Government's New Growth Path Framework: One Step Forward, Two Steps Backward
A response from the Congress of South African Trade Unions
1. Introduction
1.1 In his Political Report to the 2010 National General Council (NGC), President Jacob Zuma said: "The new growth path must start with the recognition that on the one hand, we have had economic growth for a sustained period since the advent of democracy, with particularly high growth since the early 2000s and net job creation. On the other hand, poverty remains high, inequalities have remained the same or even grown worse, while some of the jobs created often brought low wages and poor conditions". The task of the NGP document is to outline the forces that drive this contradiction and how it can be overcome.
1.2 Indeed, the NGP document begins where the President says it should begin: "There is growing consensus that creating decent work, reducing inequality and defeating poverty can only happen through a new growth path founded on a restructuring of the South African economy to improve its labour-absorption as well as the composition and rate of economic growth" (NGP, p.1). However, it would appear that over the past 16 years, this has not been the point of debate to require some "growing consensus". The actual point of debate has been the direction of restructuring and how to achieve it. As GEAR notes in its introduction: "A strategy for rebuilding and restructuring the economy is set out in this document, in keeping with the goals set in the Reconstruction and Development Programme" (GEAR, p.1). GEAR went on to found its "labour-intensive growth path" on "structured flexibility within the collective bargaining system", reduced minimum wages for the youth, job-sharing, wage and price moderation, etc. - issues that we will take up further in this response.
1.3 One thing that stands out firmly, as in the much-criticised ANC NGC document on Economic Transformation, is that the NGP document fails to locate itself within the historical positions of the ANC on economic policy. The points of departure should be the Freedom Charter and the RDP, but none of these policy documents are mentioned. Thus the document is like the NGC discussion document on Economic Transformation, which we have extensively criticised, and which has been resoundingly rejected by ANC branches.
1.4 By failing to root itself in historical positions of the ANC, the document finds itself mired in all sorts of controversies. Fundamentally, the NGP moves from the opposite perspective to the one advanced by the 52nd Conference of the ANC. For example it talks about "a more developed, democratic and equitable economy and society over the medium term, in the context of sustained growth". This is in contrast to the perspective of the RDP and 52nd Conference, which talks about development being the primary focus or more precisely, that economic growth should take place in the context of a redistributive strategy. Specifically, while the 52nd Conference recognises the need for accelerated growth in tackling poverty and inequality, it adds that these problems "require that accelerated growth takes place in the context of a redistributive strategy that builds a new and more equitable growth path". In the document, redistribution occurs "in the context of sustained growth". This is the same logic as GEAR.
1.5 Another example of controversies is the question of trade-offs. The document says: "Achieving the New Growth Path requires that we address key trade-offs". These trade-offs are mentioned as if they are imposed by the laws of nature, whereas in fact they are ideological and are informed by existing power relations. For example, a trade-off may be said to exist between employment and wages (as it is implied in the document's call for wage-moderation, see NGP p.15), but this may not be true if excessive profits are capped and regulations to promote re-investment are imposed by the state, which is a question of power. In addition higher wages may boost demand and hence create more jobs in the macro-economy; seeing things in this alternative way is an example of how the ideological orientation of the economics being used can lead to different projected outcomes.
1.6 The document also has a simplistic view of trade-offs. For example it counter-poses "present consumption and future growth, since that requires higher investment and saving in the present" (NGP, p.2). However, not all consumption can be seen in this way. For example, broad-based consumption of essential items by the working class and poor communities is the basis of demand for downstream labour-industries and is simultaneously critical in the achievement of a better life by improving living conditions. This demand in turn provides a powerful stimulus for downstream industries to invest in capacity thereby increasing future production potential. However, if the consumption that is spoken about is the one centred on the upper classes, with strong import propensity of high value-added items, then indeed, the sustainability of economic growth is compromised. The point is that a simplistic counter-position of consumption and investment is misleading. This counter-position is a result of an economics that underlies the perceived trade-offs, which assumes that the economy always operates at an immutable capacity limit of production, where not only is consumption traded for investment, but also all other components of demand are traded for investment.
1.7 Our general assessment of the NGP document is that it does not represent a breakthrough in economic thinking and in economic policy. Specifically, the NGP document is problematic in at least six areas:
a) The policy instruments that it proposes are no different from those contained in GEAR, especially the development policy package (p.14-15),
b) No breakthrough in fiscal and monetary policy beyond GEAR (p.16),
c) Inadequate and overall, a very weak microeconomic package that is no different from AsgiSA (p.17-23),
d) A very weak approach to the development of institutions to drive the new growth, especially the developmental state and over-reliance on corporatist social consensus (p.28-30),
e) Inadequate assessment of the socio-economic challenges that the new growth path must resolve (p.2),
f) A weak analytical framework for the new growth path, making it vulnerable to neo-liberal ideology, especially its conception of trade-offs (p.6-8)
1.8 A key reason is that in its bid to advance the idea of a weakened real exchange rate, it has fallen into the same stances that GEAR advocated, which viewed inflation in general as the overriding gauge of economic sustainability. GEAR itself was a strategy of export-led growth; it clearly articulated the need for a "stable and competitive currency", which it sought to achieve through wage and price moderation, fiscal restraint and an inflation-targeting monetary policy. Out of this macro-policy package was expected a burst in job-creation and economic growth. This package has resoundingly failed and yet it is retained in the NGP document. The issue is that the NGP document uses the same tools to as GEAR to achieve a stable and competitive currency and is completely silent on heterodox tools, such foreign exchange controls and financial transactions taxes.
1.9 The rest of the document re-states AsgiSA in many respects and advances positions that are similar to the now-forgotten Employment Strategy Framework (1998). The package surrounding micro-economics and social partners' agreement is not new. The latter in particular reinforces the GEAR macro-foundations of the growth strategy.
1.10 A key point is the role of the state. We do not see any new perspective on the role of the state in the economy, building on historical developmental state experiences. The NGP document states: "In a mixed economy, private business is a core driver of jobs and economic growth" (NGP, p.28). Without venturing to debate with business representatives, this statement clearly presents to business yet another opportunity to profit through the interventions that the document presents. In COSATU's perspective, the mixed economy must be characterised by a progressive strengthening of co-operative and public forms of economic organisation and activity, especially in strategic sectors.
1.11 Obviously, from the standpoint of COSATU (and the ANC), the centrality and leading role of the state in "directly absorbing the unemployed" and in advancing our programme of economic transformation is non-negotiable. For the past 16-years, private-sector-led growth has worsened the conditions of the vast majority of South Africans. In almost all dimensions that are relevant to our Alliance's economic transformation programme, private-sector-led economic growth has failed South Africans, as we demonstrate in our document: A Growth Path Towards Full Employment (GPFE) (GPFE, p.9-14). Therefore, as a critical point of entry, the need to build state-capacity in order to directly drive economic development should be one of the critical issues for a new growth strategy. From the standpoint of the working class, this NGP document represents a step backwards compared to the 52nd Conference, it does not respond to the COSATU proposals, and neither does it respond to the SACP's 12th Congress resolutions.
1.12 This NGP document therefore falls far short in taking us forward. We rejected GEAR despite its use of words such as "competitive exchange rate", "redistribution of income and opportunities in favour of the poor", "labour-intensive growth path", "restructuring the economy", etc. The fact that we see inconsistencies and inadequacies in the document means that we need to engage. We call for an overhaul of the document within the terrain of the Alliance; the Alliance must exercise leadership in drafting policy. To set the necessary context, COSATU will have to encourage the Alliance to mobilize structures and progressive organs of civil society in order to set the proper political context that will ensure that the policy-making process is as mass-driven as possible. No genuine shift in policy will be possible unless the masses are involved in policy debates.
2 On the Challenges of the South African Economy
2.1 The NGP document correctly begins by identifying "core challenges" of the South African economy: mass joblessness, poverty and inequality. The document then provides data on income inequality, joblessness especially among young people, the poor pay for many workers and concludes by noting that "the economy has not created sufficient employment opportunities for many of our people over the past three decades" (p.3). However, the NGP document does not articulate the problem as to why the economy is behaving in this way. Furthermore, the document's treatment of joblessness, poverty and inequality is too narrow.
2.2 What, actually, are the socio-economic challenges that confront South Africa today? In the COSATU document, we identified 9 challenges which constitute what is wrong with the post-1994 growth path. We show the situation in the 1990s and the situation in 2009. The nine challenges are:
1. Unemployment
2. Poverty
3. Income Distribution
4. Concentration of economic power
5. Concentration of industry around the minerals-energy-finance complex
6. Healthcare disparities
7. Education disparities
8. Problems with housing provision
9. Access to basic goods and services
2.2 We argue in the COSATU document that any policy shift should deliver "tangible changes in the dimensions we have identified above". This presupposes that those who are mandated with the task of effecting policy changes fully acknowledge the content and scale of these dimensions. The content of each of these problems must address the race, class and gender aspects in order to base the proposals that are contained in the new framework in a concrete historical context. The scale of these challenges is captured by data analysis.
