale such as we see in Venezuela today,
and the harnessing of retirement funds for social investment;
the adoption of various instruments that have been successfully used
internationally to discipline firms beyond the current narrow focus on
the establishment or expansion of state ownership in strategic sectors, such
as the financial, fuel, energy, agroprocessing, steel, ICT and mining
use of the state budget, state procurement and investments by parastatals
such as Transnet and development finance institutions such as the Industrial
Development Corporation and Land Bank to promote deliberately particular
types of economic activity; and
measures to improve living standards and organisation of the working poor,
and to act against atypical employment and casualisation.
Cosatu's 2006 industrial strategy document outlines detailed information on
a number of these issues, which are being developed further.
In all of this, an environmentally appropriate and sustainable economic
strategy is no longer a nice-to-have. The energy crisis, issues of global
warming and so forth, as well as the devastation of communities by
inappropriate development, mean that the approach of "growth at all costs"
cannot be blindly pursued. It is, after all, working people who pay the
highest price for such "development".
Creative policy development, such as in the area of alternative energy
sources, and regionally focused trade and production strategies can be
sensitive to these realities while promoting the job-creating and
redistributive growth path our country so desperately needs. Nevertheless,
rapid industrial development will always throw up tensions in terms of
broader environmental and social concerns, which have to be consciously
In addition, it has become obvious that no economic policy can be
sustainable without integrating -- at its core -- a strategy to ensure fuel,
energy and food security. Various proposals have been made in this regard,
but more work needs to be done in this area, given current international and
The third economic pillar is the need for a regional development strategy. A
sustainable growth path is one that must recognise South Africa's integrated
position within Southern Africa. We need to build regional institutions
proactively to invest in growth, which will support diversified exports of
South Africa. We need demand growth in the region for our success. We need
to consider investing a proportion of resource earnings the region -- as the
region grows, so will sustainable employment in South Africa.
Investing in the development of the region as a whole is part of our
responsibility. The international fuel and energy crisis creates an
opportunity and challenge to shift our trade patterns. A regional industrial
strategy could make South Africa a hub for intermediate products, capital
equipment and consumer durables, as opposed to the current one-sided export
The fourth pillar of a new economic policy should be an investment strategy
that channels private, public and socially owned capital into productive
investment, infrastructure and the development of people -- while acting
against speculation and disinvestment.
Despite the real concerns about low levels of savings and investment in the
economy, the reality is that vast quantities of capital are lying idle,
being channelled into speculative activity or misdirected to
mega-capital-intensive projects, golfing estates and glass buildings, or
channelled out of the country at a time when our people are crying out for
real investment in communities and jobs.
Various mechanisms have been proposed by us and others to address this
misallocation of resources, including:
the reintroduction of legislated, prescribed asset requirements compelling
the huge funds that control nearly R2-trillion in workers' assets, including
the state-owned Public investment Commission (PIC), to direct a certain
portion of their investments into socially productive investment, for
example through government bonds with guaranteed returns;
capital controls to regulate speculative activity, including through the
introduction of "speed bumps" that impose a tax on short-term capital flows;
possible tax and other incentives for socially productive investment,
including the use of lower interest rates for certain investments.
Measures to channel socially owned capital include greater control by
retirement-fund members over the investment strategy of their funds, state
assistance to promote co-ops (including financial and agricultural co-ops),
programmes to encourage communities to invest in local production, and the
provision of infrastructural, financial and other facilities for small
Large volumes of public capital are available to be channelled through state
budgets, procurement and parastatal investment -- this requires a clear
strategic framework to marshal these resources for economic development, and
Cosatu has proposed criteria for prioritising such investments. A specific
focus is needed on ensuring that the financial sector finances development
-- through legislative compulsion if necessary, as happened in East Asia --
as well as the creation of public financial institutions that can play this
role. Banks need to be subjected to greater regulation, with more detailed
The fifth pillar is a monetary policy that is attuned to development
imperatives. Current monetary policy revolves around two problematic
the use of interest rates as a blunt instrument to achieve a rigid inflation
target, despite the inability of this crude mechanism to impact on external
the reliance on high interest rates to maintain short-term capital inflows.
We need to develop a monetary policy -- and Reserve Bank -- that uses
multiple tools to combat excessive inflation while promoting employment and
growth as part of a new mandate.
Instruments that have been used successfully internationally need to be
carefully considered and applied to deal with our challenges. These include:
the use of differential interest rates -- high rates to deter certain
economic activity, and low rates to promote investment, employment, low-cost
housing and so forth;
the introduction of higher reserve requirements for banks, to curb excessive
active management of the exchange rate to pursue our industrial and other
strategies, curbing imports and promoting local production and exports.
