Defend Truth

Opinionista

Imperialist theft: How illicit financial flows and capitalism trample human rights in South Africa

mm

Trevor Shaku is the national spokesperson for the South African Federation of Trade Unions (Saftu). He writes in his personal capacity.

Despite the development of regulations to try to monitor the activities of imperial conglomerates, the tendency of these multinational and transnational corporations to ‘cheat the public’ continues.

In the period of imperialism and neoliberalism, foreign direct investment is sought after by governments, especially in developing countries like South Africa. This is because neoliberalism minimises the state’s involvement, and in such conditions nations rely ― to a dead end ― on the private investments for expansion of production, creation of jobs and the growth of the economy.

History, however, has proven that foreign direct investment, embodied through multinational corporations and transnational corporations, are mainly concerned with exporting capital, and finding natural resources to exploit and cheap labour in order to multiply their profits, rather than expanding production and creating jobs per se. 

Nevertheless, developing countries operating under the paradigm of market fundamentalism and neoliberalism still premise their economic development on attracting foreign direct investment. 

But to attract this investment, these governments must make conditions for maximisation of profit extremely ripe. These conditions include deregulation of the labour market, curtailing organisation of labour (trade unions), and relaxation of capital and exchange controls.

Unfortunately for the developing world, the much-celebrated foreign direct investments by bourgeois economists exploited the relaxation of capital and exchange controls in the 1990s to embark on capital flight and steal monies through illicit financial flows.

Illicit financial flows

Illicit financial flows are not a new phenomenon. They developed in tandem with the development of imperialism ― monopoly capitalism in which concentration of production fused with banks created conglomerates that exercised more power on their governments and led to exportation of capital (not goods).

In one of his majestic pieces, Imperialism, the Highest Stage of Capitalism, Vladimir Lenin described the tendency of imperialists towards illicit outflows in that ,“the holding system (conglomerates)… resort with impunity to all sorts of shady and dirty tricks to cheat the public, because formally the directors of the mother company are not legally responsible for the daughter company, which is supposed to be independent, and through the medium of which they can pull off anything.”

Though the development of imperialist capitalism was at its early stage, and there has been a development of regulations to try to monitor the activities of imperial conglomerates since 1916, the tendency of these conglomerates (multinationals and transnationals) to “cheat the public” continues today.

Multinational and transnational corporations have been exposed in isolated cases and sometimes in information leaks such as the Panama Papers, Paradise Papers and Pandora Papers for stealing money through trade misinvoicing, transfer pricing and base erosion and profit shifting into tax havens. 

In value, illicit financial flows have cost South Africa a lot of money. In its report, Oxfam South Africa reported that between 2010 and 2014, the government potentially lost $7.4-billion annually (estimated between R51-billion in 2010 and R93-billion in 2015). The Alternative Information and Development Centre reports that export misinvoicing between 2000 and 2014 was estimated at $385.1-billion (more than R2-trillion). Global Financial Integrity estimated in 2017 that the value of illicit financial flows was 7% to 8% annually (between R200-billion and R400-billion).

Illicit flows, tax collection and government deficit

From the evidence provided by these international and national research groups, South Africa’s economy is losing gross domestic product while the government is losing in tax collections. 

In a neoliberal fiscal framework where the government relies on self-imposed limits of collecting tax and borrowing before it can spend ― what Stephanie Kelton calls “TABS” – illicit financial flows are a great disadvantage to government expenditure. 

Partly because of these financial losses in tax collection, the government embarked on an austerity programme. The Institute for Economic Justice reported in 2019 that government expenditure on public goods and services increased marginally by 1.8%. If we factor in the population growth rate of 1.6% and the average inflation rate of more than 5%, it shows that government expenditure in this period fell by a minimum of 4.8% in real terms.

From 2020 until 2024, the government plans to cut social grants by R36-billion, and R303.4-billion from the public sector wage bill. In the current Medium Term Budget Policy Statement the government indicated it would cut R2.1-billion from basic education, R16-billion from health and R3-billion from the police between 2021/22 and 2023/24.

In addition to tax losses, the government justifies its austerity by (mis)using the concept of budget deficit and the debt-to-GDP ratio. Despite economists who do not conform to the conventional wisdom of the neoliberal TABS model denouncing such a deficit as not “mattering” for countries with sovereign currency, our country still uses conventional neoliberal fiscal frameworks and thus wags debt-to-GDP as a factor. 

In this fashion, illicit financial flows’ shrinking of GDP makes our debt-to-GDP ratio widen, giving neoliberal choppers a pretext to chop government expenditure on public goods and services in the name of containing debt and consolidating the fiscus.

Consequently, budget cuts on education, correctional services, healthcare and social development affect human rights. That is why 150,000 young people were denied student financial aid in 2021 even though the Constitution says that “everyone has a right to further education, which the state, through reasonable measures, must make progressively available and accessible”.

