Economic Transformation: a Response by the Congress of South African Trade Unions

In Preparation for the 2010 ANC National General Council

[The responses to the other documents will follow]

1. Introduction

1.1 COSATU welcomes the ETC discussion document in preparation for the 2010 NGC of the ANC. A key feature of this document is that it attempts to capture the level and spirit of policy discussions since the Polokwane Conference.

1.2 The document also attempts to highlight some burning questions of economic policy such as:

· The creation of decent work (p.2)

· The promotion of social and economic equity (p.2)

· Our understanding of socio-economic performance in the past 16 years (p.3-11)

· An attempt to formulate a new growth path (p.12-16)

· Mechanisms of financing infrastructure development (p.13)

· The role of State-Owned Enterprises and Development Finance Institutions (p.15)

· Debates around patterns and nature of ownership of the economy and the appropriate structure of production (p.16-18)

· The need to promote broad-based BEE and local production (p.17)

· Debate on the role of monetary policy (p.19)

1.3 Our main concerns about the document are that:

· It has no organizing framework within which it approaches issues

· Its ideological posture and underlying theoretical perspective are problematic

· Its articulation of socio-economic performance in the past 16 years is generally inadequate

· Its formulation of the new growth path is not helpful

· The document fails to provide leadership on some of the debates it highlights, fudges debates that do not exist, provides a biased view of the debates and fails to consolidate Alliance agreements thereby robbing the movement of the way forward

1.4 Our general impression is that the document is poorly written, lacks focus, fails to build on prior work that has been done by the ETC, asks more questions than it answers, and the questions it asks are not assisting the movement to focus on the core challenges that we face. Instead, the document makes the movement to move in a tailspin when agreements about critical areas of policy have been reached.

1.5 Our call to cadres of the movement is that they must defend Polokwane Resolutions, call for an elaboration of the detail of implementation and the building of internal capacity of the ANC to monitor and evaluate the implementation of its policies. The document on economic transformation to which we are responding is written as if Polokwane never happened, almost all the resolutions of the Polokwane Conference on Economic Transformation are ignored in this document and those that seem close to what is written, are weakly taken forward.

2. Absence of an Organizing Framework

2.1 This document has sought to locate itself within the historical traditions of our movement by referring to the Strategy and Tactics (1969, 2007) and the Elections Manifesto (2009). Unlike past documents, this document contains a lot of data. Whilst the latter feature can be regarded as innovative, it also constitutes part of its weaknesses. Fundamentally the document departs from the historical approach of the movement on matters of economic transformation.

2.2 Unlike past ETC documents, e.g. the 2007 discussion document, this document does not indicate the type of economy that we want to build. Articulating the type of economy we want to build in the first pages appears to be fairly standard in the ANC and helps us to trace the evolution of thinking across various ETC documents. For example, the ETC document of 2007 states upfront in the introduction, a vision for society and the economy. Whether one differs with the contents of these documents or not, at least they follow a systematic pattern which, we think, is incredibly useful.

2.3 The 2002 ETC document specifically states: "The Freedom Charter stands out as the most comprehensive expression of the ideals of the movement. A number of the core ideas have been through various stages of development. Each of the National Conferences at Morogoro (1969), at Kabwe (1985), in Durban (1991), and in Bloemfontein (1994), have added to these particular ideas. In addition, special policy initiatives such as the Ready to Govern conference (May 1992) and the drafting of the Reconstruction and Development Programme (February 1993) greatly expanded the scope and detail of economic policy". By listing these initiatives, the ETC was pointing out the basis of its proposals and demonstrating the line of thought that has informed, and continues to inform, its policies.

2.4 Without building on or clearly critiquing existing policy positions, grounding policy proposals and approaches on resolutions from past national conferences and discussion documents, it is very difficult to assess the extent to which the current ETC document:

· Initiates a change in policy direction, informed by the most recent national conference,

· Re-affirms past policy positions,

· Introduces new ideas that are worth the consideration of the NGC 

2.5 We find it useful to re-iterate the statement by the ETC document of 1997: "The tradition of ANC economic policy is thus the strand which links all these (policy development) initiatives over the past four decades. It is important that this conference recognizes that we are not starting anew; we are building on a tradition. The conference's task is to reconfirm the trend which has emerged through that important set of policy elements, including the basic framework of the RDP". Of course, reflecting on both the policy mistakes and advances of the past 16 years, especially the policy shifts that are called for by the Polokwane Conference, this 2010 document has an opportunity not only to reconfirm "the trend that has emerged", but to critique the class, race and gender content of the trend that has emerged since 1994.