2.3 The NGP document does not sufficiently paint a picture that we are in a socio-economic crisis. Unemployment is mentioned in just four lines and there is a disproportionate focus on income inequality. No mention is made of other forms of inequality such as wealth disparities and structures of control and management of the economy. The document does not highlight the sharp disparities in access to basic services such as healthcare, education and basic infrastructure. The effect of this is that it narrows the focus of the document. Besides constraining its economic focus, the approach of the NGP document also neglects the social aspects of South African problems.
2.4 Whilst the document talks about poverty as a core challenge, the extent of poverty is not mentioned at all. In the COSATU document, we refer to work done by the Presidency to show the extent of poverty. We note that "measures that assume individuals need R322 a month to survive show that individual poverty has declined from 52.5% to 48%" (GPFE, p.11). Having noted that this decline is due to social grants, we concluded that "the economy reproduces poverty, and the state throws money at this problem without intervening to change its structure".
2.5 The new growth path must address the problems brought about by the intersection of race, class and gender oppression and domination. It is important to mention this because if we are serious about tackling the socio-economic problems the country faces, we should be robust about what we confront and bring to bear the perspectives and tools of analysis that are characteristic of a revolutionary democratic movement, whether such a movement is in government or not.
2.6 In its outline of the problems that have to be addressed, the document fails to advance a triple-oppression approach and also fails to give a sense of progress in the democratic era, a sense of how far we have gone in tackling these problems. This is important because a failure to conduct a robust analysis of who gained and who lost in class, race and gender terms over the past 17 years will lead to an inappropriate expectation, especially of which class must sacrifice in the transition to a new growth and development path.
2.7 In the light of this, COSATU proposes that
a) The NGP document be recast so that it is comprehensive, so that it addresses both the social and economic dimensions of development in an integrated way
b) The nine challenges that summarise the socio-economic crisis in South Africa must be articulated in the NGP document. This will not only open the economic scope of the NGP document; it will also integrate social aspects into the NGP framework
c) Each dimension of the challenges we face must be articulated, based on referenced data
d) The triple oppression/domination approach must be maintained as far as possible, especially in relation to questions of poverty, income distribution, economic power, and access to basic social services
e) A comparative data presentation must be made between the 1990s and the latest available data, in order to show how the dimensions of South Africa's challenges have evolved over the past 16 years. This will serve to substantiate an overhaul shift in economic policy
3 On the Conception of the New Growth Path
3.1 The NGP document begins by "identifying where employment creation is possible, both within economic sectors as conventionally defined and in cross-cutting activities". It then "analyses the policies and institutional developments required to take advantage of these opportunities" (p.6). The document then notes that "the main indicators of success will be jobs (the number and quality created), growth (the rate, labour intensity and composition of economic growth), equity (lower income inequality and poverty) and environmental outcomes" (p.6). Mention is made in the document of the need to "find opportunities in fast-growing economies of China, India and Brazil" (p.7) and "to widen the market for South African goods and services through a stronger focus on exports to the region and other rapidly growing economies" (p.8).
3.2 The analytical framework of the NGP document is not clearly articulated however. Articulating the key features, or pillars, of the NGP should be the starting point, before identifying employment-generating activities. The way these pillars are mentioned, as expressed in point 3.1 above, leaves an impression that these pillars are not articulated in a coherent framework. For example, the document does not address and take a definite stand on, the contentious issue of the link between equity and economic growth. A new growth path framework must, in line with the 52nd Conference, place redistribution at the foundation of economic growth. Secondly, the document must be clear on the link between equity and employment. If, as the 52nd Conference believes, "our most effective weapon against poverty is the creation of decent work", the document must take a definite stand on the relation between the living wage and the volume of employment.
3.3 Without a clear analytical framework, there will be a temptation to regard trade-offs that fall from neoliberal ideology as acts of nature, cast in stone. Indeed the NGP document says that "the requisite policy stability and coherence will be supported by effective social dialogue that helps establish a broad consensus on long-run policy goals and a vision for the country, and facilitates the necessary trade-offs and sacrifices by ensuring visibly fair distribution of the benefits from growth" (NGP, p.6). These trade-offs, as will be shown below, are actually outcomes of the neoliberal conception of how the economy works. The NGP takes it as a law of nature that, for example, there is a trade-off between wages and employment, between current consumption and future growth, etc. The trade-offs that the NGP document seeks to facilitate through social dialogue are functions of power relations in the economy and, as they stand, they are based on a framework that does not seek to challenge the power of capital.
3.4 In p.7 the NGP document talks about phasing, in order to bring about "long-term structural change". The phasing it proposes is almost identical to the one contained in the Employment Strategy Framework (2008, p.4), which elaborates the GEAR approach to labour market policy. In Phase 1 for example, the NGP document says the state "can accelerate employment creation primarily through direct employment schemes, targeted subsidies and/or a more expansionary macroeconomic package". We will not go to the other phases, which are similar in both documents. The so-called "targeted subsidies" are mentioned in the Employment Strategy Framework as "youth training subsidies". The NGP document does not specify what it means by these. The "expansionary macro-economic package" mentioned in these early pages is not reflected in the macroeconomic policy package in p.16.
3.5 The NGP document states: "the measures in the New Growth Path, taken together, constitute a key means to address the income inequalities of society... they include measures such as skills enhancement, small enterprise development, wage and productivity gain-sharing policies, addressing excessive pay gap between top and bottom, progressive taxation and support for the social wage" (NGP, p.8). However, none of these measures is elaborated in any detail in the document. For example a) in the section dealing with fiscal policy, no mention is made of progressive taxation and the form it will take, b) the precise targets and mechanisms to address the executive pay gap are not elaborated in the relevant sections of the document, c) whilst the document claims to advance measures to support the social wage, it immediately says about social measures, especially those relating to education and health, "detailed measures are not spelt out in the New Growth Path" (NGP, p.8). The implication is that the NGP document mentions issues that are close to heart for the working class only to push these issues to the periphery of policy discussions.
3.6 In the COSATU document we argue that the basic point of departure is that "our society suffers from the intersection of apartheid distortions and socio-economic exclusion of the vast majority from economic activity" (GPFE, p.23). We proceed to characterise the type of economic growth that we envisage as one that is "wage-led and redistributive; economic growth must raise wages in real terms and must improve income distribution". Furthermore, we talk about a "redistributive growth path that creates decent work" and we further emphasise the point that "redistribution must necessarily encompass the question of economic power" (GPFE, p.23). This articulation specifies a path for the key variables: redistribution, decent work, economic growth - what in common terms we call a growth path. In such a growth path, there is no trade-off between the core variables. The challenge is to design policy so that the economy delivers outcomes that do not posit a trade-off between these core variables.
3.7 Similarly, the 52nd Conference re-asserted the historical position of the movement on economic transformation when it characterised the type of economic growth that can defeat poverty and inequality, as one located "within the context of an effective redistribution strategy". This redistribution strategy, the Conference believed, must be the foundation of a new and equitable growth path. The Conference went further to decry the concentration of economic power. Conference further identified as a problem that makes inequality, poverty and unemployment stubborn, "monopoly domination of our economy, which remains an obstacle to the goals of economic transformation, growth and development" (Economic Transformation Resolutions, Belief 7). The Conference therefore also put the question of redistribution in the broader sense, not in a narrow sense of income inequality, at the centre of economic transformation. This stance does not come out in the NGP document.
3.8 COSATU proposes that the NGP document be clearly anchored on the following pillars:
a) Pursuing a strategy of redistribution of income, wealth, economic power and resources
b) Creating productive, decent work for all South Africans
c) Pursuing a strategy of industrialisation: identifying sectors and building linkages between sectors
d) Meeting the basic needs of the people: housing, water, energy, education, healthcare and social protection
e) Promoting fair and equitable trade, industrial and social development across the Southern African region
f) Promoting an environmentally sustainable social and economic development strategy
Measures to advance each of these pillars must be elaborated in the NGP document and the relationship between these pillars must be spelt out. Spelling out the relationships between these pillars provides a clear logical framework for the NGP strategy, so that the measures that are proposed can be easily linked to these pillars and their projected impact on the overall growth strategy can be deduced.
Furthermore, the NGP document needs to adopt a dynamic approach regarding the impact of the proposed NGP on the social relations that should underpin economic activity over time. Not only must the new growth path "increase employment opportunities", it must also be transformative in the sense of changing the class character of ownership and control of the South African economy. In anchoring the document on the above pillars, the role of the state as a direct producer and employer, over and above its regulatory functions, must be clearly outlined.
4 On the Jobs Drivers
4.1 The overall thrust of the NGP document on infrastructure is welcome. It says that jobs can be created in "four activities: construction of new infrastructure, operation of the new facilities; expanded maintenance; and the manufacture of components for the infrastructure programme" (NGP, p.10). It goes on to say "the manufacture of inputs provides both employment opportunities and scope to enhance industrial capacity" (NGP, p.11). Infrastructure development is thus linked to industrial transformation and meeting basic needs. However, what are missing in the document are the types of infrastructure that are required, and the scale: roads, rail, ICT, social (schools, colleges, clinics hospitals, police stations, etc.), water and energy. AsgiSA provided more detail on these than the NGP document.