This gives monetary policy a radically different orientation from the narrow
inflation-targeting model that Stiglitz has described as a "disaster". Our
real interest rates need to be reduced to the same level as, or lower than,
those of our trading partners.
At the same time, targeted strategies are required to complement monetary
strategy in order to deal with inflationary pressures that can't be dealt
with by the Reserve Bank alone. These include measures to act against
monopolistic import parity pricing in sectors such as fuel, steel and
Coherent strategies are needed to lower food and fuel costs, through
agrarian reform, competition policy and other interventions, as well as
strategies to lower the cost of administered prices of public goods,
particularly for working people and poor communities.
Unlike the recent boom driven by excessive credit and conspicuous
consumption, which is unsustainable, an increase in living standards for the
majority of our people, although introducing different types of inflationary
pressures, could be offset by:
the benefits of rising productivity of the economy;
measures to contain food inflation (which constitutes the bulk of poor
the economic injection to local communities; and
the fact that increased spending of the poor will mostly be on basic
commodities, which are more likely to be locally produced and labour
intensive than imported luxuries. This type of consumption is more
sustainable, promotes development and employment, and is less vulnerable to
the boom/bust cycle fuelled by excessive credit.
Sixthly comes the realignment of our fiscal policy and its integration into
a new economic strategy. Currently fiscal policy is technocratically driven,
essentially the preserve of the Treasury, and unduly focused on chasing
macro-economic targets such as low budget deficits, with inadequate
attention paid to how fiscal policy can target resources in a way that
transforms the economy, promotes employment and redistribution, and builds
the capacity of the state to play its role effectively.
As a result, there is a complete mismatch between the way in which the
fiscus is approached and the developmental goals to which the government has
committed itself. This lack of strategic focus has resulted in underfunding
in critical areas, chronic shortages in key delivery personnel and
infrastructure, a lack of resourcing of economic programmes (including
industrial policy) and the diversion of resources to inappropriate areas,
such as mega projects, arms deals and pebble-bed nuclear reactors.
A realigned fiscal policy would need to invert the current one-sided focus
on low budget deficits/surpluses and rather use state expenditure to promote
developmental objectives, with macro-economic variables, such as tax:GDP
ratios, deficits and so forth being dynamically aligned with society's
This may see such ratios rising or falling over particular periods (for
example, a longer -term strategy may mean using higher deficits to finance
investment, which then results in the type of economic growth that brings a
reduction of deficits for a period), with the fiscal strategy being pursued
primarily to promote the development of society and equitable growth of the
An urgent task is to identify critical areas of shortage and areas of
spending that need to be prioritised. This needs to be done in the run-up to
the 2009 budget, and Parliament and civil society must engage to determine a
new fiscal agenda.
This will enable the type of "zero-based budgeting" approach proposed in the
Reconstruction and Development Programme, which foresaw that departmental
allocations wouldn't be based simply on incremental allocations on top of
existing budgets. Rather, budgets should be determined by programmes and
critical needs, including adequate expenditure to ensure critical service
personnel, economic infrastructure and social delivery.
Further, a detailed discussion is required to develop a progressive tax
system that promotes equity and growth. Cosatu has tabled a number of
proposals in this regard. In addition to equity considerations, taxation
needs to promote particular types of developmental economic activity, and to
deter harmful trends identified in part one of this article.
Finally, instead of constantly lamenting the "lack of state capacity" and
the erroneous expectation that delivery depends on the private sector, we
need a new mindset that sees the proper resourcing of the state and
investment in capacity as a national priority, including at local government
A seventh pillar should be the alignment of all state institutions to pursue
these new objectives of economic policy. Unlike today, where departments and
state institutions often pursue disconnected and sometimes contradictory
goals, there has to be effective coordination throughout the state, and
This is one lesson of societies pursuing massive development projects,
whether in East Asia, the European Marshall plan or new democracies in Latin
America today. This requires all state institutions, and society more
broadly, to function differently. It is both a political and technical
coordination exercise, and requires a mobilised and active civil society.
Like East Asia, we need powerful planning and technical coordination
capacity. Unlike the East Asian model, we want to build a democratic
developmental state, which requires the unleashing of our people's energies
in advancing these objectives. So we need a programme of social mobilisation
around our development agenda.
At the level of state coordination, we require a number of things: Firstly
the creation of an economic planning centre in the state -- either a
ministry or a centre in the Presidency -- to ensure proper coordination and
supervision of state departments and institutions around a coherent economic
vision, including medium- and long-range economic plans.
Secondly, the current model of the Treasury subordinating other government
departments to its narrow objectives (and frustrating or even defying
government policy) needs to be replaced by an appropriately redefined and
re-aligned role for it.