2.6 COSATU has always argued that a qualitative shift in the trend of policy development occurred since 1996. What is required is to re-confirm the historical pillars of the economic transformation programme of the ANC prior to 1996 and to formulate a framework within which these pillars can be fully articulated. These pillars have since 1996 been articulated within a neo-liberal framework which renders them impotent. These pillars have been unevenly articulated across ETC documents and have been reduced to ceremonial status in the sense that socio-economic progress has not been measured against them. These pillars are[1]:

· Job Creation

· Redistribution of Income, Resources and Power

· Building the Economy

· Developing Southern Africa

· Environmental Sustainability

2.7 These pillars are not clearly spelt out in the document. Indeed, there has been inconsistency in the way these pillars are laid out, especially after 1996. For example, these pillars are bunched in a paragraph in the 1997 Document; in 2002 some of these pillars are outlined in the section called "Impact of Our Policies". Whether proposed policy interventions in these documents are correct or not, what is useful about them is that, at least, these documents sought to consistently remind us about the pillars of our economic strategy. In this document part of these pillars rear their head in (p.2) as outcomes of programmes; they are articulated in such a way that they are clouded by a number of issues, prominent among which is the need "to reduce the costs of doing business".

Polokwane has 14 pillars, see Resolution 2 on Economic Transformation, but all these pillars are elaborations of the above historical pillars of the RDP. This document is does not even mention the pillars outlined in our resolutions in Polokwane.

2.8 It is in this context that we find the "pillars of an equitable development strategy" (p.2) that the document proposes inadequate and premised on an incorrect ideological and theoretical basis. We will return to the ideological orientation of the document below. But it must be noted that the document has reduced the pillars to two. Not only this, the proposed pillars bear no resemblance to any of the five that historically informed the ANC economic strategy. This departure from the historical formulations and traditions of the ANC is not explained.

3. A Problematic Ideological Orientation and Theoretical Framework

3.1 The fundamental problem with the document is its class bias. Premised on a defeatist analysis of the balance of forces, the document begins with a position that apartheid institutions "prove difficult to unwind, since they are embedded in long-standing and complex systems of decision-making and resource-allocation. They establish a balance of economic power biased toward capital, which means we need a strategic approach and realism to achieve our aims" (p.2).

3.2 This defeatist approach, which exhibits utter disdain for working class power and lacks confidence in the working class as a motive force of our revolution, directs the movement to once again appease business interests. On (p.2) the need to reduce the "costs of doing business" is mentioned three times. Indeed according to the document, this should now be the central focus of the democratic state. Even the two pillars of the document's equitable development strategy are anchored around this cost-cutting principle (p.2). The document says, by cutting these costs, decent work will result, greater equity will emerge and social protection will be enhanced. This approach is a new form of trickle-down economics which has failed in the past 16 years and is baseless. The links between cost-cutting and decent work, cost-cutting and equity, cost-cutting and social protection is tenuous if not far-fetched.

3.3 The main pre-occupation of the document is "to get capital to support strategies to establish a more equitable economy and society" (p.2) apparently because there are these "very difficult" systems that "establish a balance of economic power biased toward capital". There are two problems with this approach. Firstly, such an approach wrongly privileges the power of capital over that of the broader social forces, and already constrains the new growth strategy within the parameters of existing power structures. It completely lacks confidence in the broader social forces of change and instead, directs the movement to put emphasis on meeting the basic needs of business and less in meeting the needs of the working class and the poor. The basic business need that the new growth strategy seeks to fulfil is to guarantee business profits. This is mentioned in (p.3), where it is said: "For a capitalist economy to succeed, the state has to keep business sufficiently profitable". This statement now suggests that the ANC is pro-capitalist.

