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
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I have plenty of problems with the DA – especially the weird and reactionary right-wing ideologies of Helen Zille and other leadership that sabotage its own electoral prospects – but I don’t think it is accurate to describe its policy position as “neoliberal shrink-the-state”.
If anything what distinguishes DA governed municipalities from ANC municipalities is its ability to actually provide services that we expect from the state – water, electricity, refuse removal etc. and the areas where its municipalities are lacking are largely under control of the national government such as policing and railways.
There is a big difference between delivering municipal services or the supporting role of provincial government, and maintaining the stability and law and order that is done by national government, and also keeping a balanced economy going. Hain is referring to that. I certainly agree that to say that the DA is supporting “shrink-the-state” economics is oversimplifying it, and it is true that the DA delivers better on the municipal and provincial level; but I am not confident about how they will do at national; there are too many naive ideas about national government in their ranks.
. . . The message I get from Hain is that most of our politicians and political parties are always busy with political games between each other instead of trying to solve SA’s problems. Zibi however is not trying to create another political party; he is just trying to change this thinking towards a focus on solutions. And that is what we need.
Our exchange rates are rather worrying at the moment. I think I am going to stop following them. Its too depressing.
“And so, conversely is the DA with its brand of neoliberal shrink-the-state and all-will-be-well agenda.” Not exactly sure what this statement is based on. There are a few things the DA is doing wrong, but the statement above is not correct.
Nice to have an intelligent view from an informed outsider. I doubt EFF’d ever rule us, nor likely the RET faction, but it would be nice to have someone intelligent from anywhere taking up the cudgel from the delinquents who trash everything that works presently.
My Lord Hain is hardly making a plausible comparison. The UK has certainly made some fundamental errors but it ranks in the top six nations economically. His native land is however already a completely failed state in every respect without an inkling of an idea of how to even provide its inhabitants with basic services.
One must not forget where the UK’s top ranking originates from. It used to be part of the European Economic Community and the European Union for about 60 years and shared in its’ prosperity. That it why Hain mentions the 5% drop in GDP. And the reason for the scrambling of the Tories is to try to rectify this damage – done as a result of the Brexit move, which was done because persons like Boris Johnson pretended that being part of the EU is what damages the economy. That bubble seems to now have burst, and I saw somewhere that most Britons regret the Brexit move now.
Let us not forget Dennis Bailey that the delinquents you refer to are the soul mates of the Author.
True, a once a deep Mandela sphincter sniffer who’s sinuses are now clear enough to smell the difference between the deep dark caverns of the ANC from the roses. But at least he can speak with clear nostrils now. The problem with these liberals is that their brain often doesn’t get the correct message from their nostrils. The messages do however change over time in some cases, which can be quite floraly refreshing to outsiders.
Incidentally, I have been thinking about South Africa having a lesson for the UK. When Thabo Mbeki was dumped as party leader and later as president 15 years ago, Kgalema Motlanthe took over as ANC nominated President until the following election. At the time, Jacob Zuma was not in parliament and would not have been able to take over. President Motlanthe said that his job was to complete the mandate that President Mbeki had won from the electorate. He made very few changes to the cabinet and no fundamental shifts on overall government policy. He felt that as he had not taken an alternative manifesto to the electorate, his job was to fulfil the ANC’s existing commitment to voters. At the time I was a little surprised but in retrospect I increasingly understood and respected his principled position. Liz Truss did not take her nutty program to the voters, only to approximately 160 000 Conservative Party members. She felt she had the right to implement her radical policies without an electoral mandate. No wonder many saw this as a sort of coup d’etat.
We already have our own example in our “Weekend Special” of Finance Minister Des van Rooyen!
Except that any written piece of mr Zibi that I have come across was painful to read (at best) and mostly confusing. Maybe the stuff he ships to the UK is now better structured?
I am not a fan of Conservative politics or economics but, in the last few years I have followed the Conservative and the Labour Parties both under Jeremy Corbyn ( with the Al Jazeera documentary on the of anti -semitism) and Keir Starmer. I was inspired by Sanders in the 2016 US Presidential primary on his slogan of The Future We Can Believe In. All this was because of Zuma dark days as part of groups discussing the future of our country and its direction and what can be done. Some amongst us ended supporting Cyril because of the danger Zuma posed not only on the edifice of 1994 but to its economic future. It lead to one to write an op – ed in City Press that he must charged for treason. It proved that we supported a spineless person. When Brexit happened one had predicted it because of the rise of anti – immigrant sentiment in Europe and the very British DNA of wanting to get out of what the Conservatives perceived as overbearing Brussels.
What is missing in the debate of Trussonomics is the impact of Covid on the British economy and the spending in the fight against Covid for health, social and economic reasons. This includes printing of money which is inflationary also in its nature to cushion the people from the effects of Covid. We had a similar situation in the US of money printing to deliver on the economic cushion for Covid. Both countries have rampant inflation with global effects. We have Putin’s war with global economic effects. Cyril is right wing as Truss.
It can’t be COVID that made the UK economy shrink – the economies of all the rest of the EU have recuperated to pre-COVID levels (and I think the USA too). But the UK’s did not.