ON CALLS FOR NATIONALISATION OF THE MINING INDUSTRY IN SOUTH AFRICA

The comments below are not definitive. They are directed towards encouraging research and critical thinking, and represent the opinion of a number of people with an ongoing interest in the South African economy, and in particular its mining industry.

The focus of these comments is recent demands for nationalisation of the South African mining industry, coming from organisations with a powerful influence within the ruling African National Congress, and thus on the government. These include the South African Communist Party (SACP), the Congress of South African Trade Unions (Cosatu), the African National Congress Youth League (ANCYL) and the Young Communist League (YCL). Together they represent a significant political power in the country.

1. The fiction of the Soviet Union

Demands for nationalisation of the mining industry tend to be phrased in terms of the Freedom Charter of 1955, which called for very comprehensive nationalisation of the economy. The crucial clause in the Freedom Charter declared that the "mineral wealth beneath the soil, the banks and monopoly industry shall be transferred to the ownership of the people as a whole".

This clause was adopted 54 years ago, only two years after the death of Stalin, and a year before Khrushchev's "secret speech" in which he acknowledged for the first time to leaders of the Soviet Communist Party the extent of some - only some - of Stalin's crimes.

In 1955 very little was known by black workers in South Africa about the reality of conditions in the Soviet Union, the most important country in the world in which extensive statification of the economy had taken place. By the time of the strike by the African Mine Workers' Union in 1946, gold mining in the Soviet Union - the second biggest gold producer in the world at that time, after South Africa - took place in freezing cold at Kolyma in the far east of Siberia, by means of the working to death of a vast mass of slave labourers, in which one huge tranche of  workers was replaced by a fresh mass of prisoners as soon as it was killed off by exhaustion, accidents, illness and executions. Gold production was under the administration of the NKVD, the Soviet secret police. Working to death was the rule.

There are several books on the subject, among them Robert Conquest, Kolyma: The Arctic Death Camps (Macmillan, London, 1978) and the volume of short stories, Kolyma Tales, by a survivor, Varlam Shalamov (translated, Penguin Classics, 1995). It is an unchallengeable truth: slave labour engaged in gold production in the Soviet Union over these decades was far worse than anything practised in the cotton fields in the Deep South of the United States before the emancipation of the slaves, and far worse than anything practised in the gold mines of South Africa. This system of working to death of the labourers began at Kolyma in 1932-33 and started to come to an end about 1954, immediately prior to the formulation of the Freedom Charter. The Communist Party in South Africa never told the truth to South Africa's black miners about this terrible system of labour, whether while it was in operation, or at the time of the framing of the Freedom Charter in 1955, or since; and does not do so now.

This image of a nationalised gold mining industry, with a focus on the Soviet Union, as held up at the time of the adoption of the Freedom Charter, was a lie. It was cruel deception, above all, of the gold mine workers. Dismantled in the early 1990s as an economic failure, the Soviet Union failed to provide its workers with either freedom or prosperity. Despite this, however, it remains the real model for the nationalisation demands of the SACP, Cosatu, the ANCYL and the YCL.

Promoted - however falsely - as an inspiration to thousands in South Africa in 1946 and 1955, the Soviet experience in reality provides a grim warning about the dangers of a statified economy: to workers and to society as a whole.

2. The issue of expertise in South African mining

South Africa's mining industry is now very mature, which is to say it is old. In the case of the gold mining industry - the most important single industry on which the South African economy was founded - the graph of production is in steep decline, whatever sporadic ups and downs there may be. Given the extremely steep angle at which the gold-bearing reef is found in South Africa, embedded in hard quartzitic rock, immense capital has always been required to extract a relatively small unit of metal.

Exhaustion of the more accessible lodes means that the days when it was possible to extract 30 gms of gold per ton milled, as in Free State Geduld, are long gone. Some 15/18 years ago, the average was about 4.9 gms, which was not competitive on costs with the environmentally horrendous system of strip cyanide mining. Other materials are a bit better, and coal is still very profitable, though full of environmental problems and costly in terms of transfer related to price.

