The solution to the problem of our failing economy lies in bold measures of transformation and a people centredeconomic development model
4 September 2018
The Congress of South African Trade Unions has noted the report that shows that South Africa’s economy, as measured by the GDP has shrunk by a further 0.7% and therefore plunging the economy into a technical recession.The federation is not shocked by these numbers because they reflect a paralysis in SA economic policy trajectory that we have been talking about. They are also a condemnation of the pro-business 2018/19 Government budget and other government policies. Government has infact unnecessarily squeezed the working and middle class families by raising VAT, sugar, fuel taxes as well as by adjusting income tax bracket creep by below inflation levels thus reducing the money workers have to feed their families and spend on the economy.
This Thatcherite assault on the working class has contributed to the economic slump because there is no domestic demand for the products that this economy produces. We have also seen no sense of urgency in recovering the billions that have been looted over the last couple of years.
South Africa’s economic challenges call for bold measures of transformation and not in marginal programmes and projects. Unfortunately the South African government believes that Foreign Direct Investment (FDI) is an engine for growth, job creation and poverty reduction. They have followed this neoliberal line of thought for the last 20 years with no tangible outcomes. Even today they are still preoccupied with creating attractive investment conditions that benefit Multinational Corporations.
It is now patently clear that the neoliberal policies based on “market forces” and international competitiveness are not going to solve our economic problems. These policies have seen more and more people sliding into poverty in this country.
The same government reduced the Company Income Tax in 2012 from 34% to 28% and the argument was that this was going to encourage companies to invest in the economy and raise wages in order to create domestic demand. This has not happened because the private sector is continuing with their investment strike, with more than R 1, 6 trillion of their cash reserves sitting in bank accounts instead of being invested back into the economy.
This dire economic situation calls for a strong and decisive leadership at a political level. There is an urgent need for an alternative development strategy, which can take various forms, ranging from auto-centric development to socialist development paths. We need a developmental model that will be based on meeting our countries economic and social needs first. Our production of goods and services should be geared primarily towards the domestic and regional market with export playing a secondary, supplementary role.
Our government cannot afford to continue to limit itself to the provision of the traditional public goods such as security, infrastructure and social services. Government needs to identify the commanding heights of the economy over which it will take control. This will enable the state to take key developmental initiatives, which cannot be left to the market. The state must promote development by redistributing growth and upgrading and restructuring the economy.
It was the general government services, which played a key role in pulling the economy out of the recession in 2009 and in sustaining at least some positive economic results between 2010 and 2016. The fact that this has been gradually contracting as a result of the austerity measures that were introduced in 2014 has negatively affected aggregate demand in the economy.
It is regretable that whenever the economy takes a downturn, our government’s reaction to is always the reintroduction of the trickle down neoliberal economics that says the private sector. This can be seen in the talk about an ill-advised privatisation of state assets, and retrenchment of public service workers as a way of kick-starting the economy
The government led infrastructure development programme should help in strengthening local industries by increasing local content of the infrastructure development projects. Now more than ever, government needs to intensify its investments and infrastructure drives in the economy. Job creation is the only way to spur and sustain economic growth and to ensure the redistribution of wealth in a meaningful way. The jobs bloodbath that is continuing in all the sectors of the economy and the rising cost of living is recipe for disaster.
Government should help small businesses to deal with the high administered prices such electricity, transport costs and the non- availability of cheap finance. We also need to see urgent change in the country's contractionary macroeconomic policies, which stifle the impact of industrial policy. The Reserve Bank should consider reducing real interest rates, and government should consider introducing concessional finance for productive investment.
Issued by Sizwe Pamla, National Spokesperson, COSATU, 4 September 2018