3.4 The statement about capitalism and profitability assumes that the past 16 years was a success. In the past 16 years business has been more than sufficiently profitable in the aggregate, the gross rate of profit reached more than 20% per annum in 2005 but this did not translate into decent work and social equity. Instead, this profitability brought increasing misery for the working class and higher levels of exploitation of workers. The document acknowledges rising exploitation of workers in (p.5) and rising profitability (p.7), but it fails to establish the inter-connections between these two processes. ASGISA was also based on the principle of lowering the "costs of doing business", which is just another way of increasing profits. But this initiative too, like its parent GEAR, failed to deliver decent work and to change the structure of production. The document does not explain how things will be different this time around.

3.5 Our submission is that, whilst the costs of doing business need to be brought down as much as the costs of living and working for the working class, this is not a correct way to approach economic transformation. Rather, the starting point is to address the question of who must own what resources for what ends, who has to finance the development programme, who must be the primary beneficiaries of the economic transformation programme in class, race and gender terms. These questions are raised in (p.6) of the document, but they are raised in a historical-descriptive context, not in the context of economic strategy. It therefore comes as no surprise that in the document's new growth path (p.12) the question of power is not addressed, but is raised in the context of "some debates" and framed in terms of "lobbying".

3.6 We submit that the movement must wage a struggle, which is far more than just lobbying, mobilize the working class and other popular classes, to ensure that the means of production are used to the benefit of the people as a whole[2]. We obviously do not believe that, when it comes power, the movement can lobby capital, engage in a revolution behind the back of monopoly capital, i.e. that the ANC can be a master of tricks that deceive capitalists to give up their power. The document must practice the realism that it calls for, and locate the economic transformation programme within the context of a national democratic revolution at the head of which is the working class and draw the necessary implications that flow from this class bias for economic transformation.

3.7 Therefore, the question that the NGC will have to resolve is: In its vision of the mixed economy is capitalist accumulation dominant or not? This question is at the heart of economic transformation; it defines the class character of the new growth path and the orientation of the transformation process. We believe that:

• Historically the ANC has committed itself to a mixed economy in which collective forms of ownership, not based on the profit motive, dominate the mix.
• The ANC-led government should focus on redistribution of income and power in favour of the working class, in line with the leadership role of the working class in the ANC and in the national democratic revolution
• At the level of the economy, the working class bias of the ANC and the national democratic revolution must find expression through a bias towards collective forms of ownership.
• All other initiatives, including lowering the costs of doing business and the costs of working, should be subordinated to the above over-arching redistribution process.

3.8 Secondly, the document treats the power of capital as if it is an independent factor, independent from policy. There is no attempt to provide a dialectical analysis of the link between the policies of the past 16 years and the balance of power. In our view, and in the light of economic performance and developments in the past 16 years, the policies of government sought to increase the power of capital relative to that of labour. Starting with the spate of liberalizations, the enforced de-regulation of the labour market through an increase in a-typical forms of employment, the systematic marginalization of the Alliance in the policy-making processes and the prominence of state-functionaries that are not rooted in the movement in the formulation of state-policy are some of the experiences that we experienced in the past 16 years.

3.9 The document consistently fails to establish a link between the actions of government in the past 16 years and their effect on the balance of power in the economy. Moving from an un-dialectical approach to the balance of forces, the document argues that "any effort to bring about a more equitable economy affects but must also operate within the balance of power in the economy" (p.16). This formulation must be rejected. It says that transformation must leave the foundations of apartheid and capitalism intact; the inherited apartheid-capitalist power relations must set the parameters within which the NDR is to be pursued. This is theoretically untenable and is inconsistent with our beliefs[3].