In the case of gold, the nature of deep-level mining has always required a very high degree of specialised know-how unique to South African mining engineers, as the world leaders in their field. This expertise has been available only from South Africa's mining houses, at high cost.  With other metals (chrome, platinum, copper), this problem relating to availability of the necessary expertise is better, but still is not easy. In general, mining in South Africa's mature industry continues to poses difficult technical problems.

There is no guarantee that this expertise would continue to be available, should the industry be statified. This in turn would spell the end of the industry, or at least accelerated decline, with large redundancies among the work force.

3. The fate of the Zambian copper industry

The nationalisation - initially, creeping nationalisation - of the Zambian copper industry under the one-party government of President Kenneth Kaunda in the Seventies and Eighties does not give cause for optimism (see article). The Zambian experience with nationalisation should be carefully studied, and conclusions from this study should be made available to South African trade unionists and the electorate.

The whole Zambian copper industry eventually collapsed and some years ago was offered back to its former owner, Anglo American, for a ridiculous sum. The Zambian state effectively pleaded with Anglo American to resume responsibility for mining in Zambia. Anglo American dithered, returned to Zambia and shortly afterwards removed itself again. It appears to have decided that the damage caused by nationalisation was irretrievable for a Western capitalist company.

The Chinese are there now, with no scruples about how hard they make their labour sweat, something which Anglo American could not afford. One need only imagine the outcry in Africa and the West from investigation by a newspaper such as the Guardian in Britain, if a company such as Anglo American were to work Zambian workers as Chinese companies do now. By comparison, with Chinese administration of the mines there is no problem with working the workers in this fashion, given its one-party political system and absence of a free press. Even so, the Zambian copper industry remains a shadow of its former self, and is no longer the vibrant industry it once was. Whether the transfer of the Zambian copper industry from Anglo American to the Chinese has actually benefited Zambia, and the mineworkers above all, should be assessed. So should the possibility of a similar pattern asserting itself in South Africa.

4. Questions to be asked about nationalisation in South Africa

If there is going to be nationalisation of the South African mining industry, there will need to be a very full and explicit spelling out of details.

If it is to be a confiscatory measure, as demanded by the Young Communist League, there will of course be an international outcry. This will stop any investment in South Africa.

If there is to be a pay-out, what form will this take, and at what price? The following options will need to be considered.

(i) Will payment be through cash in rands? at market value? or what? Foreign holders would still need to be paid in foreign currency, raised at high rates of interest. The most affected in South Africa would be pension funds and insurance companies, with consequences for the many millions of black members of various schemes. They would not be happy at destruction of the investments on which they depend.

(ii) Will pay-out be in "confetti" South African bonds? Inflation would eventually reduce the impact of that to the country, but South Africa's pensioners would still be hard hit, and others too of course. By then, however, it is likely that many white investors would have already been bailing out. Foreigners may actually welcome the idea of being paid out in hard cash, which the South African state would need to raise on international markets. In this case, it would need to be a very, very friendly deal, especially if the government wanted to keep the people with the know-how to continue to operate the mines.

(iii) There could be a "fake" nationalisation, in which the South African government gets the mines, the headaches with the trade unions etc... while the mining houses get fat management contracts and no problems, with the possibility of withdrawal of their know-how held like a pistol at the government's head. These companies would then simply go and invest abroad. In such a case, one could easily see the South African taxpayer picking up the bill. This extra charge to the taxpayer would have to cover the difference between constantly rising operational costs on one side and on the other: union demands that there be no lay-offs (even if inevitable), high wages, poor productivity, and the need to pay management contracts. It would almost certainly end up in massive losses to the state, as with nationalisation of the British coal industry in the 1940s, yet still result in good profits for the mining houses.

There are various possible permutations of the above, of course.

5. Losers and winners

Since 1994, and even before that, the trade unions in South Africa have been strong and able to impose constraints on wage and recruitment policies. The trade unions would be even stronger in a nationalised industry, provided this took place in a social, political and economic environment similar to the present.