4.2 AsgiSA says: "Key areas of government expenditure, incorporating all spheres, are: provincial and local roads, bulk water infrastructure and water supply networks, energy distribution, housing, schools and clinics, business centres, sports facilities, and multi-purpose government service centres, including police stations, courts and correctional facilities". ASGISA goes on to give details about specific projects and further says: "Public-sector infrastructure spending has considerable potential spin-offs in terms of the generation or regeneration of domestic supply industries, small business development and empowerment. Government is seeking to maximise the positive impact of these spinoffs on the domestic economy". Such level of detail, and more, should have infused the NGP document.
4.3 What is, however, problematic about both AsgiSA and the NGP document is the absence of the state. Both AsgiSA and the NGP talk about "public investment" through public sector corporations. They do not talk about the state directly delivering infrastructure, thereby directly creating employment. In our view, the "multiplier effect" on employment will be severely limited if the private sector, with its profit-seeking capital intensive methods of production, is allowed to play a leading role in the direct delivery of this infrastructure. The direct role of the state in absorbing the unemployed is explicitly spelt out in resolution 2.7 of the 52nd Conference on economic transformation: "directly absorbing the unemployed" through, among others, "a significant expansion of public works programmes linked to the expansion of economic infrastructure and meeting social needs..." This should have been further elaborated in the NGP document.
4.4 The document fails to give structure and priority to IPAP 2. It does not specify the sectors that have to be targeted in order to build a cohesive industrial base, and how these sectors are linked in the overall growth and development strategy. In the COSATU document we list and show the links between targeted sectors (see p.47 of the COSATU document), and we justify why these sectors should form a new base for development. In the NGP there is no clarity about the new industrial structure. The NGP loses the important detail that is contained in IPAP 2 and talks about manufacturing in general terms (NGP, p.12). Nothing is mentioned about the petro-chemicals sector, cement and construction, etc, sectors that are crucial to addressing basic needs and at the same time building a robust industrial base. AsgiSA on the other hand, although also not justifying its sectors and their linkages, at least targeted chemicals, metals fabrication, creative industries, clothing and textiles, durable consumer goods, wood, pulp and paper. Four of these sectors are clearly spelt out in the COSATU document, and are located in an integrated industrial structure.
4.5 It would, however, be better to talk about industrial transformation and targeted sectors rather than jobs drivers. This would make the assumed inter-linkages between targeted sectors clearer. For example, the link between pharmaceuticals, which is industrial and healthcare, which is social, can be nicely teased out if the basis of discussion is industrial transformation. Important issues that have to be taken into account, which have been extensively mentioned in the COSATU document, are the extent of value-addition, balance of payments considerations, long-term growth potential, etc. as development indicators that may be applied in selecting sectors. The economic reasoning, beyond job-creation, as to how the identified "key sectors" will contribute towards long-term sustainable development is not spelt out in the NGP document. A narrow focus on job-creation is likely to be risky; it may inadvertently generate balance of payments difficulties, lead to bottlenecks in strategic inputs whose production may be capital-intensive, create inter-sectoral imbalances and inflationary pressures on essential inputs, etc.
4.6 As we have mentioned before, of major concern is that there is no mention in the document on the direct role of the state in job creation. The only mention is that the "public service can also generate 100 000 jobs in health, education and policing by 2020" (p.13). This underestimates the role of the public sector. In the COSATU document, we mention that 200 000 nurses that we will need if we are to halve the nurse/1000 people ratio, given the HIV and other challenges we face (see GPFE, p.89 footnote). This does not even mention additional teachers, which we estimate to be 210 000. The proposed expansion of the FET sector will require 20 000 more lecturers (GPFE p.63 footnote). We can go on and on, but the point is that the document places the direct role of the state in employment in the margins.
4.7 It would be useful for the document to integrate the section on industrial policy and the one on jobs-drivers in order to bring about coherence. For example, the section on "Jobs driver 2" raises the same issues as the section on "active industrial policy" in p.17-18, which is disappointingly very short.
4.8 In the light of the above comments, COSATU proposes that:
a) Rather than have "jobs drivers", the NGP document must elaborate on the pillars of the new growth path strategy. For example, industrial transformation must be at the centre and must be geared towards infrastructure production, meeting basic needs, producing for both the domestic and regional markets, addressing balance of payment problems, etc. Job-creation must then be seen as a cross-cutting outcome.
b) If infrastructure is to be mentioned at all, the type of infrastructure, the scale, and the direct role of the state in the production of such infrastructure should be spelt out. Infrastructure backlogs have been estimated by the DBSA in its Infrastructure Barometer 2008 and the COSATU document also has useful information about the scale of infrastructure needs (See GPFE Part III, p.83-109).
c) Most of the issues raised in this section of the NGP document can be incorporated in other sections, for example the section on social policy that we propose should incorporate infrastructure needs, the section on industrial policy should target the industries that are important for the production of infrastructure among other outputs, etc.
d) In short, we propose that this section of the document be removed and whatever is to be said should be incorporated in the relevant sections, as we have noted in point 4.7 above.
5 On the Role of the State in the New Growth Path
5.1 The NGP document is obscure about the role of the state in the new growth path. It states that "the government has a critically important role to play in accelerating social and economic development through including effective regulation of markets" (p.4), and "government must pursue key policies and programmes over at least a decade. Moreover, the state must coordinate its efforts around core priorities rather than dispersing them across numerous efforts... These are the core characteristics of a developmental state" (p.6), "maintain high levels of public investment with a sustainable step change in investment by general government and public sector corporations" (p.11), "government will step up efforts to provide public infrastructure and housing rural communities" (p.14). The role of the state is dispersed throughout the document and sanitised so that it is not at all clear how the state will systematically intervene to drive the pillars of the NGP path.
5.2 The NGP document's view of what the developmental state should do is very high-level, and fails to elaborate the perspectives of the 52nd Conference. The 52nd Conference provided more detailed directives on state-capacity building, compared to the NGP document. For example, the Conference spoke about the need to develop planning and co-ordination, human resource, technical and political capacities of the state. Page 28 of the NGP document does not elaborate on these perspectives of the 52nd Conference. Building state-capacity is an important institutional aspect, especially when the new growth path is said to be "state-led". The 52nd Conference demands a greater role for the state than the NGP document. For example, Conference resolved that the state should a) shape the key sectors of the economy through strategic interventions, b) ensure that our natural resources are used to maximize national development, c) ensure that SOEs and other state-aligned agencies respond to a clearly defined public mandate and act in terms of an overarching industrial policy and economic transformation objectives (See Resolution 1 on Economic Transformation).
5.3 The NGP document says "The New Growth path will require some re-orientation from all state agencies, not just national departments" (p.28). This is exactly what the 52nd Conference said, but what the NGP document is supposed to have done is to "clearly define" the public mandate of each of the SOEs, in line with the imperatives of the NGP. The NGP document fails to do this. As a result, we will not be surprised if the NGP document remains exactly that, a document, because it misses the opportunity to give direction to the largest guzzlers of the national budget-the SOEs, and strategic institutions such as the Reserve Bank, DFIs, etc.
5.4 Whilst sections of business, e.g. BUSA, have created a diversion by claiming that the NGP document calls for "too much state intervention", the class bias of the NGP document belies this. The document states: "In a mixed economy, private business is a core driver of jobs and economic growth". The document projects 100 000 jobs to be created directly by the public service "even if it grows by only 1%", whilst the social sector is projected to create 260 000 jobs. If these figures are anything to go by, this means that the state is expected to create only 2% of the 5 million projected jobs by 2020. Combined with the social sector, this leaves 93% of job creation to be undertaken by private business. Clearly, the orientation of the NGP document is not in the direction of redistribution of economic power in favour of the working class. What the NGP document seeks to achieve is a mixed economy in the mainstream economics textbook sense, not in the sense of fostering an economy that is mixed in terms of the relations of production and in transition towards more egalitarian forms of ownership and control.
5.5 Overall, the role of the state in directly building infrastructure and delivering basic services is not mentioned in the document. Whilst on the one hand it operates within the frame of "state-led" program, the NGP document calls for private business to lead the process of job creation. This is one area where, contrary to what the NGP document claims about global economic crisis having opened up space for developing economies to go beyond conventional policy prescriptions (see p.4), the NGP document itself remains stuck in market-led growth. The 52nd Conference calls for a different approach; it talks about the state "directly absorbing the unemployed through" for example, "a significant expansion of the public works programmes linked to the expansion of economic infrastructure and meeting social needs with home-based care and early childhood development on a mass scale" (Resolution 2.7 On Economic Transformation). This resolution does not give an impression of private business being the core driver of jobs, and the scale of jobs that this resolution indicates clearly exceeds the 100 000 mentioned in the NGP document.