3.10 The theoretical approach of the document is thoroughly neo-liberal. The document still operates within a GEAR framework. It: 

• Relies heavily on the private sector to lead development (hence maintaining profitability is viewed as a condition for success)
• Limits the state to provide an environment for the private sector to thrive: providing supportive fiscal and monetary policy, adequate infrastructure and social services and the regulatory environment (p.12)

3.11 These areas are far too limited and vague given the relatively more extensive role of the state envisioned in Polokwane Resolution 1 on Economic Transformation. For example, the resolution calls for a more interventionist state that maintains "a strategic role in shaping key sectors of the economy, including the minerals and energy complex and the national transport and logistics system. Whilst the forms of intervention would differ, the over-riding objective would be to intervene strategically in these sectors to drive growth, development and the transformation of the structure of our economy".

3.12 The document fails to elaborate the detail of our Resolutions on Economic Transformation. For example, in Polokwane we restated our long-standing perspective that monopoly domination is an obstacle to economic growth and development and that this must be addressed. When it discusses the transformation of the industrial structure, the document does not concretize how exactly the ANC proposes to deal with these power relations. Instead, the issue of power is raised in the context of a descriptive narrative of our economic history and as part of issues to be debated. This is not helpful because the ANC has long passed the stage of debating whether monopoly domination is a problem or not, the issue now is how we tackle it.

3.13 The document is short of making an honest and critical assessment of the past 16 years. But a careful reading can extract such an assessment: 

• On Inequality and Unemployment: "A vicious cycle of poverty has emerged" (p.6).
• On Structure of Production and Control: "domestic mining capital has largely reintegrated into international capital groups. The process has fragmented the historic conglomerate structure of mining and moved the centres of control overseas....Concentration of ownership has been associated with very slow change in the racial composition of capital...In effect, national SOE's and parts of the public service function as a path to business for black entrepreneurs" (p.7).
• On Education: "the education system generally reproduces inequalities based on class and race" (p.8).
• On Food Security: Despite the fall in household hunger and food insecurity because of grants, "there is still widespread nutrition insecurity, or a "hidden hunger" (p.9).
• On Bottlenecks in Infrastructure: South Africa "initially neglected depreciation in existing infrastructure" (p.10).

Adding the heavy reliance on short-term capital inflows to finance domestic expenditure and the simultaneous asset-stripping through long-term capital outflows, the de-listing of major conglomerates from JSE and the increase in precarious work, it is clear that the policies of the past 16 years have failed to advance the core pillars of ANC economic strategy. Because the document fails to confront this reality as it is, it effectively leaves intact key elements of neo-liberalism:

• It says nothing about labour market policy- except to vaguely propose "public employment schemes or tax and other subsidies" (p.12)
• It is very thin on financial markets and monetary policy-in fact the document does not move an inch beyond the Polokwane Resolution on making decent work the primary focus of all our policies.
• Despite Alliance agreements on the need to review fiscal and monetary policy, the document still asks questions-thereby effectively maintaining GEAR policies. In other words, the document fails to provide a concretization of an employment-based fiscal and monetary policy
• The document says nothing about a developmental trade-policy, is silent about the specific sectors that must be supported, and lacks a vision of a dynamic production structure. In other words, it fails to guide the movement in building the economy

3.14 This widespread silence is in itself not a silence, but a promotion of the failed pre-Polokwane policies. Because the document completely fails to elaborate the detail of the Polokwane Resolutions, it gives space for the continuance of failed policies under the guise that "there is no alternative". For example, there has been significant progress in the resolution of issues relating to macroeconomic policy within the Alliance, especially that inflation targeting must be scrapped as a first step towards an employment-oriented macro-policy, but the document insists on asking questions instead of taking these discussions forward. This arrests the movement and creates a tailspin that rehashes old debates without adding new insights.

4. The New Growth Path

4.1 In this section the document lists four pillars of the growth strategy (p.12); this is inconsistent with the two pillars mentioned in (p.2). The five pillars are:

· Government fulfils its state functions: adopts "supportive fiscal and monetary policies", provides adequate infrastructure and social services and efficient regulation (p.12).

· Diversification of the economy towards "knowledge-based growth"

· Increased equity and social mobility through broader ownership of assets, career-pathing, access to skills for workers and "merit-based access to quality education"..., as well as discouragement of conspicuous consumption by the rich

· Social protection linked to active labour market policies...

