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Struggle and sacrifice eroded by grand corruption and r...

South Africa

Ahmed Kathrada Foundation Annual Lecture

Struggle and sacrifice eroded by grand corruption and rise of nationalist populism

Former deputy minister of finance Mcebisi Jonas. (Photo: Gallo Images / Thulani Mbele)

Former deputy finance minister Mcebisi Jonas delivered the 11th annual Ahmed Kathrada Foundation lecture on Saturday, 7 November 2020. The theme for this year’s lecture is ‘Hope After State Capture – Towards an Agenda for Change’.

Mcebisi Jonas said that the sacrifices and struggles of South Africa’s forebears, such as Ahmed Kathrada and Laloo Chiba, have not only been 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.

We publish the full lecture here:

Let me thank the Ahmed Kathrada Foundation for inviting me to give this Annual Lecture today, titled “Hope After State Capture – Towards an Agenda for Change”. This lecture is dedicated to the life and memory of comrade Laloo “Isu” Chiba who would have turned 90 this week. Cde Isu was recruited into a lifetime of struggle by Cde Kathy, and served as a platoon commander of the MK and then the Second National High Command. After the “Little Rivonia” trial, he was sentenced to 18 years’ imprisonment on Robben Island. From his release until his death in 2017, he remained a tireless champion of non-racialism and human rights.

The sacrifices and struggles of our forebears, such as Cde Kathy and Cde Isu, 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 Joe 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 past 10 years – has been characterised by a number of features that have collectively made the developing world wholly unprepared for the Covid-19 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.

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. But we need to get our own house in order first.  

The onset of the Covid-19 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 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 the worst affected. This is especially the case for commodities exporters and tourism economies, many of which are experiencing double-digit contractions. South Africa’s contraction for 2020 is estimated at 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 among 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 second wave of infections and consequent lockdowns in Europe, this is unlikely. The Covid-19 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 – 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 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, pooled in tax havens, for example, to green technology, digitisation and health infrastructure in the developing world and Africa, in particular. I truly believe that digitalisation 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 deglobalisation lobby. But we also cannot simply return to the hyper-globalisation model of the past that disproportionately benefited China and finance capital in the developed world. A new model of globalisation 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-19 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. But 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.

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.

First, our growth model failed to deliver the output and revenue required to sustain fiscal redistribution. We remained locked into 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-19, 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 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 monetising 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 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 the 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 mindset 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 coefficient of 0.92, and property asset inequality is 0.88. Remember 0 represents equality and 1 represents perfect inequality. There is still a racialised 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 polarised 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 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 galvanising society around a new vision. 

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. Businesses can contribute in digitising schools to ensure online education opportunities are available to all.        

The third trigger of our diminishing consensus, which I would want to discuss, 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 realisation 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 revitalising 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 remains 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 [Nelson] 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 galvanising 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 Cde Kathy and Cde Isu would have expected of us.

I thank you. DM

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  • I could not agree more around getting together as South Africans to ensure a more prosperous future for all. However the disappointing part is the ongoing racial references rather than focussing on our shared futures.
    Education and a culture of patient multi generation wealth creation founded on sound education, hard work and tenacity is what our ruling party should be preaching. The idea that white South Africans are simply economically where they are become of black exploitation, is simplistic.
    It assumes that in the absence of colonialism, black South Africans would be materially better off in a 21st century world. There is no evidence to support this if other uncolonised African countries are used a bench mark. It also completely ignores the centuries of innovation and creation of a capable state founded on a successful culture that enabled economic growth.
    Make no mistake this view in no way is an endorsement of the abhorrent policies of racial discrimination that were visited upon our non white fellow South Africans. It is an attempt to understand how the rejection of white people in South Africa and the destruction of education and so many other state run entities and institutions, is the real problem.
    Bring back the best skills into the civil service regardless of colour, remove the raft of racist legislation and other legislative impediments to entrepreneurial activity and make your business leaders feel welcome.
    Watch how this will unleash the inherent talent of all South Africans in growing the economy and into doing improve the lives of all.
    One last thought. White South Africans are at best not growing in number, so in a growth economy there will be a natural move into more and more senior positions by non white South Africans which will suit the political narrative.
    Simple common sense stuff.

  • Excellent speech, picking up on most of the key issues to be tackled. One thing I missed was property ownership. So far most land that has been redistributed has been on the basis of people becoming very insecure tenants of the state. This leaves people unable to secure loans, so banks are unwilling to lend. Any land restitution has to provide stable property ownership in order to build a strong economic base to emerging farmers, SMMEs (particularly entrepreneurs). Making people permanent tenants of government, King Zwelithini, or anybody else perpetuates poverty and dependence.

  • I wish our political leaders were as good as follow-through and ensuring a working state as they are at writing speeches. I don’t see anything here that hadn’t been said before. Talk is cheap, but corruption pays. That’s the ANC’s central dilemma.

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