Furthermore, the majority of the working class rely on an understaffed and ill-equipped public healthcare system in which they constantly lose lives in cases where this could have been prevented. This is despite the fact that adequate healthcare is enshrined in the Constitution as a guaranteed right.

Similarly, the Constitution guarantees everyone adequate housing and yet thousands still live in housing not even suitable for animals.

These are consequences of austerity which in the neoliberal fiscal framework, in which the ANC government is so immersed, are partly contributed to by illicit financial flows perpetuated by multinational and transnational corporations.

Illicit financial flows and workers’ wages

In its pamphlet, Losing Out on the Lion’s Share: A Primer on IFFs, Tax Evasion and Wage Evasion in SA, the Alternative Information and Development Centre argues that a huge chunk of the monies for these multinationals and transnationals is taken off the table at wage negotiations through profit shifting. 

In the platinum belt, it means an estimated $19-billion (about R133-billion) that was lost to trade mispricing between 2000 and 2014, was not factored in during wage talks in those years. This is despite the fact that rock drillers in the platinum mines were earning R4,500 on average. 

In 2019, an Alternative Information and Development Centre investigation revealed that Lonmin was involved in profit shifting that culminated in the gross margin of R1.288-billion. This means the Marikana Massacre could have been averted because Lonmin could afford to pay the wages demanded by workers at the time.

In the 10 days between 19 and 30 October 2021, 14 mineworkers lost their lives while on duty. Such incidents – which have become prevalent as though it is still the old days of mining where elementary tools were used – are proof of the inadequate funding for and investment in the health and safety of workers. 

Capitalism has no regard for human rights, which is why it extracted profits on the deaths of its workers. The two world wars and the imperialist-instigated wars in the Middle East, Africa, Asia and Latin America bear testament to this fact. 

Ghanaian politician, political theorist, and revolutionary Kwame Nkrumah wrote in 1965 that “foreign capital is used for exploitation rather than for development”, and that “investment under neocolonialism increases the gap between the rich and poor countries”. This is because multinational and transnational corporations are focused on extraction of profit rather than development.

Trade unions, students and other working-class organisations must organise to resist imperialist theft in the form of illicit financial flows and capitalism as a whole. DM

Gallery

Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or sign in if you are already an Insider.

Everybody has an opinion but not everyone has the knowledge and the experience to contribute meaningfully to a discussion. That’s what we want from our members. Help us learn with your expertise and insights on articles that we publish. We encourage different, respectful viewpoints to further our understanding of the world. View our comments policy here.

All Comments 11

  • “Imperial conglomerates” – what century are you living in? And bear in mind, if a government makes it unattractive to operate, through choking labour laws, taxes and not to mention broken infrastructure, capital will not want to stick around. You can hate capitalists and drive them away, or embrace them, make it attractive for them to do business and enjoy the proceeds. You cannot have it both ways: take their money and kick them up the jack.

  • I assume that your Marxist Leninist nirvana for the USSR and Eastern Europe had great outcomes for the common man? If oppression, loss of personal liberty and loss of job opportunities is your objective, go right ahead.
    Please take off that Chinese made low labour unit cost T shirt or in fact get rid of any other low labour unit cost item you might use, and only buy more expensive SA made goods.
    If we cannot compete with this we have no jobs – simple. Get a real job and start a business and employ people rather than be a part of the ongoing Communist inspired job destruction.

  • I can’t argue the points made by this author. It seems to be well researched, albeit with some bias. I do not deny the profit only objectives of multi-nationals, however, however it takes two to tango. Companies want to profit more from less, and organised labour want to earn salaries without doing any work. It is this extreme thinking by opposing stakeholders which is the problem. To add insult to injury, government is feasting on whatever they can lay their hands on. A well functioning state is one where the private sector, organised labour, and the state work towards a common objective. In this system, money comes from the private sector and tax payers. It is what it is. When organised labour and government are constructive and work towards increasing productivity, rooting out corruption, and improve service delivery, they may be surprised about the willingness of the private sector to plough back and citizens to pay tax. So next time, write less about resistance and more about working together.

    • Most sensible comment of the lot. If only people would be less one dimensional and look past unfortunate terminolgy. There is plenty of factual research in the article. As always, we have more in common (with people we disagree with) than differences but we get so bogged down in knee jerk reactions when a bit of threatening/revolutionary language is used that we seem to throw the baby out with the bath water.

  • What drivel! Only someone sitting on his backside, supported by the members of the union for which he is a spokesperson, and living in a dream world ignoring the disaster of the communist experiment, could write such nonsense.

    Quite clearly Mercedes Benz should close their plant in East London and stop manufacturing in, and exporting from, South Africa. They are obviously exploiting the “cheap” labour that they employ for their imperialistic ends. This is true of all “foreign based” manufacturing companies.