4.2 These cannot be the pillars. In Polokwane, the pillars were clearly specified as:

• Decent work
• Accelerating shared growth
• Transforming the structure of production and ownership
• Comprehensive and clear Rural Development Strategy
• Spatial Development
• Sustainable livelihoods
• Direct job creation by the state
• Expanding the social wage
• Skills development and training
• Secure energy supply
• Development of Southern Africa
• International and fair trade
• Building internal capacity of the ANC to monitor and evaluate policy-implementation

Although these pillars are numerous, they nevertheless respond to the broad historical pillars laid down in the RDP. Even GEAR, with its horrid proposals, sets clearer and well-articulated "core elements", far more articulate than the pillars in the 2010 ETC document.

4.3 It would be neater to go back to the historical pillars of the growth path that we have mentioned, which are:

· Job Creation

· Redistribution of Income, Resources and Power

· Building the Economy

· Developing Southern Africa

· Environmental Sustainability

4.4 Clearly, in driving these pillars the state has to play a leading role, which has to be unpacked. According to the document, the role of the state is similar to the one advocated by the neo-liberals: providing an environment in which the private sector can thrive particularly by lowering the costs of doing business (infrastructure, skills and basic services). The role of the state envisioned in the Polokwane resolutions is extensive, but not pervasive and definitely it must "direct resources towards realizing" the goals of economic transformation, growth and development. The document fails to elaborate the detail of forms in which the state can intervene: from regulation to public ownership (nationalization or extension of public ownership, where public enterprises co-exist with private capitalist ones).

4.5 The problem with this section of the document is that: 

• On Job Creation: It does not adequately address the problem of structural unemployment. All it says is that "substantially expanding public employment will require that the state directly pay for it..." Obviously such employment and means of production used in such employment will have to be paid for, but the document does not, in line with the redistribution pillar, elaborate the financing mechanisms of the growth path. The document also does not specify that the state must directly employ people in the delivery of basic goods and services, and infrastructure. The document therefore fails to take forward and give concrete meaning to our resolve to pursue a programme of economic transformation based on, among other pillars:

"Directly absorbing the unemployed through:

•  
  • Labour-intensive production methods and procurement policies
  • A significant expansion of public works programmes linked to the expansion of economic infrastructure and meeting social needs with home-based care and early childhood development on a massive scale
  • A much larger youth service and linkage of industrial strategy with key youth development programmes in the form of an integrated Youth Development Strategy
  • Programmes that target the employment of women" [Polokwane Resolution 2.7 On Economic Transformation].

The document fails to provide progress in these areas, and to specify labour-intensive methods, targets for local procurement, SMME and co-operative support. How far are we in relation to the National Youth Service?

On Redistribution: The document is extremely silent on this issue. The massive expansion of public employment towards full employment, the tax and expenditure system, financial system, the de-commodification of basic goods and services (rolling back the market), promotion of collective forms of ownership, increasing working class and community power in governance structures of firms are not mentioned. The only mention of issues close to these is when the document discusses "some debates", which are presented in a one-sided manner, e.g. the nationalization debate. When discussing the financing mechanisms of public infrastructure and the overall growth and development strategy, redistribution should be the key pillar that guides us. The document thus fails to take forward the resolution on accelerating shared economic growth, where we said one pillar to advance our economic transformation programme is by:

"Act(ing) decisively to address the most significant obstacles that limit the pace of economic growth and intervening in favour of a more equitable growth path" [Polokwane Resolution 2.2 On Economic Transformation]

The document fails to provide concrete measures that we should adopt to intervene in favour of equitable growth. For example, the use of the tax system, the spending patterns and targeted support for SMME's, co-operatives and labour-intensive industries and strategic industries that stand to alleviate our balance of payments problems.