5.6 The COSATU document, like the 52nd Conference Resolution 1 on Economic Transformation, elaborates the character and role of the state in the NGP. We detail the capacities that need to be built for the kind of state that we need, which takes forward Resolution 1 of the 52nd Conference. We clearly oppose the neo-liberal limitation of the role of the state to "effective regulation of markets" (GPFE, p.29), we also oppose the use of the state as an instrument of accumulation by it being a "tender-state" (GPFE p.31-32). We call for an approach that grounds the conception of the developmental state within the matrix of class, gender and race relations. Just as much as we call for a pro-poor, wage-led, redistributive growth path we logically seek to construct a state that is biased towards the poor and the working class. This is also in line with the belief of the 52nd Conference that "whilst acting effectively to promote economic growth, efficiency and productivity, it [the state] must be equally effective in addressing the social conditions of the masses of our people and realizing economic progress for the poor". Resolution 1.7 further says that the state should have capacity "to mobilise the people as a whole, especially the poor, to act as their own liberators through participatory and representative democracy".
5.7 The SACP has also argued that the developmental state needs to be conceptualised within the context of the theory and practice of the national democratic revolution. It went further to resolve that "the developmental state has to be built around a development vision to transform race, class and gender contradictions" (Resolution 2 on Building a Democratic, Activist Developmental State). The SACP went further to call for the building of state capacity to plan and execute its developmental mandate and that this requires a strong, efficient, motivated and well-compensated public service. These issues are not taken forward in the NGP document, yet the state is supposed to exercise leadership in the development process.
5.8 In the light of the above, COSATU proposes that the NGP document:
a) Contains a separate section that deals with the role and character of the state in the economy
b) Outlines steps to build the required state-capacities as identified in the 52nd Conference and in the COSATU document
c) Clarifiers the bias of the state in line with the class, race and gender character of the NGP
d) Clarifies the role of the state in directly building infrastructure and providing basic services
e) Elaborates on the role of the state in shaping key sectors such as the minerals-energy complex, natural resource-based industries, etc. in line with the 52nd Conference resolutions
f) Re-thinks the role of the state in directly absorbing the unemployed, in line with proposals contained in the COSATU document and in the 52nd Conference resolutions
6 On Macroeconomic Policy
6.1 The macroeconomic policy package of the NGP document is perhaps its most regressive aspect. We are not convinced that the "Global economic turmoil has also opened up new policy space for developing economies to go beyond conventional policy prescriptions" (p.4). Developing countries are under continuous surveillance by the IMF and are forced to run trade deficits in order for developed economies to export their way out of the crisis. In fact, the macro-policy stance that is adopted by the NGP document shows how closed the new policy space is. The continuation of old macro-policies, e.g. restrained fiscal policy and inflation targeting represent a zero shift in economic policy both from the standpoint of the 52nd Conference and from that of the global economic crisis.
6.2 In order to understand the macroeconomics of the NGP document, we have to backtrack and recall the macroeconomics of GEAR, which sought to take advantage of the depreciation of the Rand in order to stimulate economic growth. The macroeconomics of GEAR was premised on the view that a competitive currency brought about by a depreciation of the Rand would however increase inflation and initiate a wage-price spiral, because the price of critical imported inputs such as oil, depend on the exchange rate. As domestic prices and wages rise, production costs would increase and therefore erode the profitability of firms. In order to prevent this erosion from happening, GEAR called for a policy package that is also "consistent with long-run sustainable growth on a higher plane" which consists of, among others, "public sector reforms, comprising asset restructuring, budgetary reprioritisation and improved service delivery..."(GEAR, p.7), and it called for "a social agreement to facilitate wage and price moderation [that will] underpin accelerated investment and employment and enhance public service delivery" (GEAR, p.5).
6.3 The macroeconomic policy package that GEAR proposed was "a tighter fiscal stance" in order to contain inflationary pressures and "to remove the domestic savings constraint and benefit from the expansionary impact of stronger investment and export performance" which was envisaged (GEAR, p.8). Monetary policy on the other hand, was geared towards targeting inflation because "by combating inflation monetary authorities will also contribute to stabilising the external value of the rand" (GEAR p.11). GEAR thus called for a macroeconomic policy package that combined an inflation targeting monetary policy with a restrained fiscal policy.
6.4 According to the NGP document, this GEAR package constitutes the macroeconomic policy of the NGP. In the context of "key tradeoffs" it seeks to manage. The 2010 NGP framework says, "Measures designed to bring about a more competitive exchange rate may be undermined if all of the competitiveness gains are eroded by rising domestic prices and wages" (NGP, p.15). In order to contain this rise in prices and wages, the NGP calls for "a restrained fiscal stance and the reprioritisation of public spending to ensure sustainability over time".
6.5 There is therefore nothing new in the NGP document in relation to macroeconomic policy. We see a) the "wage-price spiral" in one and "prices and wages" in the other, b) a "sharper deficit reduction" and a "tighter fiscal stance" in one and "restrained fiscal stance" in the other and c) "budgetary reprioritisation" in one and "reprioritisation of public spending" in the other. In the NGP the growth in government spending is 2% in real terms, but the growth in output is projected to be above this; 4.5% by 2013/14 by the National Treasury. This constitutes a reduction in government spending relative to GDP, which is a relative "cut-back" on government expenditure. It is therefore a myth that "in the very short run, the state can accelerate employment creation primarily through... a more expansionary macroeconomic package" (NGP, p.7). The macroeconomic policy package it proposes is contractionary.
6.6 As we have warned before, a growth path that is based on an old macro-economic framework will not be new. The logic of the primary focus of the macroeconomic policy of the NGP is inflation; any measure that shifts aggregate demand to the right must be countered by another that shifts aggregate demand to the left. The result is constrained economic growth and a failure to "decisively address the most significant obstacles that limit the pace of employment creation and poverty eradication" (Economic Transformation Resolution 2.2).
6.7 We invite the reader to consider the following quotations on monetary policy:
A. Monetary Policy
i. The monetary policy of GEAR (1996)
6.8 The main objective of monetary policy will continue to be the maintenance of financial stability and the reduction of the inflation rate. Positive real interest rates are a minimum condition for overall financial stability. Low inflation is an important requirement for higher economic growth, the creation of employment opportunities and a more equitable distribution of income (GEAR, p.11).
ii. The monetary policy of the New Growth Path Framework (2010)
6.9 The monetary policy stance will continue to target low and stable inflation but will do more to support a more competitive exchange rate and reduced investment costs through lower interest rates. This will be accompanied by measures ...to contain inflationary pressures and build competitiveness (NGP, p.16).
iii. The monetary policy of the 2007 Polokwane conference of the ANC and the manifesto policy framework of 2009
6.10 Making the creation of decent work opportunities the primary focus of economic policies. This central objective should be reflected in....our sustainable macro-economic policy stance [Resolution 2.1, Polokwane Conference].
6.11 Our fiscal and monetary policy mandates including interest rates and exchange rates need to take into account employment considerations, economic growth and other developmental imperatives [Manifesto Policy Framework 2009, p.10].
iv. The Monetary Policy of the 2007 National Congress and 2009 Polokwane Conference of the SACP
6.12 The mandate of the SA Reserve Bank and PIC should be aligned to the development strategy. That means changing the narrow and one-sided SARB focus on inflation to incorporate objectives such as employment, growth and industrial development (Resolution 2 on Appropriate, Supportive Macroeconomic Policy).
6.13 The commission called for macro-policy to be realigned to support industrial policy. The mandate of the reserve bank must be revisited to prioritize job creation and to ensure that its interest rate decisions do not result in an overvalued currency (Resolution 2(e), Polokwane Conference, p.10).
v. The monetary policy of COSATU's Growth Path Towards Full Employment
6.14 Employment will be the primary target of monetary policy; whilst price stability plays a subordinate role, monetary policy will support industrial development, foreign exchange control measures will be an essential part of monetary policy, exchange rate management will be one of the pillars of monetary policy, Reserve Bank asset and liability management will have to be aligned to our developmental mandate, monetary policy must support an expansionary developmental fiscal policy (GPFE, p.79).
6.15 The above extracts show that the NGP document is no different from GEAR. Whilst the democratic movement does not regard inflation and financial stability as not important, it should be noted that the key words that feature prominently in the monetary policy of the Tripartite Alliance are employment, economic growth and development. The 52nd Conference even went further and said decent work "should be reflected in our macroeconomic stance".
6.16 The NGP calls for "a looser monetary policy" (p.16) which targets low and stable inflation but will do more to support a more competitive exchange rate...additional larger purchases of foreign currency flowing into South Africa...A further set of tools to address the competitiveness of the exchange rate is being explored...These tools will take into account global agreements to deal with imbalances" (NGP, p.16).
6.17 These formulations are not new. In GEAR we were told that one of the core elements of its integrated strategy is "an exchange rate policy to keep the real effective exchange rate stable at a competitive level" (GEAR, p.2). In order to achieve this, GEAR argued strongly for the achievement of a low rate of inflation, which it deemed to be "a requirement for higher economic growth, the creation of employment opportunities and a more equitable distribution of income"(p.11). Over the long run, GEAR said, "low domestic is a prerequisite for greater stability in the average value of the rand against a basket of currencies of major trading partners" (p.16).
