Covering Up (II)

Meanwhile, in South Africa, everything is all right. We have plans, and structures, and there are people doing inventories to determine how well the municipalities are functioning, and issuing resolute statements about making sure that they function, and the same for the national departments — and so on.
And then there is the real world.
In the real world, South Africa’s economic condition, and the capacity for the government to improve the lives of its people, are both restrained by avoidable factors.
The economy is restrained by our very large trade deficit; we import more than we export and so we need money to pay for this. Therefore we have to attract funds from outside by keeping our interest rates relatively high so that people ship money here. Logically, we could cut back on imports by import substitution and tariffs, and by improving our manufacturing industry, but we are not doing this. High interest rates mean that the government cannot afford to borrow a lot of money because of the cost of servicing debt. What is more, our currency is floating, which means that to support its value relative to other currencies (if it falls, our trade deficit becomes even larger in rand terms, since we buy from other countries in their currency) we need to attract the money of foreigners, and once again this means keeping interest rates high. We could control our currency through exchange control, as indeed we used to, and as China does, but we are not doing this.
What is often called service delivery is restrained by the fact that our civil service is very often incompetent and corrupt. As a result, money supplied to them at all levels is very often stolen or wasted. In addition, money is often not spent on important things, such as infrastructure maintenance, due to bad planning. (This is not a capacity problem; nobody is so ignorant as to think that buildings or machines do not need maintenance. It is incompetence, a failure to perform duties which those responsible could perform if they wished to do so.)
What is to be done about this incompetence and corruption? South Africa is not nineteenth-century Russia. It is not impossible for the central government to act against misbehaviour. The central government has the power, and it has, or ought to have, the desire. There are thus two major issues: to promote the desire for civil servants at all levels to take pride and responsibility in a job done to the best of one’s ability, and the fear of civil servants at all levels that if the job is done demonstrably less well than it could have been done, they will be punished in some way appropriate to their malfeasance.
On the face of it, this is what is being done. Municipalities are being asked to report on their performance of their duties. Ministers are denouncing the ineptitude of the officials in their ministries. There is now a special Ministry for evaluating performance. Surely, this means that all these problems will soon be things of the past.
Unfortunately, one cannot, should not and must not be “sure” about such things. There is no sign that the Ministry for evaluating performance is actually doing anything at all. This Ministry has been separated from the Ministry for deciding what should be performed, so there is no reason for the two to cooperate (and the SACP and COSATU are encouraging them to fight each other). As a result, the evaluation of performance, which is of course central to any effort to restrain incompetence and corruption and promote corruption and honesty, is not happening and probably will not happen.
The municipalities are being asked to report on themselves. This means that the people responsible for mismanagement and corruption, and best-informed as to how to cover it up, have been tasked with reporting on this mismanagement and corruption. Some of them have been exposed by the Auditor-General, the boss bean-counter in the government, and so they know exactly what needs to be excused and covered for.
Of course there will have to be sacrifices and scapegoats, for sometimes things cannot be covered up. Sometimes the people sacrificed and scapegoated may even be people responsible for misbehaviour. Often, however, this will not be the case. This is because ambitious people within the municipalities want to turn this crusade to their advantage; to gain jobs, they can accuse the people whose jobs they want of incompetence and corruption. The central government will be only too happy to dismiss those people in order to be seen to be acting. If, later, the evidence is wanting, and if the successor to the dismissed person is equally — or more — incompetent and corrupt, this is unlikely to get into the media.
As a result, the process currently under way is almost guaranteed to make matters worse. The reason for this is that the people at the top are corrupt and are interested only in images rather than substance. It is always easier to pretend to act, by accusing individuals, than to genuinely act by trying to change the way the system functions — to bring provincial and municipal cabals and warlords under the authority of the central state. What’s more, the biggest of these cabals, the SACP/COSATU axis, enjoys the support of the press, and the people at the top are terrified of the press. Thus the ruling class’s divide-and-rule policies are paying off in terms of corruption — which benefits a lot of the ruling class, since they are the ones paying the bribes in exchange for special treatment, and obtaining the contracts for inferior work performed, and constantly demanding that more and more of the public service be transformed into corporate cash-cows. Ultimately, therefore, the people at the top are afraid of people potentially more powerful than they are — the real ruling class.