On Building the Economy: The document is also very weak when it comes to specifying the sectors that should guide the new growth path. For a long time, the ANC has consistently argued that we need to build a dynamic manufacturing sector. In our own strategic approach, we have argued that we need to move to the detail of prioritizing and specifying the sub-sectors to be supported within manufacturing, how these sectors strengthen downstream and upstream linkages, help us to deliver basic goods, food security, how they will help us over-come the balance-of-payments problem, address unemployment in the long-term and position the economy to generate sufficient surplus to sustain capital accumulation. Instead the document does not move an inch in this direction; it still operates at the level of generalities ("knowledge-based economy"-which economy is not?), even when we have IPAP 2. In the sub-section: "transforming the production structure", it is as if the ANC is beginning to think about industrial policy; IPAP 2 is not even mentioned[4]. IPAP 2 is mentioned in the context of debates; it is a subject of debates (p.17).

In Polokwane, we had said one of the pillars of economic transformation is:

"Transforming the structures of production and ownership, including through:

•  
  • Active and well-resourced industrial and trade policy aimed at creating decent work through expansion of labour-absorbing sectors, etc.
  • Broad-based BEE aimed at broadening and deracialising the ownership and control of productive assets by black people, etc.
  • Anti-monopoly and anti-concentration policy aimed at creating competitive markets, etc.
  • Intervening, including through state custody of (natural) resources on behalf of the people and regulation to ensure competitive pricing of inputs for our downstream industries, etc.
  • Policies that promote and sustain small business, micro-enterprises, small scale agriculture and co-operative forms of ownership, etc." [Polokwane Resolution 2.3 On Economic Transformation].

We now have IPAP 2, which specifies industrial sectors, their challenges and mechanisms of intervention. Instead of building on this by prioritizing sectors, and broadening and deepening backward and forward linkages, this document takes us nowhere. It does not elaborate a beneficiation strategy, the role of the state in this and link these with current discussions on the nationalization of the mines.

On Southern Africa: The document says virtually nothing. Once again the Polokwane resolutions should have been used as a starting point because they contain a lot of ideas. The resolution reads:

"Integration of the South African economy on a fair and equitable basis with economies in the Southern African region and building stronger economic linkages across the continent of Africa as a whole as a basis for increasing our market size through deepened economic integration" [Polokwane Resolution 2.12 On Economic Transformation].

The document is supposed to provide concrete ways in which this could be done, which sectors in our economy should lead in this process, and how we can create complementary linkages in the economies of the sub-continent. For example, the construction sector may be the sector to play a leading role in this regard, given the infrastructure backlogs in the region, but what are the challenges and how can we direct this sector to play this role? Such questions are not addressed in this document.

On Environmental Sustainability: The document notes the problem of "emissions" (p.2) for example. But it does not elaborate on how we can move towards a low-carbon economy, how we can improve the energy and water use, how we can minimize the environmental impact of our proposed industrial structure and social development patterns. Instead the document asks questions: what should be done to reduce the energy intensity of the SA economy? (p.18). This is not helpful. It would have been helpful for the document to first briefly provide the carbon basis of our economy and its environmental impact, and then proceed to offer alternatives for, e.g. energy mix and sources for various activities. What we need now is a set of policy proposals that give direction to relevant departments and society in general, on how we can improve our interaction with the natural environment.

The entire section on Climate Change should have been used to advance concrete ways in which environmental sustainability can be achieved. For example:

•  
  • Resolution 3 On Climate Change calls for us to set targets, which the document fails to do
  • Resolution 4 On Climate Change calls for meeting the targets we have set through, among others:
    • Diversifying energy sources.
    • Allocating resources for the research and development of innovative clean and low-carbon technologies, etc.

These issues should have been taken forward in this document.

4.6 The greatest weakness in the way the document articulates the new growth path, besides content, is its technocratic approach. It seems that, according to the document, the problem with the current growth path is the ANC; the ANC does not have strong enough programmes, it does not have a strategic enough approach to capital, we afford to let individuals, departments or agencies raise the cost of doing business through poorly-thought out measures, etc. This is too shallow. Instead, we need to build on our historical approach, elaborate the resolutions of the Polokwane Conference-give them concrete meaning, anchor them within the broad historical pillars, develop a set of clear policy proposals, etc.

5. On Macroeconomic Policy

5.1 The first pillar of economic transformation, in line with Polokwane Resolutions, is:

 "Making the creation of decent work opportunities the primary focus of economic policies. This central objective should be reflected in the terms of reference of...our sustainable macroeconomic policy stance" [Resolution 2.1 on Economic Transformation].

