Opinionista Saliem Fakir 15 May 2017

Context matters more than Utopia – the economics of South Africa and Venezuela

It is ironic that the scene of collapsing economies, if not failed states, should become the iconic markers of radical economic transformation (RET). It is a bizarre calling card, not to mention the trampling on precarious lives, in the cause of an untested ideological experiment. It seems that the proponents of these icons of collapse see beauty in the smashing rather than the ugliness of the aftermath. Unleashing forces of change can become an uncontrollable beast even to the well-meaning.

It is one thing to abstract economic ideas, pluck them out of the swirl of their own reality, and hope that if you brewed an economic alchemy dust can turn into gold. Sometimes, if not many times, leftist theorists make the same mistakes as neo-liberal theorist, they describe an economic world that operates like a sort of magical machine.

In their calculus, if you threw in the right ingredients the economy automates itself into a self-perpetuating machine to complete the sequence and task. The problem is that theories are theories, not reality. Reality is much more sober and messy. Reality is a world created out of social actors and their capacities to be a countervailing force against each other determines the character and nature of an economy in different parts of the world. Sometimes theories help to obscure reality more than they uncover it.

Sometimes bold ideas are less achievable through bravado and broad sweeps of policy revolution than through pockets of experiments and convincing by learning and doing.

Vladimir Lenin learned that very hard lesson when he took out the Kulaks, hoping to smash feudal ownership, only to bring them back when the Bolsheviks tried their own RET in the early aftermath of the Bolshevik October Revolution. Lenin’s “War Communism” caused food shortages and the collapse of rural economics. Lenin did rectify the situation. He introduced the New Economic Policy (NEP) in 1922. The introduced NEP enabled Lenin to place firmly in the Russian context a mixed economy and encouraged reign investment.

Pragmatism prevailed in the face of stark reality. The NEP was abolished after Stalin came into power as it was deemed to be not socialistic enough.

A study of NEP and the reasons for Lenin’s need to compromise with capital – without totally giving up state control over key areas of the economy – is an important episode of shift in revolution Marxist policy.

The other economic policy reforms are that of China.

The disastrous period of Maoist policies such as the Cultural Revolution and The Great Leap Forward took decades of silence before Deng Xiaoping, even under the watchful eye of Mao and his Gang of Four, began a process of reform. China’s economy and industrial capabilities had been degraded. Deng had to rebuild China’s industrial base and scientific capabilities.

China experimented a lot with policy reforms if you consider dual pricing, allowing households in rural areas to open village enterprises and the creation of special economic zones in certain parts of China before it universalised policy reforms across the country. Embedded in this logic of reform is understanding the empirical effects of reform rather than running with abstract readings of revolutionary economic theory.

Strategic economics in which national aspirations and long-term objectives of economic sovereignty are the intended goals have to take into account established interests both internally and externally. The more diverse and integrated an economy is within a global system the more shifting from an exclusive to an inclusive economy becomes a harder walk than an easy one.

Economic assumptions must always test their mettle against context. The calculus of change is always a slow process if you do not trust sufficiently that all the forces that can back the process of change are behind you. Or even worse the reaction to reform or revolution will be severe the severity of which you can only tell once it is in motion.

Hugo Chavez brought sweeping changes to Venezuela under the banner of neo-Bolivarianism. Many forces were aligned behind his agenda. The first of which was the loss of legitimacy of the previous government and its disastrous policies. Chavez had another good omen – high oil prices that could subsidise fast-track pro-poor agenda in education, health, collectives, small-enterprise, agriculture and many other areas.

He also had a regional setting that favoured his pro-poor populist policies. These favourable leftist governments in Brazil, Cuba, Argentina, Bolivia and others that formed the Bolivarian Alliance for Americas. And, in the international setting there was also China and Russia despite the fact that the majority of Venezuelan oil was been exported to the United States. In the first few years of Chavez’s rule Bolivarianism was making remarkable progress.

Today the story is different.

Bolivarianism is failing largely due to the fact that Chavez and now the Maduro era had to rely oil surpluses to pursue a pro-poor agenda which did not give enough time for Venezuela to diversify its economy to become more self-reliant. Chavez chose to spend oil revenues rather than save or seek long-term growth and returns from strategic investments in diversifying Venezuela’s economy.

Oil surpluses also fostered a anti-capitalist pursuit that was a mirage of demolition rather than appreciating the capacity of capital to be resilient and able to bide time.

It is all the more ironic that as an anti-capitalist posture has pushed Venezuela to not only accumulate huge foreign debt but also have a hyper-inflated economy just as Zimbabwe did.

In the South African context control over many aspects of our mixed economy has already been established – consider the disenfranchising of mining rights from private property, the nationalisation of water, the ability to influence state procurement, the state pension fund and its influential stakes in many private firms listed on the JSE, the significant capital injections in state enterprises. There is also an entire suite of regulatory provisions that – if used more effectively – cannot only control the abuses of capital but also harness it to move in a state-led developmental agenda. It is simple case of will-over-matter.

All of these, if there is good co-ordination, would be sufficient to pursue a strategic economic dispensation even with the presence of white monopoly capital (for which far too much mythic power is given than is warranted).

The challenge has always been to do good with these levers at the state’s disposal. Failure in co-ordination is often not an issue of competence but conflicting interests: some within the state seeking societal goals while others using societal goals to privatise the gains from the outflow of rents in various state deals on the offer.

The latter is often the elephant in the room.

Controlling the commanding heights of the economy, as they say, is a record that is mixed and at present combined with problems with competency and corruption state vehicles of economic transformation are bleeding money rather than growing the coffers. If anything, such an array of state control and ownership of assets has become a sort of resource curse just like states that have vast oil and gas reserves. They are turned from being sources of further productivity, growth and diversification into sources of enrichment and private gain by a predatory elite.

The state in turn becomes a consumer of capital rather than a generator of new capital and so degrading its ability to accumulate capital.

This lack of a proper appraisal over how these levers and assets have been used and how to fix the problems is a glaring omission by the RET. The thing with the RET is that it merely formalises an already tried and tested predatory system that over the last decade or more has worked out ways to privatize public spend by rigging the system.

Those who engage predatory practices are not dictated by the colour of their skin but rather carry in their soul a certain breed of callous sentiment which is being given cover by dogmatic ideologues –to even call them leftist would be giving too much credit. They are at best in pursuit of a crude and unworked through nationalism.

The problem in Venezuela, and which is it is starting to emerge here, is that alienated eager stalwarts of radical economic theorists are converging with new forms of predatory capital. This unholy alliance, in South Africa, is an alliance of convenience – each giving the other cover.

Their objectives are a determined control over the state apparatus the first phase of which is not about progressiveness but a power grab.

The second might well be a moral pursuit but it all depends on how this unholy alliance holds together and how much change is real change: change that benefits the intended beneficiaries or where change becomes an unmitigated disaster. On all these accounts we have no evidence but time will only tell.

You can be sure though that the power of the political entrepreneurs will be over-bearing that they will come to shape the character of the RET and leave for the dogmatics their howling of dogma if not abandonment after the RET’s plundering has been exhausted: what good will that do for the poor should they continue to eat ideology rather than be given real bread and butter? DM


In other news...

July 18 marks Nelson Mandela day. All over the country, South African citizens devote 67 minutes to charitable causes in memory of Madiba. It's a great initiative and one of those few occasions in South Africa where we come together as a nation in pursuit of a common cause. An annual 67 minutes isn't going to cut it though.

In the words of Madiba: "A critical, independent and investigative free press is the lifeblood of any democracy."

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