Thirdly, the current scenario of state institutions and parastatals being a
law unto themselves must come to an end. A clear and transparent mandate
needs to be given to all state institutions, in the context of an
overarching development protocol, and measures put in place to ensure proper
supervision and accountability. This requires, among others, the overhauling
and democratisation of all boards, as well as the introduction of tighter
reporting requirements and meaningful oversight.
There needs to be a review of whether the current structure of these
institutions is conducive to such accountability; whether corporatisation,
for example, has undermined this; and therefore what changes are needed.
Finally, recent problematic experiences with various regulators (such as
that of electricity), being beyond public accountability, raises the issue
of whether the state can effectively pursue its economic policy objectives
under a scenario of agentisation, and whether this model doesn't need to be
Rural development and agrarian reform
The eighth key pillar is that of rural development and agrarian reform. A
large proportion of our people continue to live in rural areas
(approximately 40%). The current crisis of poverty and destitution in rural
areas, mass migration into urban centres and the crisis of food security
underline the importance of a coherent strategy to create sustainable
livelihoods in rural areas, and to ensure the production of affordable food.
The ANC's resolution on rural development at Polokwane contains detailed
proposals that question the government's current minimalist approach to
rural development, and it is a useful basis for moving forward. The current
situation of entire communities subsisting mainly on remittances from
families and social welfare grants is not sustainable.
A rural development strategy, while having land reform as its centrepiece,
would also need to incorporate other key elements such as:
affordable financing to promote economic development;
support programmes and training to assist co-ops and small enterprises;
strategies to develop appropriate industries, including light manufacturing,
handicrafts, services, tourism and others; and
putting in place the necessary economic infrastructure, including IT
services, roads and rail.
A programme for land and agrarian reform needs to look not only at questions
of redistribution, but also at forms of land ownership, the role of public
and communal versus private ownership of land, and the role of small farmers
versus that of large farmers (white or black).
The programme of land and agrarian reform must aim to ensure:
sustainable livelihoods of ordinary rural people on the land;
the promotion of food security and affordable food prices;
the effective use of state land, and the role of state support in promoting
small-scale farming, including through public financial institutions;
measures to ensure large-scale farmers produce affordable food for the
the establishment of, and support for, agricultural co-ops;
the rehabilitation of land, and environmental protection; and
steps to prevent the over-concentration of land, regardless of its
A special focus is required on the position of farming communities living on
"white farms", measures to deal with evictions, and the continuation of
semi-feudal relations on the farms; and a strategy to ensure that farm
workers and their families retain, or gain, secure access to productive
The recent crisis of high food prices shows clearly that, to be effective, a
strategy for food security will need to act against the cartels in the
agroprocessing and distribution sector; provide for an active role for the
state, possibly in the distribution and production of basic food; and create
incentives for the production of affordable food for the domestic market, by
large and small producers.
The ninth pillar of a new economic strategy needs to look at the provision
of comprehensive social protection. It is important to see that social
protection is not welfare, as traditionally understood.
Providing universal access to affordable basic services, income support and
assets has both an economic and social logic:
housing, transport, education and other social policies must aim to
construct liveable communities that are accessible to work opportunities;
healthcare and electricity and water provision promote economic productivity
as well as decent lives; and
comprehensive social security provides a basic income for people, which
enables them to participate in various forms of economic activity.
This is why the concept of comprehensive social protection advanced by the
Taylor committee is not only a social necessity, but also an economic
imperative that unleashes people's creativity and human potential, rather
than locking them into a cycle of poverty and dependence.
This requires the public and universal provision of affordable public
services in all these areas. Particularly critical here is affordable public
healthcare, accessible and well-located housing and affordable and quality
education. "Affordable" means, among others, that agreement is required on
what is considered to be an adequate level of free basic services, and a
progressive cost structure that cross-subsidises the poor. "Public" means
the development of high-quality systems to ensure public, rather than
profit-driven, provision of basic needs, and the phasing-out of
private-sector dominance in key areas such as health, transport, education
and housing. Where the rich opt out of public systems, this reduces the
scope for social solidarity.
The widely touted issue of skills and human resource development, while not
a panacea, needs to play an important role in the restructuring of our
economy. The notion of "active labour-market policies" in which our human
resources are skilled and retrained only makes proper sense in a context
where people actually have a prospect of being absorbed in that labour
market. Therefore the HR strategy needs to be aligned with a focused
strategy to empower people to engage in new areas of economic activity,
combined with a greater recognition of skills and prior learning of those
Finally, universal income support means that unlike the current situation,
everybody should enjoy this support as a right, and no person should fall
through the cracks. Current proposals for comprehensive retirement provision
don't address this need since millions, particularly unemployed adults of
working age, are still left without any form of income. Therefore the need
for a basic income grant, or a similar scheme, remains imperative.
Source: Mail & Guardian Online
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