If, however, there were to be a sharp fall in revenue to the state - as the new owner and controller of the mining industry - then the economic environment in the country will have changed. The enhanced political position of the trade unions, and with it probably also that of the SACP, would then tend to pose a starkly political issue to the country: "who rules?" Instead of an amelioration of political tensions in the society, these tensions would almost certainly be sharpened. The tendency towards domination of political and civic life by a single party-state would tend to be accelerated, and democracy severely weakened.

To this would need to be added two other likely considerations:

(a) Health and safety on the mines, as well as care of the environment. These matters are at present in the hands of a tripartite grouping of mining capital, the state and the unions. If one of the parties to this current tripartite arrangement were to be removed (in this case, mining capital), there is no reason to think that health and safety on the mines as well as care of the environment would be enhanced.

(b) The record of the public sector.  Eskom's power outages, the debacle at the South African Broadcasting Corporation, the condition of the South African National Defence Force, the state of the health service and the school system, and issues relating to service delivery generally make it likely that a statified mining industry will operate at well below current levels of productivity and safety. The ills of the past and the present would be increased, not reduced. The welfare of the people of the country and of workers in the mining industry would decline, not improve.

The beneficiaries would in all likelihood be a new swarm of bureaucrats, to be paid at public expense while the economic infrastructure of the country deteriorated. These would inevitably be political clients and dependents of a ruling political elite, which would tend to behave despotically in the face of aggravated problems of all kinds.

As in the statised economy of the Soviet Union, there would be a danger of political tyranny. It would be a variant form of Mugabeism, with wealth for a few derived from the mining industry and state office, rather than from ownership of land, while poverty for the many became much worse.

It is unlikely that outright nationalisation of the mining industry will be pursued, however. This rising level of ideological clamour has caused no recent fall in share price at Anglo American, with the corporation - increasingly global, and with headquarters in London - currently warding off a nil premium merger offer from the global mining corporation, Xstrata, and its appointment last week of a new chairman, Sir John Parker.

The Times of London reported on 10 July that "The South African Government is thought to have expressed concern about the country losing influence with Anglo American, particularly after the appointment of the first non-South African chief executive two years ago. Anglo American has deep roots in the country and is its largest private sector employer with more than 100,000 staff there. The ANC-led Government is also Anglo's largest shareholder through state pension funds.

"Fred Phaswana, the chairman of Anglo Platinum, an Anglo subsidiary, was considered as an alternative candidate last year but he was blocked by City investors who did not know him. This led to accusations of racism from the Government, which has continued to urge a black candidate for chairman.

"Susan Shabangu, the Mining Minister, said [last week]: ‘Anglo American is rooted in South Africa and it is one of the single biggest players in the South African economy. Therefore, in line with government policy, we would prefer to have a black South African as the chairperson of Anglo. We believe this would be a positive signal going forward.'

"But Anglo American has insisted that as a global group it should not restrict its search to one country. Its assets are increasingly located outside South Africa and it moved its base to London a decade ago."

If state-related pension funds are so important as a shareholder in Anglo American, they must figure prominently also in investments in other mining companies and mine-holding companies. On top of that, there are non-state institutions such as insurance companies and private pension funds also involved. All in all, nationalisation would adversely affect millions of black South Africans, while it benefited merely quite a few bureaucrats.

More likely than any Zambia-type nationalisation, this would suggest, is that an accommodation will be reached by the mining companies so that they absorb a new tranche of appointees, coming from the new leadership of the ANC and its supporters - those excluded from the disbursements of the Mandela-Mbeki presidencies.

This would be an operation similar to that hilariously described by Tom Wolfe in his Mau-mauing the Flak-catchers (1970): the shakedown of a powerful, white-controlled institution, to the personal benefit of a few of "the bloods".

The high price of gold as the material of money at a time of world economic depression currently restores to South Africa its historic advantage, in the form of the "prosperity of the undertaker in a plague", as this was described in the 1930s.

Whether the 1.8 billion pounds sterling debt incurred by De Beers, the result of a "severe recession-led downturn in demand" for precious stones, will operate to shake down in any way instead Anglo American - the historic colossus of the South African economy - remains however still to be seen.

The three shareholders in De Beers are Anglo American, the Oppenheimer family and the government of Botswana.

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