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"It is certainly not our task to build up the future in advance and to settle all problems for all time, but it is just as certainly our task to criticise the existing world ruthlessly. I mean ruthlessly in the sense that we must not be afraid of our own conclusions and equally unafraid of coming into conflict with the prevailing powers."
Karl Marx, 1844


Published: July 1999

Barely a few months ago practically everyone agreed that the world economy stood on the brink of its gravest crisis since the 1930s. Indeed, so real was this prospect that a serious questioning of the economic wisdom of our time – the neoliberal paradigm –began to be heard in the corridors of the very institutions that had been at the forefront of promoting and imposing this path. Leading figures in the World Bank and allied think-tanks began to question the wisdom of leaving all to the markets.

At that time, without blushing one bit, the South African government boasted that South Africa had been sheltered from the global economic storms by precisely the policies that were increasingly being blamed for the crisis. The Department of Finance boasted that its own home-grown neoliberalism, Gear, gave the South African economy strong “fundamentals”, which made it possible to continue on the road to growth, increased employment and redistribution. Now, the South African government would seem to be vindicated. After all, the prophesies of doom that were current a few months ago have given way to the popping of champagne and breast-beating celebration as the American -and following it the other -stock markets have continued to climb to ever new and dizzy heights.

In the meantime, the South African elections have come and gone. In the run-up to the elections, Gear literally disappeared from the landscape of political debate. The ANC’s manifesto made not one mention of it, and Cosatu began to speak of a post-Gear consensus. The elections were barely over when Cosatu and the working class in general got a rude awakening. Gear made its reappearance on the landscape, and more importantly, the working class got its thanks for delivering a huge ANC victory by a new round of massive retrenchments, health systems on the verge of collapse, deadlock in public sector wage talks and union accusations of bad faith bargaining by the government. Gear was back in town.

When Gear was launched in 1996 it promised accelerated economic growth, growth in employment and a decline in unemployment, and the redistribution of wealth in South Africa. Three years on, the promises continue to recede into the distant future, and instead we have a recession -notwithstanding the new numbers given by those in power, we have sharp falls in employment and the concentration of wealth continues to increase. This has not however changed the hearts of our modern day Pharaohs -not the floods, not the locusts, not rivers of blood, and not even the death of the infants of the lands have convinced the government that Gear means catastrophe for the working people of this country.

In this article I will argue that the catalogue of Gear’s failures over the last three years in South Africa, and its failure over the last 25 years in many parts of the world, are not accidental. They will not be reversed by more belief in the gospel. I show that the failures are a product of neoliberalism’s primary goal: the redistribution of wealth from the poor to the rich.

A Catalogue of Failures
Nowadays, only the very brave or the very foolish dare put forward targets for the achievements of the objectives of Gear. Three years ago, however, faith in Gear was so strong that targets accompanied the various objectives of Gear. Three years on, on every front, Gear has been an unmitigated failure. Here follows a brief catalogue of these failures:

 Against a growth forecast of economic growth running in the region of 6% per annum in the year 2000, we have seen steadily falling economic growth since 1996 and negative growth in the last quarters of 1998. Against projections of manufacturing growth, by 1998 we had manufacturing decline of -1.7%.

 The creation of new jobs was forecast to steadily rise until about 400 thousand jobs were created in the year 2000. Against this there has been massive job loss, from -0.7% in 1996 to -1.7% in 1997. In 1998 the bloodletting continued, and as I write (1999) massive retrenchments in mining, telecoms and other sectors are looming. The private sector, which was meant to be the engine of growth and employment creation, spearheaded the job losses.

 Gear promised increased private sector investment in the economy, the reality is that private sector investor fell from 6.1% in 1996 to 3.1% in 1997 and then to negative territory, -0.7%, in 1998.

 Gear was meant to facilitate the rise of Foreign Direct Investment (FDI). While FDI grew to $1.7billion in 1997, this must be seen against the dis-investment out of South Africa of $2.3 billion in 1997. Besides, the FDI figures must be set against the fact that most of the FDI went toward privatisation and mergers and acquisitions.

 Gear promised that a smaller and smaller proportion of the national budget would go toward servicing the debt. The figures are that this proportion rose from 17.1% in 1997 to 18.1% in 1998.

 There was failure too on the domestic savings front, one of Gear’s mantras. The ratio of gross domestic savings to GDP fell from 16.9% in to 15.2% in 1997 and 14.2% in 1998.

 Export led growth is one of Gear’s articles of faith, but here too there is failure. The current account deficit relative to GDP, which gives us an indication of the performance of our exports relative to our imports deteriorated from -1.3% in 1996 to -2.1% in 1998.

