Nelson Mandela’s greatness may be assured – but not his legacy

When my interview with him was over, he patted me on the arm as if to say I was forgiven for contradicting him.

When I reported from South Africa in the 1960s, the Nazi admirer B J Vorster occupied the prime minister’s residence in Cape Town. Thirty years later, as I waited at the gates, it was as if the guards had not changed. White Afrikaners checked my ID with the confidence of men in secure work. One carried a copy of Long Walk to Freedom, Nelson Mandela’s autobiography. “It’s very eenspirational,” he said.

Mandela had just had his afternoon nap and looked sleepy; his shoelaces were untied. Wearing a bright gold shirt, he meandered into the room. “Welcome back,” he said, bursting into a smile. “You must understand that to have been banned from my country is a great honour.” The sheer grace and charm of the man made you feel good. He chuckled about his elevation to sainthood. “That’s not the job I applied for,” he said drily.

Still, he was well used to deferential interviews and I was ticked off several times – “you completely forgot what I said” and “I have already explained that matter to you”. In brooking no criticism of the African National Congress (ANC), he revealed something of why millions of South Africans will mourn his passing but not his “legacy”.

I asked him why the pledges he and the ANC had given on his release from prison in 1990 had not been kept. The liberation government, Mandela had promised, would take over the apartheid economy, including the banks – and “a change or modification of our views in this regard is inconceivable”. But once in power, the party’s official policy to end the impoverishment of most South Africans, the Reconstruction and Development Programme, was abandoned, and one of his ministers boasted that the ANC’s politics were Thatcherite.

“You can put any label on it if you like,” Mandela replied. “. . . but, for this country, privatisation is the fundamental policy.”

“That’s the opposite of what you said in 1994.”

“You have to appreciate that every process incorporates a change.”

Few ordinary South Africans were aware that this “process” had begun in high secrecy more than two years before Mandela’s release, when the ANC in exile had, in effect, done a deal with members of the Afrikaner elite at a stately home, Mells Park House, near Bath. The prime movers were the corporations that had underpinned apartheid.

Around the same time, Mandela was conducting his own secret negotiations. In 1982, he had been moved from Robben Island to Pollsmoor Prison, where he could receive and entertain people. The apartheid regime’s aim was to split the resistance between the “moderates” that it could “do business with” (Mandela, Thabo Mbeki, Oliver Tambo) and those in the front-line townships who were leading the United Democratic Front. On 5 July 1989, Mandela was spirited out of prison to meet P W Botha, the white-minority president known as Die Groot Krokodil (“the big crocodile”). Mandela was delighted that Botha poured the tea.

With democratic elections in 1994, racial apartheid ended and economic apartheid had a new face. The Botha regime had offered black businessmen generous loans, allowing them to set up companies outside the Bantustans. A new black bourgeoisie emerged quickly, along with a rampant cronyism. ANC chieftains moved into mansions in “golf and country estates”. As the disparities between white and black narrowed, they widened between black and black.

The familiar refrain that the wealth would “trickle down” and “create jobs” was lost in dodgy merger deals and “restructuring” that cost jobs. For foreign companies, a black face on the board often ensured that nothing changed. In 2001 George Soros told the World Economic Forum in Davos, “South Africa is in the hands of international capital.”

In the townships, people felt little change and were subjected to evictions typical of the apartheid era; some expressed nostalgia for the “order” of the old regime. The postapartheid achievements in desegregating daily life in South Africa, including schools, were undercut by the extremes and corruption of a “neoliberalism” to which the ANC devoted itself. This led directly to state crimes such as the massacre of 34 miners at Marikana in 2012, which evoked the Sharpeville massacre more than half a century earlier. Both were protests about injustice.

Mandela, too, fostered crony relationships with wealthy whites from the corporate world, including those who had profited from apartheid. He saw this as part of “reconciliation”. Perhaps he and his beloved ANC had been in struggle and exile for so long that they were willing to accept and collude with the people’s enemy. There were those who genuinely wanted change, including a few in the South African Communist Party, but it was the reform-and-redeem influence of mission Christianity that may have left the most indelible mark. White liberals at home and abroad warmed to this, often ignoring or welcoming Mandela’s reluctance to spell out a coherent vision, as Amilcar Cabral and Pandit Nehru had done.

Mandela seemed to change in retirement, alerting the world to the post-9/11 dangers of George W Bush and Tony Blair. His description of Blair as “Bush’s foreign minister” was mischievously timed; Mbeki, his own successor, was about to visit Chequers. I wonder what he would make of the “pilgrimage” to his cell on Robben Island by Barack Obama, the unrelenting jailer of Guantanamo.

When my interview with him was over, he patted me on the arm as if to say I was forgiven for contradicting him. We walked to his silver Mercedes, which consumed his small grey head among a bevy of white men with huge arms and wires in their ears. One of them gave an order in Afrikaans and he was gone.

John Pilger’s film “Apartheid Did Not Die” can be viewed on johnpilger.com

Nelson Mandela in 1990. Photograph: Getty Images

John Pilger, renowned investigative journalist and documentary film-maker, is one of only two to have twice won British journalism's top award; his documentaries have won academy awards in both the UK and the US. In a New Statesman survey of the 50 heroes of our time, Pilger came fourth behind Aung San Suu Kyi and Nelson Mandela. "John Pilger," wrote Harold Pinter, "unearths, with steely attention facts, the filthy truth. I salute him."

This article first appeared in the 15 July 2013 issue of the New Statesman, The New Machiavelli

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?