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We have to look back in order to look forward as we enter a global economic depression


Oscar van Heerden is a scholar of International Relations (IR), where he focuses on International Political Economy, with an emphasis on Africa, and SADC in particular. He completed his PhD and Masters studies at the University of Cambridge (UK). His undergraduate studies were at Turfloop and Wits. He is currently a Deputy Vice-Chancellor at Fort Hare University and writes in his personal capacity.

The havoc created by Covid-19 means that a new world order is being demanded – and it cannot be a continuation of the status quo. In South Africa, we must consider what the new economic order should look like if we are to make any significant progress in our beautiful country.

Asking what combinations of state, market and citizen action in different contexts can help achieve more equal, sustainable, and inclusive futures for all, I constantly hear the buzzwords “social compacting”.

South Africa had a fleeting moment where it seemed as if we had some measure of a social compact, and that was while Nelson Mandela was still among us. But it dissipated soon after he left high office. After that, there was a general acceptance, albeit a reluctant one, by black citizens of the new economic configuration in our country post-apartheid. By this, I mean that most of the wealth and asset base will remain in predominantly white hands for the foreseeable future.

In short, as South Africans, we never really had a social compact to write home about. We never shared a common vision and we sure as hell retreated into our race and class enclaves till now. The current moment in our history is a defining one by all accounts and the question on everyone’s mind is, will this be a moment of convergence or divergence?

The current state of the global economy, with projected negative growth well into 10%, if not more, makes the 2008/09 financial crisis look like a walk in the park. Treasury projects potential job losses of between two to five million in the short term. Many companies will foreclose and declare bankruptcy and will almost certainly never recover in the medium- to long-term. Almost no one will be spared – this is an irrefutable fact.

Looking back, we can perhaps learn some lessons from the 1929-1932 period of the Great Depression. Yes, we are there, and, in many ways, it’s worse now. According to a macro investor and founder of Bridgewater Associates, Ray Dalio, in this scenario we either have adaptation and inventiveness or we will perish.

As I have previously indicated in my writings, capitalism must somehow change going forward. The idea that the profit system can accomplish everything is not right, and we all know it now. In pursuing a social compact, we either cooperate or have hostile and fearful action, meaning we either converge or diverge going forward. Which will it be? This is a moment to be our better selves, but the question that lingers is, do you have the will to make it happen? And while you hesitate to answer, it will require dire sacrifices on everyone’s part. Some more than others, needless to say.

Melissa Leach, in a 2016 paper for the Institute of Development Studies, indicates that, “Development has always involved the interaction of states, markets and society. Whether thought of in terms of actors or institutions, the roles and relationships of the public sector, the private sector and civil society have remained central themes in analysis and actions around the progressive social, economic and political change needed.”

But when we do not have any scientific answers as to how we can set out to achieve such lofty ideals, how then can we draw on past experiences? In 1933, in response to the Depression, a lot of money was printed to respond to the crisis. Interest rate levels hit 0%. And Keynes or Keynesian economics tells us some possible ways to respond, but equally, so does Marx and indeed Piketty. None of these guys have ever faced what we are facing now – it seems the fundamentals will have to be reset.

One in every two citizens may be unemployed, according to some data from our Treasury. In other words, a possible 50% unemployment rate, which translates to approximately eight million people losing their jobs. Add that to the already seven million job seekers out there and you have a catastrophe of epic proportions – the likes of which we have never seen. The same situation will hold true in other countries, by the way, in case you think we will be alone in this depression. Economists everywhere will agree that the four elements that remain the drivers of any economy are:

  •       Productivity (learning and inventing, meaning knowledge);
  •       Short-term debt cycles;
  •       Long-term debt cycles; and
  •       Politics (how we deal with each other and other nations).

So, in wanting to find solutions and move ever closer to a social compact, we must be guided by these drivers, correct? Well, it is rather apparent to me that there is loads of disagreement on what mechanisms to put in place in order to have a more equitable system in future.

Post-1945 and WWII, the USA and Europe certainly made sure that they divvied up the world in such a way that they would be the primary beneficiaries of the global economic system. A new world order was introduced, and we accepted it for the longest time. A new world order is being demanded now, and it cannot be a continuation of the status quo described above.

In the South African context, we must, therefore, ask the question, post-Covid-19, what must the new economic order look like if we are to make any significant progress in our beautiful country? Will we take the traditional stance of survival of the fittest or will we come together and cooperate towards a lasting solution? The politics referred to above will have to deal with issues like the wealth gap in SA, the values gap and whether we can agree on a common vision. In a way, can we put agency to the ideals enshrined in our Constitution?

This is a stress test of enormous proportions and it is up to all of us to respond to this defining moment. I say again, this is not a recession, but a depression – and we will have to contend with it for at least the next three years if we are to come out of it relatively unscathed. Proposals being bandied about are:

  • Cutting spending, meaning austerity (this has not worked in many parts of the world thus far);
  • Debt restructuring and/or forgiveness on a massive scale;
  • Redistribution of wealth (through taxes); and
  • Printing of money.

Letting go of the profit motive is unavoidable, people. A basic income grant (BIG) is no longer a possible idea, but an idea whose time has come. We need a BIG now if we are to assist our people in any meaningful way. And before some of you talk of dependency syndrome, we need only look at the utter devastation this period has caused to understand why this grant is now a necessity.

Furthermore, our government will have to raise the existing grant amounts to a significant level, perhaps three times as much going forward. Another mechanism being softly spoken about is taxation. Raise VAT to 20%, because at the end of the day it is a consumption tax, and for as long as some essential goods are zero-rated, what seems to be the problem?

Also, for the first time, the idea of a wealth tax is being squarely placed on the national agenda. Our wealthy citizens are not stupid – they too can see that there are no greener pastures elsewhere, no foreign economies where their assets and wealth will be safe, and so they too can appreciate the need to come to the party and actively participate in this social compacting venture.

As for civil society, we must ask the question, what are the opportunities and modalities for citizens to hold powerful institutions to account? We are beginning to see the emergence of alternative means to represent citizens’ voices and claims – sometimes through unruly politics and protest or through community organising and advocacy, or social movements and networks. All this must be part of our arsenal towards a social compact. Leach again tells us, “Developing a new agenda on collaborative politics, exploring new institutional frameworks through which participation and citizen engagements can flourish, are key.” In other words, forging new alliances towards our social compact.

Adaptation and inventiveness – these are our tools in shaping the “new economy” our president was talking about. If looking back reveals some meaningful lessons for the state, market, and citizens’ participation, then looking forward suggests that each element, and the balance between them, is more important than ever.

Let’s be bold, people, or history will judge us harshly and future generations will bear the brunt of our mistakes. Dark years lie ahead, but together we can prevail. Of this, I’m certain.

President Ramaphosa aptly reminded us recently, “Now, more than ever, it is upon the conduct of each that depends the fate of all.” DM


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