6.18 The logic of the NGP is precisely similar, relying on a purely mechanical approach to the exchange rate. Even when it hints at heterodox ways of managing the exchange rate, such as exchange controls and taxes on short-term capital flows, the NGP never fails to remind us of imperialist domination: the tools of development we deploy will have to take into account "global agreements to deal with imbalances". What are those agreements? Put simply, emerging markets and developing countries must allow themselves to be used by advanced economies in order for advanced economies to export their way out of the crisis.
6.19 A critical thing in all of this is that the currencies of advanced economies must weaken compared to others, thereby plunging emerging markets and developing economies in trade deficits and ballooning foreign debt. In other words, the "global agreements" are aimed at transferring the problems in advanced economies to emerging market and developing country economies as a mechanism of global economic adjustment. In this situation, some countries-such as Brazil, India, Russia, and China, are refusing to be used and continue to steadfastly maintain their national development strategies.
6.20 The effect of this concession to global power relations is that, as the largest economy on the continent, South Africa fails to contribute towards the reconfiguration of Africa's economic relations with the rest of the global economy. The NGP fails to critique the current economic relations the continent is locked in when it says: "Africa's importance has also grown in recent years, as a source and a potential market with one billion consumers..." (p.4). This lack of critique shows up in the way the NGP sees the role of the continent in the new growth and development path of the South African economy.
6.21 Just as it begins by noting the need to change the composition of economic growth, the document fails to highlight the fact that not all inflation is bad. A development strategy must distinguish between types of inflation just as much as it distinguishes types of economic growth. Inflation as such is not bad in a development process; what is bad is inflation of essential items. That is why, in an industrializing context where a weak exchange rate is necessary, it is important for the state to control food prices, actively participate in value-chains and delink the pricing of essential items from the exchange rate and other variables that may generate essential items inflation. This is the heterodox way, as opposed to the orthodox way, of ensuring that "a more competitive exchange rate" is not undermined by wage and price inflation. Instead the NGP relies on the same old GEAR-style fiscal restraint, wage and price moderation and inflation-targeting in order to advance a "low-inflation" growth path.
6.22 We should not fake policy consensus. At one point, the National Treasury wrote a letter to the SARB claiming to have shifted monetary policy. We were told that financial stability is now one of the mandates of the SARB. However, as shown above, GEAR has always put financial stability as one of the key pillars of monetary policy. In fact, the SARB has been publishing financial stability reviews at least from 2004. Now this is touted as a new thing, a shift in policy.
6.23 We are now also being told that "there is policy consensus on the need for a more competitive and stable exchange rate" (NGP, p.16). But a reading of GEAR shows that this, too, is not a new thing. GEAR consistently argued for "an exchange rate policy to keep the real effective exchange rate stable at a competitive level" (GEAR, p.2). It also called for "the maintenance of monetary policies consistent with continued inflation reduction and exchange rate management to stabilize the real effective exchange rate at a competitive level" (GEAR, p.4). A stable and competitive exchange rate level has not been a bone of contention. The bone of contention has always been how to achieve it and what instruments will be deployed to achieve this.
6.24 In GEAR and in the NGP this can be achieved by a restrained fiscal policy, a monetary policy that targets low inflation and wage and price moderation. The monetary policy of the new growth path has thus failed to break new ground beyond GEAR.
B. Fiscal Policy
i. The fiscal policy of GEAR (1996)
6.25 To contain inflationary pressures requires concerted implementation of complementary stabilization measures: accelerated tariff liberalisation, sharper deficit reduction, tight monetary policy, and above all, productivity linked wage increases. Taken together, these measures would hold inflation below the 10 percent barrier throughout the period, and preserve the competitive advantage of the depreciation (GEAR, p.5)
6.26 To remove the domestic savings constraint and benefit from the expansionary impact of investment and export performance which is envisaged in this strategy, a tighter fiscal policy is necessary. In this way, inflationary pressures will be kept in check and domestic resources released for financing capital formation (GEAR, p.8).
ii. The fiscal policy of the New Growth Path Framework (2010)
6.27 For the foreseeable future government will be guided by... a more restrictive fiscal policy backed by microeconomic measures to contain inflationary pressures and build competitiveness (NGP, p.16).
6.28 Greater restraint in fiscal policy to slow inflation despite easier monetary policy. A countercyclical fiscal stance through the business cycle will manage demand in support of a more competitive currency while achieving critical spending goals (NGP, p.16).
iii. The fiscal policy of COSATU's Growth Path Towards Full Employment
6.29 The goals of fiscal policy must be to achieve full employment, redistribution of income and power, social and economic transformation: changing the structure of the economy and the social relations that underpin it, support an environmentally sustainable growth path. The core elements of the new fiscal framework must be: stabilize employment over the business cycle and increase employment over the long term, influence changes in income distribution over the cycle and set the target share for workers in national income over the long-term, influence the structure of the economy through activist tax and expenditure policies... strike an appropriate balance between the provision of social and economic infrastructure, meeting basic needs and providing social protection, provide incentives for environmentally sustainable, job-creating activities (GPFE, p.71).
6.30 Our position is that development will require an expansionary, redistributive and transformative fiscal policy that is supported by monetary policy. The two policies cannot work in opposition, one "restrained" and the other "loose". What is important is co-ordination around employment as the primary target, with price stability being secondary. Mainstream economists would dismiss this approach as inflationary, failing to see that not all inflation is bad, and undermining the role of the state in directly controlling and regulating resource flows.
6.31 In GEAR and the NGP inflation remains the primary variable through which fiscal and monetary policies are coordinated. Inflation-targeting becomes a constraint within which policy choices have to be made. The so-called trade-offs revolve around the need to pursue a developmental strategy within the constraint imposed by the inflation target. The argument is that if monetary policy is loose, it will stimulate credit expansion and increase demand. To keep the resultant inflation in check, fiscal policy must be restrictive. Similarly, if the currency is weakened, the increase in prices coming from imported items and the fact that many domestic goods are now priced in line with global markets, will have to be contained by a restrained fiscal policy, wage-moderation and cheap imports through tariff reduction.
6.32 The NGP anchors its macroeconomic strategy on the very same pillars as those of GEAR: wage-moderation and restrained fiscal policy. Tariff reduction has already been taken too far, and has caused massive destruction of local industry. As an instrument it has therefore run its course. The NGP does not talk about the need to reverse this process but rather constrains the state to operate within the parameters of the World Trade Organization.
6.33 In short, the document does not advance the perspective that makes decent work the primary focus the macroeconomic stance. Inflation remains the primary focus of macroeconomic policy and employment is relegated, once again, to other interventions. This is no different from the failed approach of the past 17 years.
6.24 In the light of the above observations. COSATU proposes that:
a) The proposed macroeconomic policy packaged be abandoned; it is not in line with the perspectives of the Alliance and will not advance economic transformation
b) The principles of fiscal and monetary policy be clearly outlined, and the mandates be clearly formulated so that in both policies employment, redistribution and economic transformation become the central focus, in line with the resolutions of the 52nd Conference, the 2009 Manifesto and the perspectives of the Alliance
c) Instead of using the inflation target as a coordinating device between fiscal and monetary policies, the NGP document should use employment-targeting to co-ordinate both policies
d) Rather than "exploring" tools, the NGP document should outline the policy tools that should be used to achieve the goals of macroeconomic policy. For example, we expect to see concrete proposals on progressive taxation, regulation of short-term capital flows, foreign exchange controls, public procurement, etc. all geared to support industrial and social policy imperatives
e) Mechanisms to regulate the financial sector, especially the banking system, so that it channels financial resources to targeted sectors and advance clearly defined developmental goals should be mentioned.
7 On the microeconomic package
7.1 The NGP document fails to move beyond AsgiSA in its microeconomic reforms. The document mentions the need to control the pricing of wage goods, which is very important and should be supported. The document nevertheless does not specify what these wage-goods are. The NGP says: "Microeconomic measures to control inflationary pressure include a) competition policy, targeting monopoly pricing on wage goods and industrial inputs, b) a review of administered prices to ensure that they do not increase above inflation without compelling reasons, and c) targeted, efficient and sustainable interventions to contain other volatile and/or rising costs such as private healthcare and spikes in basic food items" (NGP, p.17).
7.2 Indeed, regulation of pricing by monopolies is better than the current situation, but it is not efficient. There are many industrial inputs that may be regarded as essential, for example the various chemicals that are used in industrial processes, steel and various fabricated metals, non-metallic minerals and their fabrications. This approach is therefore likely to lead to a myriad of price regulations that may be difficult to enforce.
7.3 A more progressive position that the document could have advanced is for the role of the state in the direct production and distribution of essential items and critical inputs. For example a) SASOL produces essential chemicals for both industrial and household use. SASOL in turn requires massive amounts of electricity and relies on natural minerals for its production processes, b) Arcelor-Mittal Steel depends fundamentally on iron-ore production, coke, electricity and other chemicals from SASOL, and coal, c) Eskom relies on water and coal, but also requires metals such as copper and steel for cables, construction and machinery. These examples illustrate the strengths of the linkages that are centred on strategic, natural monopolies that should be firmly in state control and ownership in order to drive the industrialisation process and to direct the process of economic development.