"Macroeconomic policies that support and sustain growth, job creation and poverty eradication on a sustainable basis" [Polokwane Resolution 2.14 On Economic Transformation].

The document fails to take these forward. It has failed to give decent work the central place in the terms of reference of the fiscal and monetary policies. This is unfortunate, because it reflects a refusal to take forward one of the pillars of our economic transformation problem. We need a new growth path, a genuinely new growth path. But the document seeks to formulate the growth path within the parameters of GEAR macroeconomic policy frameworks. Such a "new" growth path will dismally fail.

5.2 The assumptions of the document about macroeconomic policy, especially fiscal policy, are wrong. The document claims, on several occasions, that fiscal policy has been counter-cyclical (p.14, p.19). There is no evidence to support this, and it is wrong. The document does not distinguish between the operation of automatic stabilizers and discretionary policy interventions. The document further confuses expansionary fiscal policy with the growth in government expenditure (p.19).

When government expenditure is expansionary, it means that government spends more money to stimulate production and employment. However, when the economy expands and employment is created without the stimulatory effect of government, without the leading role of government spending, then government policy cannot be said to be expansionary. This means that if government waits for the economy to grow first, and then collects more taxes, which makes government to spend more, then such government is not leading the process of economic growth. Therefore, the fact that government spending is increasing does not mean that it is expansionary

This is more so the case, because government spending can increase by less, and may in fact tail behind, the growth rate of the economy. It must be noted that actually, government has failed to lead the growth of the economy; instead government followed economic growth.

5.3 There is also a deep-seated confusion about the nature of the problems we face versus the policy responses required to deal with these problems. The document suggests that a countercyclical fiscal policy is enough to address structural problems. However, structural problems are not cyclical they are "permanent, long-term" and embedded in the growth path. They are therefore not cyclical phenomena around an otherwise good growth path. It is therefore important to alter the trend, not the cycle, of policy responses. In technical language, what is required is more than counter-cyclical fiscal policy but an increase in the structural component of the fiscal deficit. Such an increase in the structural component of the deficit would require a simultaneous implementation of redistributive, progressive tax policy on both individuals and corporate, financial speculators and consumers of high-end goods and services and an appropriate monetary policy.

5.4 The redistributive role of fiscal policy is not mentioned in the document. This makes the document hazy when it comes to sources of financing the proposed growth path. It appears that the document is content with the current arrangements, which are inadequate. The nature of the problems we face require a change in the way policy is being formulated-we need a mindset that places redistribution at the core. This means we need to move beyond shallow economics, which equates the delivery of basic infrastructure to working class communities with an increase in the social wage. Without crunching the numbers to show that the taxes paid by workers plus the losses occasioned by the decrease in workers' share in national income are outweighed by the spending on infrastructure delivered to working class communities, we cannot truly ascertain the redistributive character of fiscal policy.

5.5 The document is also inadequate about the transformative potential of fiscal policy. Fiscal policy can be used, as noted in IPAP2 and in the National Framework Response to the Global Economic Crisis, to support industrial development through local procurement. But the document fails to take this further, and to reflect on how far government has gone in ensuring that procurement is localized. What we need now is not a re-affirmation of principle, but a specific policy directive on how this should be done and the targets for local procurement. Fiscal policy, especially expenditure by State Owned Enterprises, should be used to advance industrial development and to foster the desired linkages between sectors.

5.6 The status and role of monetary policy is not discussed in the document. Instead, questions about high interest rates are raised. This avoids the issues. In our view, the Alliance has agreed that macroeconomic policy be reviewed, especially that inflation targeting be scrapped and an alternative framework be explored. The document fails to come to grips with this. Neither does it support the existing monetary policy framework, nor does it critique it. The practical effect of this is that the existing monetary policy framework of inflation targeting remains in force. What we need is an alternative formulation of the mandate of the Reserve Bank, consistent with the promotion of decent work as the overriding and primary focus.

