Last month in an Opinionista I criticised Liz Truss’s “mini-budget”, delivered by her finance minister, Kwasi Kwarteng, as a shambles. Now it’s become a Kami-Kwaze omnishambles, as she clings on in Number Ten Downing Street, having sacked her “dear friend” Kwarteng for delivering her very own brand of Truss fantasy economics.
The British economy has tanked, home mortgage rates are rocketing and the financial markets and the International Monetary Fund have been spooked. Both delivered excoriating verdicts, as, in its own way, has the Bank of England.
Few commentators think Truss can survive. But whether she does or not, there are bigger lessons — including for South Africa.
The story begins with the 2016 Brexit referendum, narrowly won on a mantra of “taking back control”. Harking back to long-gone imperial glory, the Brexiteers persuaded enough voters that their economic insecurity and alienation were all down to being “dictated to by Brussels”.
Break free from these dastardly foreigners, “British sovereignty” could be reincarnated, and all would be well.
Actually, Brexit has proved a disaster — and not just by destabilising the peace process in Northern Ireland or boosting support for independence for Scotland. It triggered a 5% collapse in GDP, a 14% fall in investment and a similar fall in physical trade compared with what would have been the case had Britain not left the European Union, because of sudden barriers put up against the biggest richest single market in the world accounting for fully half of all UK trade in goods.
This monumental act of national self-harm also meant Britain was worse placed than other G7 countries to withstand the current global turmoil following Putin’s invasion of Ukraine: rocketing energy costs, accelerating inflation, soaring food costs and rising interest rates. We are the only G7 economy not to have returned to pre-pandemic GDP levels.
Enter Liz Truss, cheered on by right-wingers and Brexiteers, with her plan for slashing taxes and deregulation to build a new British nirvana of prosperity. Somehow the huge £60-billion hole in her 22 September mini-budget wouldn’t be filled by cutting public spending, but instead by a gigantic hike in borrowing.
Not surprisingly, the financial markets she worshipped as a rabid free marketer hated it. The pound crashed and interest rates surged, with the Bank of England scrambling to protect pension funds from an ugly contagion.
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She’s had a rude awakening to reality as the Tories overnight lost their cherished claim to being the party of “sound money” and competent economic management. Labour’s Keir Starmer is suddenly seen as prime minister in waiting with his party riding high on unprecedented opinion poll leads.
As important, the delusion that Britain could build a low-tax, small state “Singapore-on-Thames”, once more in charge of its own destiny, freed from European or other foreign economic constraints, exploded.
As The Guardian commentator Jonathan Freedland observed: “It is the financial markets that have taken back control.”
The knock-back against Truss came not from Brussels, but the global money markets, which succeeded in removing her finance minister, replacing him with one of her ideological opponents, and brutally reversing her economic agenda.
She somehow expected that her £45-billion of unfunded tax cuts could be delivered without those lending her the money hiking the cost of borrowing, regarding her policy as a bad risk.
The whole shambles has revealed to the Tory zealots that under today’s globalisation, no country is really “sovereign” any more. Truss tried to “break free” and “take back control” and has been humiliated.
The same could have happened to a Jeremy Corbyn Labour government, and the same would happen to South Africa if there ever were to be an EFF government.
There are lessons for other South African political parties. If the ANC’s RET faction ever won back power, the global markets would deliver a shock that made the country’s current dire economic predicament seem like a tea party.
If the current ANC leadership feels the country can recover without an efficient public sector replacing the current bloated, corrupt one, then they are suffering from Truss-like delusions. And so, conversely is the DA with its brand of neoliberal shrink-the-state and all-will-be-well agenda.
The political leader seeming to talk the most sense in the country today is Songezo Zibi of the Rivonia Circle, with his social democratic programme of economic efficiency and social justice. He at least seems to know what should be done — beginning with learning from Truss what not to do. DM