In general, Gear’s first three years have been nothing short of disastrous. High interest rates, which according to Gear are there to fight inflation, have in reality fought against employment creation and have led to the highest levels of bankruptcies in a very long time. South Africa is facing levels of social disintegration that no social safety net is going to be able to deal with.

Are these result accidental, are they of a temporary nature? Should we endure seven lean years and pain in anticipation of seven years of abundance? Evidence from more than two decades of neoliberalism show that if the working class and its allies are unable to force a change of course by the government, then the pain will become a permanent feature of the lives of millions of South Africans.

The figures on Gear’s performance in this section are drawn from “The Costs of Staying on Course” by Asghar Adelzadeh, in Ngqo!, Vol 1 no 1, June 1999.

Gear is a programme of financiers
Neoliberalism as a serious economic programme for various governments emerged out of the global economic crisis that broke out in the early 1970s. For the various capitalist classes, the 1970s crisis was a crisis of profitability. Sharp declines in profits were registered by capitalists in many parts of the world. It took about 10 years for the international capitalist class to come to terms with the fact the depth of the crisis demanded a serious change in economic orientation if they were to restore the profitability of the capitalist classes. As the crisis continued to deepen throughout the 1970s, as overproduction of commodities continued to lead to profit losses, larger and larger amounts of capital were turned away from productive investment towards investment in speculation and in money assets of various kinds.

At the institutional level, this growing importance of money capital as opposed to productive capital, was evidenced by the growth of powerful new financial institutions – the so called finance houses in the United States of America. By the early 1980s these institutions had become more powerful than some of the largest banks in the world. The areas of specialisation were currency trading, trading in shares and various other financial instruments. Neoliberalism is the political testament of this fraction of the international capitalist class – the financiers. Cosatu’s September Commission report was therefore correct to argue that Gear is a programme of financial capital.

But money does not produce wealth and growth, it is a consequence of wealth creation. Money capitalists are therefore a parasitic class that feeds on those -both capitalists and other classes in society -who are involved in the process of wealth creation. As a result, neoliberalism’s central tenet is the transfer of wealth from the producers -the working class, small business people, the poor in general and even other capitalists -to the financier class. This transfer of wealth from the poor to the rich constitutes the basic programme of Gear, and all other neoliberal policies.

What have been the policy instruments and programmes that have been employed to facilitate this transfer of wealth from the poor to the rich, from the producers to the parasitic financiers?

The market above all else
Since the end of the Second World War the state has acted as an important player in the economy. In particular, the state acted as an instrument of redistribution of wealth via progressive taxation, social services expenditure and the development of an extensive social welfare net. Policies like Gear have therefore sought to change the role of the state from its role in distributing wealth from the rich to the poor, to that of moving wealth in the opposite direction. A principal method of effecting this transfer has been to promote the idea – and practice – that the ‘free market’ should allocate economic resources, opportunities and determine economic outcomes. In this way the positions of the already powerful in the market is reinforced, and the weak are further weakened. Taxation policies were transformed from progressive to regressive ones, and it was argued that government participation in the economy ‘crowd out’ the private sector.

There is, however, a role of the state in the neo-liberal model. That role is to break the power of the dominated classes by promoting “law and order” and “zero tolerance” against any challenge to bourgeois power. “Stable labour relations” and ‘industrial peace’ are promoted and enforced, and structural unemployment reinforces this by providing a constant threat of unemployment to the working class. Another important role of the state in the Gear model is to facilitate its own weakening and the domination of the ‘market’, by which we should read the domination of the powerful social classes – in particular the financiers.

Once the state has been weakened (by its own actions) and the market is dominant, the market in turn acts as policeman -we must remember that the market is male -against any possible resurgence of redistributive tendencies in the state. The state gets punished by the ‘markets’ through capital flight and higher interest rates on government debt if there is any hint that the state might undertake policies that favour the dominated classes. The idea and practice of “fiscal discipline” is meant to keep the state from undertaking any actions that would threaten the interests of the financier class.

Liberalisation of financial markets
An important weapon of neoliberalism is the deregulation or the so-called liberalisation of financial markets. This freeing of the movement of capital across borders and across industries serves two functions. The first is that it allows the new financier class the freedom not to commit themselves to any long-term investments that might stand in the way of sucking wealth quickly from where it is being generated. Liberalisation of financial and capital markets liberates capital from any social commitment. It is therefore no surprise that investment by South Africa’s private sector has fallen at the same time that corporations have posted record-breaking profits. Liberalisation of financial markets, by making possible rapid capital movement, also plays the role of a weapon through which the financiers discipline governments that do not follow their dictates.