7.4 Regulation is grossly inadequate for the type of developmental trajectory that we need. We require a democratic state that has power to not only legislate the parameters of capital accumulation, but power to also engage in the very process of capital accumulation, control resource allocation, and to use these resources to forge alliances that should underpin long-term social and economic development. Without state power buttressed by a mass-democratic movement on the one hand and public ownership and control of strategic sectors on the other hand, to give economic expression to such power, the politics of the democratic movement will not find expression in the economics that underpin society.
7.5 The document does not raise issues to this level. What we need in a development strategy is state ownership and active regulation of critical value-chains and the pricing therein. For example, we would have expected the document to outline measures to deal with import-parity pricing on essential items, especially food, and to delink exchange rate movements from food prices. This would mean imposing taxes on speculation based on essential commodities and to create a wedge, through an agricultural board, between pricing food items and financial and global markets. A development strategy requires active state control of food pricing and essential value-chains.
7.6 Overall, we do not see any step forward in the NGP document beyond what has been outlined in AsgiSA. It would, perhaps, have been extremely useful had the NGP document provided an analysis of the progress that has been made in the implementation of the microeconomic reforms of AsgiSA. The side-stepping of the centrality of the state in all the activities that are mentioned leaves the document at the same level as AsgiSA when it comes to micro-level interventions.
7.7 In terms of microeconomic reforms, COSATU proposes that
a) Pricing of industrial inputs and its control be integrated into the discussion on industrial policy and/or the role of the state
b) Skills development be treated in a detailed fashion, and be incorporated into the discussion on labour market policy
c) Measures to support competitiveness and innovation must be incorporated in both labour market and industrial policy
d) The section on microeconomic reforms must therefore be removed and whatever is said in this section be incorporated in the relevant section of the document, e.g. measures to deal with monopoly pricing can be incorporated in the section on competition policy
8 On Industrial and Trade Policies
8.1 We need an industrial structure to underpin the growth path, linkages within and between sectors etc; this has been done in the COSATU document. The document is not strong on the sectors to be supported; it needs to give priority to IPAP 2, i.e. select the top sectors from IPAP 2 around which growth must be anchored. The document fails to do this.
8.2 More importantly, the methodology in identifying sectors that should underpin the NGP is not clear. Whilst the overriding objective of the NGP is job-creation, it is important to identify sectors based on a broad set of developmental indicators. In the COSATU document we have identified 8 such indicators. We noted that "some sectors may be capital-intensive, yet they may be strategic for economic development in the sense that they supply basic inputs. Others may not be labour-intensive, but they may play an important role in limiting the amount of imports, if they are directly supported, while other may be more directly linked to meeting basic needs..."(GPFE, p.41).
8.3 It is on the basis of such a broad and strategic approach that a dynamic industrial structure can be built. Simply targeting sectors without concretely identifying industrial linkages and without verifying that such sectors are positioned to promote the sustainability of the growth and development path, particularly its balance-of-payments implications, is likely to fail. In connection with this, an attendant trade policy must be spelt out to support clearly identified sectors, in order to build these linkages. We have outlined the key features of a trade policy framework (GPFE, p.56-57).
8.4 In the COSATU document we said: "We support... [the areas of focus of the NGP]...but would add that they need to be elaborated in detail and the links between these areas be explicitly spelt out. COSATU's approach is to unpack the industry component, because we believe it is important to changing the industrial structure and positioning the economy for sustainable growth and development. For example, infrastructure development should be linked to industrial development and social policy. The social economy and public sector should be linked to changing the structure of ownership and control of the economy, including the role of the state in the economy. Knowledge economy activities should relate to moving up the value chain by broadening downstream and upstream linkages, and promoting science and technology, etc." (GPFE, p.45). The NGP document has not responded to this proposal.
8.5 In order to strengthen the section on industrial policy, COSATU proposes
a) The goals and principles that underpin industrial policy be clearly outlined
b) Targeted industries must be clearly identified, structural linkages between them must be presented and mechanisms to support them must be mentioned, building on the work contained in IPAP 2.
c) Targeted industries must be linked to specific infrastructure and other critical outputs that are required for development. This will help improve the focus of the IPAP 2 initiative because it will prioritise sub-sectors within manufacturing. It will also help direct the operations of the DFIs, especially the IDC
d) In the COSATU document, an industrial structure is proposed, based on an analysis of 8 indicators, it would be useful for the NGP document to build its industrial policy framework along the same lines. Such a framework easily incorporates the six sectors that the NGP identifies in p.10, but would present them in a coherent framework
e) The NGP document must dedicate special attention to the transformation of the wholesale and retail sector so that it supports national and regional development. This sector is crucial because it links producers and consumers; it makes or breaks enterprises
f) Industrial policy measures to support targeted industries must be clearly outlined. Targets for local procurement, regulation of exports of raw materials, banning the export of scrap metal, technological support, infrastructure, etc. must form part of the policy interventions (for more on these, see the GPFE Part II, Section 6)
g) Given the need to reduce carbon emissions, the NGP document needs to specify concrete ways in which the state will intervene to ensure that industrial processes optimise the use of energy
9 On Labour Market Policy
9.1 This section of the NGP document is also problematic. In the following response, we will also deal with the wage-price moderation proposal which is at the heart of the NGO document's partnership commitment proposals. The NGP document correctly notes the "racially based inequality and exploitation" left by apartheid and says that "government now regulates the labour market in order to protect vulnerable workers, support employment equity, ensure health and safety on the job and assist workers in finding employment opportunities" (NGP, p.22). It goes on to say that it now seeks to find ways "to raise multi-factor productivity on the basis of fair rewards to workers plus greater employment creation" and proposes that "the unemployment insurance system will need temporary adjustments to its rules from time to time to extend or reduce the duration of benefits, on an actuarially sound basis".
9.2 It is not clear what the goals of the labour market policy of the NGP document are. The principles that underpin its labour market approach are not spelt out. As to how the NGP seeks to deal with the persistence of apartheid-style management practices such as the maintenance of a race-based wage gap, discriminatory practices that see whites continuing to be the main group promoted to higher positions, the disproportionate training of white people in management positions, and the lack of career-pathing of Blacks, particularly Africans, in the private sector are matters that the document does not address, and yet such matters touch on the question of redistribution of economic power.
9.3 The direct role of the state in employment creation is not mentioned; its ideological orientation is neo-classical, i.e. based on the belief that "fair rewards" in the production process should be linked to "multifactor productivity", which is not defined. It does not come out clearly to ban labour brokers and offers no detail on regulating other forms of precarious work. All that the document says is that there will be "legislative amendments to reduce workers' vulnerability" (NGP p.23). It does not engage with our full employment proposal of employer-of-last resort, it makes no mention the apartheid wage gap, etc. In short, the document does not engage with many proposals that have been advanced by the Federation.
9.4 There is an absence of ideas on how the South African economy can realise and guarantee the goal of full employment in the NGP document. The 52nd Conference mentioned that we need to directly absorb the unemployed in a number of ways. In the COSATU document, we propose a direct employment program driven by the state which is centred on the delivery of basic social services and infrastructure: the employer-of-last-resort program.
9.5 The NGP document proposes "a national productivity accord supplemented by sector and workplace productivity agreements" (p.23). However, it would have been useful to begin by ascertaining whether indeed the South African economy exhibits productivity hindrances, particularly in those sectors that should have been identified by the NGP document (drawing from IPAP 2), identifying factors that hinder productivity growth in the South African economy, and then propose ways in which such hindrances can be removed. The proposal for an accord should be informed by such prior analysis, which is not provided in the framework document. Leveraging from the work of the National Productivity Institute in this regard could have been useful.
9.6 We welcome the proposal to "expand the role of the Unemployment Insurance Fund (UIF) in funding DFI efforts to create employment" (NGP, p.23). However, this could have been conceptualised within the context of financing a state-led employment programme that seeks to directly absorb the unemployed through infrastructure development, and the roll-out of basic services (the employer-of-last-resort). State-guaranteed employment is the ultimate insurance against unemployment for the vast majority of the people.
9.7 The wage policy of the NGP document is still stuck in the old GEAR mode. Wage moderation was proposed first by GEAR, and has lived on the lexicon of almost all policy documents that seek to tackle the growth path problem. The NGP document has to clarify how wage moderation will assist in redistributing income and what measures will be undertaken to ensure that those who benefitted disproportionately in the past 17 years and before share the benefits with the rest of South Africans. There is neither mention of taxing the super-rich, nor further details on other forms of progressive taxation.
9.8 In GEAR it was said: "The core elements of this integrated package are: a social agreement to facilitate wage and price moderation, underpin accelerated investment and employment and enhance public service delivery" (GEAR, p.5). GEAR went on to say: "In addition to maintaining financial stability, job creation is enhanced: wage moderation increases labour demand while lowering inflationary pressures" (GEAR, p.6). The whole idea of wage-moderation was to sustain "the competitive advantage of the currency depreciation...[because]...a sudden upsurge in nominal wage demands would either unleash a wage-price spiral that would soon erode any semblance of a real depreciation or force a severe monetary policy tightening, leading to higher interest rates and economic contraction. It is therefore important that wage and salary increases do not exceed average productivity growth" (GEAR, p.18). Lastly, GEAR closed with a call for a national social agreement in which "government will provide a combination of real exchange rate management and tax incentives... workers will give certainty that wage moderation will contribute towards growth... for business this strategy (GEAR) creates an environment in which investments can be made confidently" (p.21).