    The mines should be closed to ensure that our scarce resources are no longer looted by “Imperialists and neo-liberals” and left to the artisan miners to scrabble a living as they do in all the abandoned Rand gold mines.

    There is no doubt that the inherent ingenuity of the exploited will quickly replace the technology and capital that the foreigners bring to our shores and we will all wake up in Utopia.

  • Essentially, the author highlights the supposed outflow of capital via illegal means and argues that multinationals are evil and are only there to exploit the countries they are operating in. He proposes that multinational companies are inherently evil and foreign capital will always be detrimental as it comes with the goal of exploitation to maximise profits.

    It is difficult to read this piece with an objective mind when it is littered with Leninist jargon and communist rhetoric. Statements that capitalism profits from death of workers and that Marikana could have been avoided had multinational companies not been multinational companies is an oversimplification and exaggeration simultaneously.

    His argument that curtailing capital outflow, limiting powers of multinationals and giving the power to the people is difficult to follow in a country where there is rampant corruption at the highest level, a government with a focus on inclusion rather than excellence, ineptitude infiltrated at all echelons of government and a failing education system with lowering of standards and subsequent unemployability.

    One does not fix the scratches and dents on the bonnet if the engine is faulty. Pick the low hanging fruit in front of you first, and then one can focus on all the nasty, “other people”, outside imperialist forces that is . One will be better equipped to do so too then.

  • Son: “Dad, if Socialism doesn’t work, why do some people believe in it?”
    Dad: “Well son, it’s because they don’t work either.”

  • As others have said. The glory of Marxism for the proletariat. Really? How many of their fellow countrymen did Stalin, Pol Pot, Mao Zedong and the North Korean family of the Kim dynasty murder? Between them over 100 million.
    If the author is so enamoured with Marxism, i dare him or any of his SACP oxygen thieves to emigrate to any one of these brutal non-democratic countries. Think North Korea in particular. And i mean to live there as a normal (?) villager. He certainly will have absolutely no method of writing the kind of reverse claptrap once he really comes to terms with exploitation.
    No freedom of religion, speech, association, trade unions and associated strikes, or conscience.
    And the ‘more equal’ pigs cannot get their snouts out of the trough. Why is the ANC / SACP / EFF alliance what they are? Marxism and morality are incompatible. So corruption is a normal outcome.

    The West has committed suicide by ‘exporting’ their production tom China. And they will continue to pay dearly for that.

  • The Marxist terminology is indeed unfortunate, comrades, but no one can argue that human rights are relegated to a distant second place in both so called “communist” and “capitalist” societies. Who would argue that the misnamed “elites” under both systems have a tendancy to believe they are entitled to far more advantages and rewards than the common man simply by virtue of ownership. I find it difficult to distinguish between the self-serving politicians in either communist- or democracy-orientated regimes. We can’t really blame communism or capitalism because neither system has really been given a chance. Both are hijacked by those with the power to do so. Frothing at the mouth about the number of casualties produced by either system is something of a zero sum game. If you are prepared to look hard (and honestly) at history you will likely find neither comes out smelling of roses. The rampant, unregulated shareholder supremacy and profit seeking of the past 30-40 years has seen almost as much ecological destruction as the previous two centuries. The social impact of this so-called neoliberal era is going to be enjoyed for decades to come. Who knows how many will still die as a result. The bottom line is that it is the way capitalism and communism is practised that is the problem. I would certainly choose a free market system where hard work and excellence is rewarded but there needs to be strong legislation in place to regulate how it is practised.

  • And only someone in complete denial would atill believe that multinationals are concerned with the welfare of the countries in which they operate. Only legislation holds them back and in many cases laws are flouted by finding “clever” loopholes. They are structured to siphon profits out of the countries in which they operate through over invoicing and transfer pricing between divisions and subsidiaries. You only have to look at how little beneficiation is carried out inside SA in the mining sector. These multinationals are also outsourcing their most polluting activities to countries with weaker environmental controls. All of this is backed by the financial economy (now orders of magnitude larger than the real economy) which is not the least bit interested in investing in productive assets and labour. There is no doubt about it – the version of “capitalism” currently being practised needs a serious overhaul through much stronger regulations to prevent the excesses. Unfortunately, it requires a government fit for purpose that is capable of policing this whilst simultaneously creating an enabling environment. Until that happens, multinationals (and wealthy individuals) are going to continue evading tax by any means possible, thereby depriving the countries (where they operate and profit) with desperately needed revenue to create a stable and enabling social ecosystem …

  • “… foreign direct investment, embodied through multinational corporations and transnational corporations, are mainly concerned with exporting capital … ”
    This is the nub of the article’s lunacy. You invest capital into a country with the sole intention of exporting that capital. Bizarre.