Diminishing a noble idea: Zuma’s radical economic transformation

Budgeting national delusions among the populace

The recent bold articulations by President Zuma during the State of the Nation Address in parliament about radical economic transformation have excited considerable attention from across a broad swathe of society. But, writes REDGE NKOSI, with a growing national debt of now R2.2 trillion rand coupled with the profound failure of neoliberal economic policies that pervade our key economic institutions, our government only threatens to pull the economy backwards.

The Budget speech earlier this year was received with a deep sense of foreboding among the economic cognoscenti and business establishment, the broader majority found comfort and hope in what they understandably saw as the long delayed next phase of the democratic revolution.

Understanding full well that transformation is a process, the nation held its collective breath and left it to the Minister of Finance to clothe the elemental bones of the transformation beast with financial substance.

Delivered again amid airs of uncertainty in regard to the future of the finance minister in the current administration, the 2017 budget was punctuated by collegial support for finance minister Pravin Gordhan. Save for the usual puerile objections from opposition benches in Parliament, it is generally accepted that the budget was well received, and that the minister had no choice but to go the route he took.

Most observers thought the minister would “naturally” seek to placate credit rating agencies and allay national fears of a credit rating downgrade by demonstrating fiscal prudence on the one hand, while reviving a moribund economy that would lift all the boats on the other. Fiscal discipline, assumed to be critical by most, was deemed necessary, if not the sufficient condition to landing the country onto a sustainable growth path. But as to whether fiscal rectitude is consistent with economic transformation, let alone radical, is anyone’s guess, given their conception and or understanding of the phrase and the concomitant financial outlay necessary to support the achievement of it.

The one abiding national obsession by economists and the commentators revolve around the disdain for a growing national debt of now R2.2 trillion rand (50.7% of GDP) and its annual interest bill of R169 billion, resulting from the budget deficit of R149 billion, 3.1% of the GDP for 2017 that is to be borrowed. It is difficult for government to manoeuvre, it has to balance its budget, most economists have reasoned. Locked and rotating around this constraining logic, it is rather difficult to think of any other way for government to liberate itself from this yoke, if not only for fiscal consolidation and raising taxes so as to reduce debt and structural reforms for economic growth.

This circular logic is also echoed by our own temple of monetary orthodoxy, the Reserve Bank in its Monetary Policy Committee statement of January 24, where the governor said, “however, a significant improvement in growth prospects requires the implementation of structural reforms..”. The scale of delusion by both the Reserve Bank and the Treasury is beyond comprehension.

But herein lies the central and profound failure of neoliberal economic policies that pervade our key economic institutions, the national polity, and the broader economic establishment. Firstly, they assume that the budget of a monetarily sovereign government is equivalent to a household or company budget and is thus similarly constrained; hence “it is difficult for government to manoeuvre” statements.

If South Africa does not jettison this myth and ideological position, disguised as economic policy, there can be no hope for any meaningful and sustainable progress on economic transformation let alone any further understanding of more complex matters that relate to sovereign money, that governments cannot run out of money and sectoral financial balances that posit that deficits are not necessarily bad as well as that there is no need for governments to borrow from the private sector banks. We simply have to move away from positions that have clearly failed us since 1995.

In as far as taxes are concerned, we still remain behind the curve of clarity. While taxes are certainly important and need be raised where appropriate, the logic behind the current raise is again flawed and would be roundly and loudly laughed at by the man deemed the father of modern income tax, Bearsdley Ruml, the former Chair of the Federal Reserve Bank of New York and former Deputy minister of Finance of the US. He contended, quite correctly, that the notion of mopping up money in the hands of the private sector for ostensible reasons of government revenue is totally obsolete.

Raising taxes and cutting government spending do not grow economies, nor does structural reforms as envisaged by government and commentators, especially in economically troubled times like these. It is precisely because of fiscal consolidation that this economy has shrunk to 0.3% for 2016, precisely how I had echoed some months ago. It is the very fiscal consolidation and raising of taxes that has slumped the Greek economy today. This budget, like its previous ones, will deepen, not lessen our fiscal position.

As I have argued elsewhere, South Africa has no clue as to the macroeconomic meaning and implications of the current fiat monetary system and how it can be used to productively enhance the lives of its citizens and elevate the economic standing of the country as a whole. Instead, the budget as presented by government threatens to pull the economy backwards, deindustrialise and further enfeeble all aspects of economic life. And as the economy is given further room to financialise itself via the budgetary lever, the already oversized financial industry or financialisation will continue to suck the economic air necessary to underwrite a vibrant and modern industrial and technological nation. Research after research has supported the need to curb growth of financial industry, lest we hobble chances of rising to a sophisticated industrialised economy.

What was abundantly clear in the budget speech, just like in the Monetary Policy Committee statement of January 2017, was that the nation is hedging its growth bets on the possible resurgence of the global economy and that we don’t have any coherent plan to create growth of our own as other pragmatic nations have managed to create theirs. Purely dependent on export growth is tantamount to passively praying for growth. Even though mercantilism may not be as bad as claimed, ours remains one that has declining terms of trade. To shift to advanced manufactured exports calls for the national budget to deliberately skew its orientation-which, unfortunately is not the case. Much more overwhelming however is the fact that whatever little we may be in control of, it is by sheer luck and not by design.

Furthermore, hidden among the lofty budget statements and unbeknown to most analysts is the manner in which this budget, like the previous ones is pricing the economy out of global competitiveness. Cumulative levies on transport oils, taxes, the insatiable appetite to borrow and the erroneous encouragement of state enterprises to focus on high profitability all silently conspire to increase the price structure of this economy. The escalating cost of both living and doing business are a creature of our failed circular logic as our failed neoliberal policies forcefully propagated by our key economic institutions.

What’s more, it would appear though that most of our officials work so hard preparing budgets under the current framework without knowing that they are acting neoliberally, a very dangerous set of circumstances. The cost of budgeting this national delusion among departments and state institutions is unfathomable, diminishing the very noble ideal of radically transforming the economy.

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