9.9 The now-forgotten Employment Strategy Framework of 1998 also echoed the same sentiments; business was asked to abandon real competition and generously "facilitate small business entry into the economic mainstream, enable progressive workplace change, reduce conflict on the shop-floor". Labour was asked to, among other things, "make it easier for young people to enter employment, wage bargaining appropriate to productivity gains and rates of inflation and which does not contribute to job loss, reduce conflict on the shop-floor".
9.10 It is now well-recorded that the share of wages in national income has dropped. The NGP document estimated the drop to have been from 50% to 45% between 1994 and 2009 (NGP, p.3). We also know that the Gini coefficient has risen from 0.64 to 0.68 between 1995 and 2008. The fall in the share of wages in national income means, by definition, that nominal wages could not keep up with price inflation and productivity growth. Employers thus got more than what was promised to them. To now suggest that wages must be moderated, as if real wage inflation has been in excess of productivity, is incorrect. There is no empirical basis for the call for wage-moderation in the hope that this will create employment. Neither is there a basis to expect that profit-driven firms in input and wage-goods sectors will moderate price increases.
9.11 The SACP for example notes that "workers' real earnings have remained stagnant, increasing only marginally above inflation while productivity, profits and packages to executives have soared" (see 12th Congress on Protecting Workers). It further noted that "there is a growing tendency of casualisation of labour, including outsourcing and the use of labour brokers" (See the SACP and the Workplace, 12th Congress). It is therefore disconcerting that the NGP document ignores all these developments and calls for wage-moderation, instead of proposing measures to redistribute income in favour of the working class.
9.12 The NGP document reasons on the same lines as GEAR: "Efforts to retain the benefits of the competitive exchange rate and support the proposed macro stance... based on agreements... to ensure that wage moderation and measures to support competitiveness lead to measurable increase in employment creation" (NGP, p.26). Over the past 17 years the share of workers has been declining; this alone provides no basis for the wage-moderation call. Instead, the challenge of unemployment must be sought in the structure of the economy, and its persistence must be traced in the failed fiscal and monetary policies of the past 17 years, in which the economy has not experienced excessive inflation in productivity-adjusted employee compensation. In fact, it has experienced an excessive inflation of profits. The question is to devise means to re-capture these profits. However, the approach of removing exchange controls does not help in this regard.
9.13 Rather than tinkering with wages and prices, the document should be focusing on ways in which state intervention can lower the costs of working, increase the social wage and redistribute income, resources and power through an expansionary (not restrained) fiscal policy, regulation and public ownership of strategic sectors. The critical point is that state intervention should ensure a wage-led growth path, in which redistribution goes hand in hand with economic expansion rather than in the current situation. Such a growth path can be achieved if fiscal and monetary policy instruments are deployed in an activist manner, with income distribution and employment being focus variables.
9.14 Rather than relying on cumbersome, conventional incomes policies, the NGP could have adopted activist tax-based incomes policies in order to promote a wage-led growth path, as proposed in the COSATU document (see GPFE, p.72).
9.15 In the light of the above comments, COSATU proposes that:
a) The section on labour policies be expanded and given more depth. It should have a separate section.
b) The goals and principles of labour market policies must be clearly spelt out: full employment, redress, workplace democracy, apartheid wage gap and executive pay, skills development, etc.
c) The NGP document must propose a concrete way to guarantee full employment of the South African labour force
d) There must be a clear statement on the banning of labour brokers and concrete measures to regulate contract and other forms of non-permanent employment
e) There must be clarity on how to deal with youth unemployment; clear mechanisms must be proposed
f) The role of the state, especially SOEs, in skills development and training needs to be strengthened and co-ordination with FET colleges must be improved
g) The NGP document needs to respond to the proposals in the COSATU document on labour market policies, skills and human resource development
h) The NGP document must abandon its proposed conventional wage-price controls and instead focus on progressive and active taxation policy, set targets to close the apartheid wage gap, set targets for executive pay gap and use taxation to achieve this, etc.
10 On Social Policy
10.1 We have noted already that the NGP document does not integrate social policy issues with economic policy. Social policy is a powerful instrument to transform the economy, create decent employment and redistribute resources. Quality schools and education, hospitals and healthcare, housing, safety and security, an efficient and effective justice system, access to affordable public transport, roads, water, energy, social protection, etc. are all ingredients that make up a better life and cohesive communities. These issues are not given attention, except for an assuring statement: "The connection between economic and social measures needs to be strengthened" (NGP, p.8).
10.2 The only area where the NGP document pays some attention is education and skills. The NGP document correctly emphasises the role of the FET sector and SETAs in skills development. This should be welcomed and supported. However the role of universities in the skills revolution must be clarified, especially the need for university education to be flexible enough to accommodate Recognition of Prior Learning, and that programmes must be developed by each university as part of broadening access to university education by the working class.
10.3 The document does not give a picture on the current state of affairs on skills needs. It would have been useful to review the progress made by JIPSA. It would also have been useful to identify critical sectors, and outline the quantity and types of skills required for the identified sectors. Besides engineers and artisans, there is a whole range of skills that are required. In the COSATU document, we noted that scarce and critical skills shortage now exceeds 1 million (GPFE, p.65).
10.4 The document does not raise the question of increasing the skills levy, which is insufficient given the skills backlogs we have. The role of SOEs in skills development and training is not mentioned, in line with resolution 2.9 of the 52nd Conference on economic transformation. Additional pointers can be gleaned from the COSATU document, where ABET and Recognition of Prior Learning are emphasized, given the legacy effects of apartheid on the workforce, and the need to improve employment conditions of ABET teachers (GPFE, p.64-65).
10.5 An important proposal, which is in line with the National Skills Development Strategy III, is the establishment of an inter-Ministerial committee that should undertake human resource development, planning and forecasting, matching both the supply and demand sides using state institutions as instruments, especially SOEs and agencies. No state can hope to lead the process of development without long-range planning and forecasting, especially of its skills base, the age profile of its professions, etc. This is an important proposal that should have been integrated as part of labour market policies.
10.6 Because the document is too thin on social policy, COSATU proposes that:
a) A section in the NGP document be dedicated to dealing with social development issues; the 52nd Conference (and the 2010 NGC) provides an excellent starting point
b) The social wage be linked in a concrete way to questions of access to quality basic services and social protection measures
c) The NGP document reviews the real value of social grants and the amount of free basic services. It must present comprehensive social protection measures, including a Basic Income Grant
d) The NGP document can benefit from the COSATU document, especially Part III, where measures to deal with problems of access to quality education, healthcare, social protection, safety and security, energy, water, are proposed
11 On rural development
11.1 The document is again not strong in this regard. The role of SOEs, the need to extend education facilities, healthcare and productive infrastructure, land reform, intervening in land markets and to roll back the "willing-buyer-willing-seller" principle, regulation of foreign ownership of land, dealing with absentee landlordism, unproductive land use for golf estates and the balance between tourism and material commodity production on land are not mentioned in the context rural policy. They are partly mentioned briefly in the context of jobs-drivers, but are not adequately articulated.
11.2 Institutional developments such as strengthening the Land Bank and establishing a Rural Development Agency are not mentioned. This section can also be integrated with the paragraph in p.12, which deals with land reform. Nevertheless, as noted in the document, former Bantustan areas suffer from a number of backlogs. Having said this, the NGP does not outline the types of income-generating activities that can be stimulated in such areas. In the COSATU document, we propose incentives for "light manufacturing activities that do not rely significantly on agglomeration economies", side-by-side with SOE programmes to extend infrastructure and SOE partnerships with rural colleges to provide the necessary skills for such activities to take place in those areas. The 52nd Conference provides a more systematic approach to rural development and agrarian transformation. What is required is to elaborate the details of the resolutions, fashioning clear policy instruments to realise them.
11.3 Rural development, whilst focusing on agriculture, needs to take into account the fact that a significant number of densely populated rural areas are not suitable for agricultural activity. Therefore non-agricultural activity that is not water intensive is important, and the state, through its active use of the budget and SOEs, must directly support such activities by providing the necessary market, skills (in the manner mentioned above) and finance. The aim should be to reduce the reliance of such areas on remittances from the metropolitan areas and to transform rural areas into places of decent work.
11.4 In this regard, the NGP document could have benefited from reinforcing and sharpening the Comprehensive Rural Development Programme. COSATU therefore proposes that the NGP document:
a) Re-assert the pillars of rural development and transformation: Land reform, agrarian transformation and rural development
b) Takes a stand on land ownership, e.g. foreign ownership, what to do with under-utilised land, the conversion of productive land to golf estates
c) Decides what mechanism should the state adopt to intervene in land markets, now that the 52nd Conference has called for the review of the willing-seller, willing-buyer principle
d) Outline ways in which banks, colleges, clinics and hospitals can be delivered
e) Outline the role of SOEs in rural development
f) Strengthen the role of agriculture should ad tackle obstacles to access to agricultural inputs such as water, fertilizers, pipes, etc
g) Spell out the role of the state in the agriculture, especially food, value chain, building on the proposals in the COSATU document.
h) Overall, the NGP document could benefit from a re-look at the 52nd Conference resolutions on Rural Development, the Comprehensive Rural Development Strategy and the COSATU document.