5.7 The financial sector, capital markets and the ownership of the Reserve Bank are not treated. How can we have a growth and development strategy without consideration of the role of the financial sector? Firstly, the financial sector must be transformed, through taxation and direct controls and regulations, to support the sectors and developmental agenda of the democratic state. The document fails to even raise this basic question. Secondly, the regulation of capital markets so that resources are allocated towards productive activities that have potential to create jobs is not discussed, except with reference to a tax on capital inflows. Thirdly, the ownership of the Reserve Bank is not discussed and the need for a state bank is not explored, especially because the SARB has monopoly to create a liability that is inconvertible to an asset, but can acquire assets using the same liability-this is a major source of finance for growth and development and is important for fiscal sustainability, yet the document pretends this is not a major issue. The state bank can act as a direct disciplining vehicle to the financial sector, in complement to other policy tools.

5.8 Lastly, the document fails to link macroeconomic policy to industrial and social policy. Macroeconomic policy must serve both. However, without specifying sectors and committing to a redistributive fiscal policy, not just a counter-cyclical policy, the document presents an incoherent policy approach.

6. How to Improve the Document?

6.1 Introduction: The document has to reaffirm the historical vision and pillars and use Polokwane as a starting point, and select relevant parts of existing work by the ETC. The document must show that it builds on existing work, critiques and extends past policies.

6.2 The role of the state: The document needs to concretize the role of the state, the capacity required for the state to play this role and how to build such capacity. The document must emphasize the direct role of the state in the delivery of basic services.

6.3 Industrial transformation: The document must have a special section on industrial strategy, it must be detailed and specify sectors, and draw implications of climate change in the process. Build on IPAP 2.

6.4 Rural Development: Build on existing work in this area, especially the comprehensive rural development strategy of the Department of Land Reform and Rural Development, and work by the Department of Agriculture.

6.5 Social Policy: The document needs to specify social policy interventions as part of a redistributive programme. Issues such as free education, national health insurance, public transport, access to basic services, etc. should be clearly spelt out, beyond principles.

6.6 Employment Strategy and the Labour Market: The document needs to detail an employment strategy, how to deal with the huge structural unemployment and the role of the state in that, issues of racism in the workplace and the apartheid wage gap, worker and community participation in governance structures of enterprises, executive pay targets, etc.

6.7 Human Resource Development Strategy: The document needs to build on work by JIPSA, the Department of Labour's Master Skills Plan, and work done by SETAs on critical and scarce skills, it needs to detail the institutional design for skills development and training, refer to the financing aspects-that we need to review the skills levy, etc.

6.8 Macroeconomic Policy: The document must craft an alternative macroeconomic policy framework that supports decent work creation, build on Alliance agreements, and be explicit as to how such a framework supports a redistributive social policy and transformative industrial strategy.

6.9 Southern Africa: The document must offer a critique of the current institutional arrangements, their vulnerability to imperialist destabilization through say EPA s and foreign aid, a critical look at existing economic linkages in the region and class forces that dominate these linkages, the role of the state and democratic forces, especially the working class in the region, and propose a new way of regional integration.

6.10 In line with the above points and sections, and the policy proposals, a set of draft resolutions on economic transformation should formulated.

FOOTNOTES

[1] See for example, Ready to Govern-ANC Policy Guidelines for a Democratic South Africa, 1992.

[2] In Polokwane, we had noted importance of a government that is "rooted amongst the people and buttressed by a mass-based democratic liberation movement" (Belief 10 on Economic Transformation) and the need for "the capacity of the state to mobilize the people as a whole, especially the poor, to act as their own liberators through participatory democracy" (Resolution 1.10 on Economic Transformation).

[3] In Polokwane we said: "The skewed patterns of ownership and production, the spatial legacies of our past and the tendencies of the economy towards inequality, dualism and marginalization will not automatically recede. Therefore, decisive action is required to thoroughly and urgently transform the economic patterns at present in order to realize our vision for the future. This includes addressing the monopoly domination of our economy which remains an obstacle to the goals of economic transformation, growth and development" (Belief 7, On Economic Transformation).

[4] Resolution 2.3 on Economic Transformation is more detailed and better articulated than this section of the document.

Issued by COSATU, September 9 2010

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