Business Maverick


After the Bell: Fiscal dysfunctionality, not austerity, got the ANC into this jam

After the Bell: Fiscal dysfunctionality, not austerity, got the ANC into this jam
(Photo: Waldo Swiegers / Bloomberg via Getty Images)

One of the many problems with SA’s political crisis is that it is generating a false narrative about the relationship between economics and politics. Clearly, SA’s economy is in trouble; clearly, that cost the ANC at the polls.

The ANC’s economic failings have less to do with “neoliberalism” and “austerity” than with functionalism and efficacy. But if you read some of the commentary, it’s so muddled and weird that it’s alarming.

This always reminds me of failed, left-wing calamities of the past. The progression goes something like this: left-wingers get into power by promising the Earth. They impose disastrous economic policies with absolutely inevitable results. At this point, the people who imposed those disastrous economic policies — usually involving reducing productive capacity, over-borrowing, and focusing too much on consumption rather than production — have a choice.

Either they can admit that their ideas were wrong, and change course. Or — and this is the fun part — they can claim that the economic policies that created the mess in the first place were not imposed with enough vigour! Go harder, they argue. This helps the advocates of those poor economic choices avoid anything unpleasant like admitting they were wrong since they were let down by weak leadership and so on. What follows is an attempt to double down on precisely those same disastrous policies. And the result is, inevitably, even bigger disasters.

This progression accompanies economic debacles both large and small; the pattern remains the same. Think of something as dramatic as the Cultural Revolution in China, which, simplistically, was an attempt to intensify the Chinese revolution after the economic depression following the Great Leap Forward (which, as we all know now, was a great leap backward). The violence, vindictiveness and arbitrary cruelty of the Cultural Revolution eventually led to the Tiananmen Square massacre, sparked by popular demand for more respect for human rights.

After Tiananmen, instead of adhering to the pattern of doubling down, since that had failed the last time, China changed direction. That decision demonstrated its utility: outside of politics, China’s systems are reflective of global economic consensus. China has adopted capitalism in all but name and is out-competing all comers. The result has been a huge reduction in poverty, better living standards and cities popping up where once there were dust bowls. The quasi-religious waving of Mao Zedong’s Little Red Book gave way to Deng Xiaoping’s famous comment, “It doesn’t matter whether a cat is white or black, as long as it catches mice.”

On a smaller scale, experiments with a kind of halfway house between socialism and communism have ended the same way, but with a gradual decline until even the most sympathetic devotees lose credibility. The best modern example is Argentina, which adopted the term “Peronism” for what was essentially the process of progressively bankrupting the state. Eventually, something snapped and now the country has a libertarian president with a chainsaw.

One of the characteristics of this period is that the advocates of economic disaster developed such a religious fervour in their belief system that their critics become not so much interlocutors as traitors. Often they can be extremely vituperative and unpleasant. Just for the record, it does happen in the opposite direction too: advocates of extreme capitalism have their own demons to unleash, equally inaccurate and “reds-under-the-bedsish”. The difference, in general, is that the left gets messianic about economic issues and the right gets messianic about social issues.

I’ll provide one example of many. Business Day columnist Duma Gqubule advocates for an ANC/EFF/IFP alliance that gradually brings in MK. Fine, I have no problem with him arguing that case; someone has to do it. But, along the way, he says the ANC has betrayed its values and moved too far to the right in terms of economic policy. This is just bonkers. Nobody in mainstream economics — left, right, or centre — could ever claim the ANC is economically right-wing. Under presidents Cyril Ramaphosa and Jacob Zuma, it moved leftwards, very distinctly and deliberately.

You can see this is the case because SA’s debt-to-GDP ratio has increased from 25% to 74% in the space of 15 years. Incredibly, Gqubule claims an ANC/DA coalition would “entrench the failed austerity policies”. This is just ridiculous. How can you claim a government is imposing austerity when it is borrowing at the rate of a billion rands a week? Interest payments are now the second-highest item in the budget.

The only upside Gqubule sees to a DA/ANC coalition is that the markets would rally a bit, but that would fade, he says. “Most South Africans find it offensive that financial markets should have a veto over the government’s economic policies and dictate the composition of coalitions.”

This is completely bassakwards. Markets don’t dictate economic policies, except in an ex post facto sense. They respond to the economic conditions that a government and a society create. And when governments become corrupt and inept and loot state-owned enterprises to the extent that electricity is disrupted two out of every three days, then markets, generally, get grumpy. 

This is not to say that we should all dutifully sign up for an ANC/DA alliance. But if you don’t, the reasons shouldn’t be based on notions of economics that are just wrong. DM


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