12 On forms of ownership and control of the economy
12.1 The NGP document does not raise the question of patterns of ownership and control of the economy. This is an important question because it speaks to the concept of a mixed economy in the true sense of the word. A mixed economy is not simply one where government intervenes through spending and regulates markets. It is one where "the state, private capital, cooperative and other forms of social ownership complement each other in an integrated way to eliminate poverty and foster shared economic growth" (Belief 3 on Economic Transformation). However, such a mixed situation is inherently dynamic and so the NGP document is supposed to take a stand on what tendencies, what forms of ownership should dominate in a new growth path.
12.2 It would be fair to say, given the envisioned centrality of the private sector in job creation, that the new NGP envisages an economy in which private capitalist enterprises dominate. This obviously raises questions about the class character of the NGP and its role in a radical national democratic revolution in which the working class is a leading social force. It is for these reasons that the 52nd Conference realised that, e.g. "the developmental state must ensure that our national resource endowments, including land, water, minerals and marine resources are exploited to effectively maximise the growth, development and employment potential embedded in such national assets, and not purely for profit maximisation" (Resolution 1.6 on Economic Transformation). What type of enterprise would not produce on purely profit maximization? Clearly, such an enterprise would have to deviate from normal capitalist behaviour.
12.3 In any event, as far back as 1990, it was noted that natural monopolies and strategic industries that are crucial for national development must be brought under state ownership. Such industries were clearly specified, and are captured in the COSATU document. The whole point is that a growth path cannot be state-led if the state does not command the necessary productive resources to foster industrial linkages and to promote social development directly. The NGP document does not move along these lines, but as if a) the socio-economic challenges we face are not rooted in colonial dispossession of the vast majority and b) the economic structure of our economy can be transformed indirectly through regulating monopolies. Yet resolving the problems we face would require direct state involvement, especially the mobilisation of state-power to direct resources in areas of priority. At the heart of advancing a transformative and equitable growth path is therefore the question of economic power: who owns what for which purposes, which the NGP document completely evades.
12.4 The NGP document mentions the need for enterprise development. However it would be useful to have a review of progress made since AsgiSA, because the points that are raised in p.21 of the NGP document run very close to the issues raised in AsgiSA. In the COSATU document, we state that through direct control and participation in critical value-chains, the state can open up opportunities for SMMEs. Furthermore, procurement procedures must include a percentage of value dedicated to SMMEs and co-operatives, and should target local production. The NGP document mentions procurement as an important tool for industrial development, but does not propose specific targets for SMMEs, local production, etc. This leaves the issue of SMME development and local production support in particular at a general level and thereby, fails to give clear directives to, for example state departments and SOEs.
12.5 The approach of the document towards BBBEE is that BBBEE should be geared towards productive activities and promote employment creation. This is broadly correct, but to argue that public entities must be considered "black empowered" is plain wrong. BBBEE is about changing patterns of control and ownership in the entire economy and state institutions are supposed to advance this. For example by virtue of being state-owned, Eskom is supposed to advance government policy but Eskom may be untransformed in terms of control, and may be reactionary in terms of its procurement practices. This section of the document requires serious re-working and may be embarrassing.
12.6 The NGP document says: "Finally, the broad-based BEE regulations penalise public entities as suppliers. The democratic state owns public entities on behalf of our people yet the regulations do not count them as "black empowered"" (p.22). This suggests that public entities, by virtue of being state-owned, are "black empowered". This is misleading, because for example, public entities may continue to privilege white business in contracts, management may still be untransformed and the general orientation of these entities may still require democratisation. This is precisely what the 52nd Conference meant when it called for SOEs and other state entities to "respond to a clearly defined public mandate and act in terms of our overarching industrial policy and economic transformation objectives" (Resolution 1.7 on Economic Transformation). The NGP document should thus have called for the democratisation and transformation of public entities so that they address the race, class and gender questions and that these entities are positioned to play a developmental role in line with the vision of the ANC. In this regard, the work of the Presidential Review Commission becomes relevant.
12.7 Having said all of this, we have to nevertheless recall that in AsgiSA it was mentioned that cross-cutting industrial policy challenges that were being addressed included: "Better use of BBBEE to encourage industry transformation, beyond the transfer of equity". The need for BBBEE to be productive is therefore not a new thing. How far has this been taken forward and what are the challenges? What does the NGP propose should be done to deal with fraudsters who are engaged in "fronting, speculation and tender abuse"? What does the NGP suggest should be the approach to the proliferation of BBBEE verification agencies? All these questions should have been addressed in the NGP document.
12.8 The NGP document calls for the creation of the state-bank, but this is not linked to the nationalisation of the Reserve Bank. No detail is offered regarding the regulation of the financial sector, except the question of the development bond, whose aim can be easily fulfilled if there are asset-based controls on the financial sector and a state bank that is linked to a state-owned Reserve Bank. The idea of a state bank needs to be elaborated further, particularly its relationship with existing DFIs and private banks and its link with the financing of public debt and the growth path. In addition, the NGP document needs to locate the state bank within the broader context of the current discussions on nationalisation, to which the NGP document makes no contribution at all. For a question will arise: if in the new growth path there is a need for a state bank, why not a state construction company, state cement company, state pharmaceutical company etc. as we propose in the COSATU document? (GPFE, p.110-115).
12.9 Besides, the NGP document is extremely quiet about state-ownership of critical sectors to unlock the necessary resources to advance a new developmental agenda. In its 12th National Congress, the SACP resolved to build a developmental state that "should have capacity to compel and/or expropriate the means of production for development purposes" (Resolution 5 on Building a Democratic, Activist Developmental State). State power to direct economic development does not simply arise from elections. As the NGP document says, the developmental state is not hostage to market forces. But for the state not to be hostage to market forces it needs to control and own strategic input resources, which it can use in its exercise of power over these market forces. This omission is one of the biggest weaknesses of this document.
12.10 In the light of the above comments, COSATU proposes that the NGP Document must:
a) Clarify the role of the state, and take a stand on the nationalisation of strategic companies such as SASOL and Arcelor-Mittal and those engaged in the forestry sector
b) Be clear on the nationalisation of the mines, and the role of the state in beneficiating raw materials
c) Take a stand on the continued dominance of critical sectors such as cement, construction and finance by monopolies, because it is this situation which breeds unequal power relations in the economy and is an obstacle to economic transformation
d) Be clear on the need to set up a state-pharmaceutical company
e) Identify in general the document the range of interventions, from nationalisation to regulation, where the state can decisively play a role in shaping economic and social development
f) We propose that the NGP document engages with the proposals contained in the COSATU document (GPFE, p.110-115)
13. Conclusion
13.1 Most of our criticisms of the NGC Economic Transformation document apply to this document. Most of all, this document does not change anything in the macroeconomic policy stance; it misses a number of important issues on industrialisation e.g. priority sectors; it does not mention how to change patterns of control and ownership of the economy, the role of the state is not direct but mainly indirect, e.g. on employment. It privileges the private sector in job-creation thereby making the profit-motive the key driver of employment; there is no clarity on the role of the state in directly delivering infrastructure; some of its conceptions on BEE have to be urgently reviewed; the social pact idea is problematic, in the context of massive income inequalities.
13.2 Broadly, the document can benefit from referring to historical documents to lay the basis for its proposals. It has to engage with the COSATU input and the 52nd Conference Resolutions of the ANC. It can also benefit from the conceptual framework provided by the SACP in its inputs on the accumulation path. These of course, do not have to be explicitly referenced, but the ideas they contain need to be engaged.
13.3 The document needs to come out with specific proposals in a confident and strong way. In some critical instances, especially on issues of macro-economic policy tools, the document still operates at an "exploratory stage". These should have long been identified and integrated in macro-policy measures as soon as possible. P.27 is to a large extent an exploratory passage, rather than a policy guideline. It would therefore be useful in the next draft of the document to change its tone and to lay out the policy path and tools in a clear and coherent way. It is these endless "explorations" that delay policy resolution, with the result that old and failed policies of the past continue being implemented in the light of an alternative policy vacuum.
13.4 Overall, the NGP document does not represent a new breakthrough in economic thinking and policy. It re-states positions that are, in one way or another, found in GEAR, the Employment Strategy Framework, AsgiSA and the series of Budget Statements. Consequently, the option that is open for the working class is to call for a complete overhaul of the existing NGP document, and to escalate a campaign that will ensure that the growth path proposals contained in the COSATU document are incorporated, and that the activist role of the state, a redistributive macro-policy stance, clearly articulated industrial and trade policies, and aggressive social policy measures are implemented in order to tackle the socio-economic problems that we face.
Issued by COSATU, February 2 2011
Click here to sign up to receive our free daily headline email newsletter