Flexible labour markets
Gear quite rightly recognises that wages constitute one of the important redistributive tools at the disposal of the working class. Through the struggles for higher wages, the working class ensures that it also gets a significant, though not the major share of the wealth that is created by its labours. Consistent with its primary project, Gear discourages higher wages, and ‘allows’ higher wages as long as they do not threaten the accumulation of newly created wealth in the hands of the rich. As Gear puts it, wages increases must not be higher than increases in productivity: read this to say wages may rise, as long as the rate of increase of wages is always lower than the rate at which wealth is created. This ensures that the financier class, which dominates the producer capitalists, will continue to get the lion’s share of society’s wealth. The result of this has been the growth of the working poor – workers who are sinking into poverty even though they are in employment.

The principal instrument for generating the long term downward trend in wages has been the promotion of “labour flexibility”. In practice, this flexibility has meant casualisation, sub-contracting, retrenchments and in general precarious forms of employment. In his first state of the nation address, the new President is of course concerned about the financiers “perceptions” that the labour market is inflexible. The financiers are demanding another pound of workers’ flesh, and this flesh will now be offered as sacrifice to appease these gods. In his newly unveiled 15 point plan, the Minister of Labour promises that “… certain of concerns which may be perceived to be obstacles to employment creation or the promotion of investment will receive attention”.

‘Inflation is our gravest enemy’
Neoliberalism’s spin-doctors have created the myth that the public’s prime enemy is inflation. Inflation is certainly no friend of the poor. What however these friends of the people conveniently hide is that inflation is particularly bad for those of the wealthy who hold their wealth in the form of money – the financier class. For as inflation increases, their wealth is devalued in the same measure. The fight against inflation at all costs is for the benefit of speculators and financiers, who tend to have large amounts of cash in their portfolios and who therefore stand to lose the most from inflation.

The solution they and their programmes like Gear propose – high interest rates – the quality of killing two birds with one stone. On the one hand, high interest rates protect the money holdings of this class from being eroded. If therefore the rates of interest are higher than inflation -that is there is a regime of real interest rates -then inflation cannot threaten the wealth of this class. On the other hand, high interest rates accelerate the transfer of wealth from those who produce wealth -the producing capitalists, small business people and workers -to the parasitic financiers. This process of siphoning off wealth from the producers to the parasites also takes place through the indebtedness of states in the South to bankers and financiers in the North -the so called debt crisis. Through these interest payments, wealth gets siphoned off to the financier class. For this reason, neoliberalism has a tendency towards a high real interest rate regime, a regime that is defended by Gear.

Tariff reduction and international competitiveness
The mantra of neoliberalism is: open your country’s economy and be competitive! For the neoliberal, however, this mantra is meant to facilitate the rape of the weak by the strong. When weaker economies are integrated into the ‘global economy’ through tariff reduction, their entire industrial base – the basis on which they could if at all possible be competitive – is destroyed. This is has been the fate of, for example, Chile and Brazil. Trade liberalisation has wiped out large sections of these countries’ industrial base, and siphoned off their wealth to the financiers in the north.

As for competitiveness, the cynical neoliberals know that competition breeds
monopoly. Like any competitive game, the game of international competitiveness produces winners and losers. Like any game, the strong are always the winners. Notwithstanding the good intentions that might accompany the launch of the competitions commission in South Africa, the forces of the capitalist market are much more than any competition commission.

Gear creates poverty
Many critics argue quite correctly that Gear has failed to tackle poverty in South Africa and elsewhere. This is part of the truth. The other side of the truth is that Gear not only fails to eradicate poverty, but Gear creates poverty. The increasing poverty that we see in South Africa today forms part of the global acceleration of poverty that is the unmistakable signature of neoliberalism. In South Africa today, 20% of the richest household earn 52% of national income, and 40% of the poorest household earn just 11% of national income. These numbers make clear the meaning of Gear’s redistribution: it is the redistribution of wealth from the poor to the rich.

Gear has very little to do with growth, employment and redistribution as its public relations men (and woman) would have us believe. Gear is an attempt, quite a successful one we have to admit, to restructure social relations in a way which firstly, reinforces the power of the financier class, and secondly make it possible for this class of suck wealth from the poor into its pockets. Gear is an instrument of the concentration of wealth, as the sharp rise in mergers and acquisitions in the last few years testify. Shocking as it might seem, the government of the African National Congress has become the instrument that brings such a restructuring into being.

"Ideas that enter the mind under fire remain there securely and forever." -Leon Trotsky

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