This is also the reason why the government has no intention of turning our ramshackle fiscal policy structure into something which makes South Africa’s and its currency relatively impervious to foreign domination; the ruling class makes a lot of money out of that foreign domination.
So it appears that we are muddling along, under the cloak, provided by the press, of magnificent, if ultimately vain, heroic combat against the evil forces of corruption (who are all in the government, of course — in the press there is no such thing as private corruption, unless some rich person complains about being ripped off by some less rich person).
But in the real world we are not muddling along. The problem is twofold; these rich people do not want to pay for the services which the government provides them, and they want as much as they can get out of the government. Meanwhile, the SACP/COSATU axis, since it no longer commands any ideological allegiance, needs to bribe people into supporting them, and the government naturally goes along with this. As a result, tax revenues are falling much faster than the economic crisis justifies, suggesting that the government’s capacity to collect taxes is declining. But meanwhile, the plan is to spend more. This year the government intends to borrow somewhere between 7 and 8% of gross domestic product in order to fund its operations — that’s up from 2% last year, and a surplus before that. What’s more, this rate of borrowing is expected to increase in the next few years.
Well, isn’t that what Keynes ordered in order to spend our way out of a recession? That would be true if the money were going to the poor, but by and large it is going on conventional expenditure. In other words, there is no plan to improve the economy — it is simply that we are not earning enough to pay for what we are doing. Under such conditions, a sensible move would be to increase income and corporate taxes, especially upon the highest earners, but that isn’t going to happen.
So, with our relatively high interest rates, borrowing all this money means that in the following year the high budget deficit has left us with a need to service additional debt; if the interest rate is 14%, a deficit of 7% of GDP one year would entail paying 1% of GDP servicing that debt the next year. Actually it’s worse than that, because this year the economy is contracting. Next year, if we wanted to do the same, our deficit might be 7,5% of a reduced GDP, plus the extra 1% for debt servicing, pushing the deficit up to 8,5%. Which could entail paying 1,2% of debt servicing the next year, and even if the economy grows next year at, say, 3%, that would only increase revenue enough to push the deficit down to 8,2% — but the extra debt servicing would push that up to 9,4%.
It’s a spiral of growing expenditure and rapidly-expanding debt, without any clear way to improve economic performance. It almost exactly reverses the trend which the ANC undertook between 1994 and 2002, where the policy was to reduce the debt by restraining expenditure until the deficit no longer posed a problem and more money became available. At that time, many argued that this policy would lead to economic collapse due to slow growth, but that did not happen. Now, in contrast, a policy of unrestrained expenditure is not generating rapid growth. One reason for this is that (much as in the United States) too much of our consumer spending goes on imports, so increasing the affluence of the bourgeoisie does not generate a “multiplier effect” through their buying stuff which South Africans make. Another probable reason is that much of this spending is going into the pockets of the corrupt.
This sort of situation almost inevitably ends in collapse (as in Argentina) unless drastic economic measures are taken. One drastic solution is to take the policy decisions outlined above which would enable us to cut our interest rates — thus reducing the impact of government borrowing. Obviously that isn’t going to happen, for the reasons also outlined above. Another drastic solution will be to, once again, restrain expenditure. The last time we did this was under GEAR, when the ANC was having to sort out the mess created in the last decade of apartheid. GEAR was workable, but it wasn’t pretty; it left a huge backlog of infrastructural needs which were not altogether sorted out in the boom years of 2003-7. Do we really want to go through that again?
Maybe. There’s a lot of excited talk about abolishing social grants. We know that the Minister of Public Enterprises is a privatisation fetishist. It’s at least possible that this much-touted “left” move, jacking up the deficit with no clear idea of what can be done with it, is actually a Trojan Horse to introduce serious right-wing, neoliberal policies. That would be consistent with the general behaviour of our beloved government, covered up endlessly with manure from the media.
Unless, of course, most likely of all, they simply haven’t a clue what to do next apart from shovelling other people’s money in all directions and hoping nobody asks questions . . .

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One Response to Covering Up (II)

  1. vreaa says:

    Great blog.

    How about a piece on how China is affecting SA?
    Will Chinese/Indian economic colonization shape the future SA?

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