The new Randlords

South Africa is booming. The economy is enjoying its biggest surge since the Second World War - and

United States of America Boulevard: there was a time when no self-respecting black-township resident would have wanted an address so redolent of US imperialism. Just a decade or so ago, Fidel Castro and Che Guevara were township street names of choice. One might have thought that Hugo Chávez would now be keeping South African sign-makers busy. No chance, or at least not in Cosmo City, a flashy new housing estate on the outskirts of Johannesburg. Here the US of A Boulevard is among the most sought-after addresses - as is Las Vegas Crescent - because it is here that members of the new, black middle class are flocking in droves, in search of mock-Tuscan villas and a share of the consumerist new South African dream.

When Nelson Mandela was released from prison in 1990, his first speech brimmed with vintage redistribution rhetoric. To be fair on the "old man", it had been forced upon him by anti-apartheid radicals, who feared he had gone soft behind bars, but not surprisingly the markets dived. Since then, however - indeed, since the very next morning - the economic policies of the African National Congress have moved to the right. Now, as South Africa celebrates the anniversary of Mandela's inauguration on 10 May, bigwigs in the ruling party are embracing capitalism with such relish that President Thabo Mbeki, the very man who unleashed this capitalist fervour, is expressing unease over some of his old comrades' pursuit of bling, and the long-quiescent unions are muttering that it is time to take "back" the party.

"This is banker heaven," one American banking executive told me recently, shortly after my return after nearly a decade away. He did not need to explain. All around us in a trendy Johannesburg mall were members of the "Black Economic Empowerment" (BEE) crowd, many no doubt celebrating deals to secure equity from historically white-run firms, a key part of the government's policy to level the economic playing field. I found the scene all the more riveting given that I had last visited that mall in 1993 when, as a newly arrived foreign correspondent come to cover the bloodbath threatening the transfer of power, I had been the only customer in an Italian restaurant. The proprietor was convinced that South Africa was heading for the abyss, and sold up. How wrong she was (on both counts).

Buoyed by the surge in global commodities prices, and steered by Mbeki's prudent fiscal policies, South Africa's econ omy is enjoying its most concerted spurt since the Second World War and Johannesburg is booming. For the past two years the economy has grown at about 5 per cent. This is not as high as it needs to be if unemployment is to come down, but to have ventured such a prediction at the start of my first stint would have led to widespread rolling of eyes. Yet now, consumer confidence is at a 25-year high; the Johannesburg Stock Exchange's top 40 index has gone up nearly 250 per cent in the past three years; house prices are up more than 125 per cent since 2003; new car sales soared by nearly 16 per cent to an astonishing 714,000 last year.

And for once in South Africa's history, it is not just white people who are prospering. Leaf through the pages of City Press, a Sunday newspaper aimed squarely at black South Africans. I remember it for its doughty political coverage, but not much else. Now it has a glitzy motoring section. "Two BMW 3-Series for the price of one", ran a typical headline two weeks ago. Beneath it was a story headlined: "Mercedes-Benz B200 pricey but quite nice". According to figures quoted by the business magazine Finance Week, the number of "super-rich" (those earning more than four million rand - £285,000 - a year) has risen by 50 per cent in the past five years. While blacks, Asians and people of mixed race accounted for less than 25 per cent of this category in 2001, they now account for 34 per cent; that figure is expected to rise to over 40 per cent by 2011.

So what happened to the idealism of the ANC cadres I knew back in the early Nineties? The cynical or simple answer is that many have been seduced by easy money. The Johannesburg of 2007 reminds me as much of Vladimir Putin's Moscow - a boom in construction and car sales and a flowering of oligarchs - as of the unhappy Joburg I knew in the early 1990s.

"We [black South Africans] must have business role models," says one of the better-known members of the ANC billionaire elite, who has had dozens of directorships handed to him on a plate primarily because of his "struggle" credentials. "Are you denying us the right to make money?" says another. They have a point. It is hypocritical for western commen tators to argue, as they often have, that the governments of newly independent African states have no idea how to run an economy - and then condemn their supporters when they prove rather canny capitalists.

But the arguments of the new black "Randlords" are a little lame. Their talk of having been "deployed" into business may be true, but it is also a convenient euphemism for the acquisition of serious money.

Overtaken by greed

The simpler truth is that many "struggle" veterans have appreciated that after years of fighting the good fight they do not need to stay poor. What is more, it is rather easy to become rich, given the desperation of white businesses to prove their commitment to the new era by finding a black partner, and, in many cases, any old black partner.

The rise and fall of the "Queen of BEE", South Africa's most prominent black businesswoman, who had to resign in disgrace recently from more than a dozen boards because of a huge conflict of interest, was a reminder of the perils of the new culture. Mbeki himself has taken to bemoaning the "money, money, money" way. Last year he used the annual Nelson Mandela Lecture to castigate those for whom "success and fulfilment means personal enrichment at all costs and the most theatrical and striking public display of that wealth".

The good news, however, for those who fret from afar that its new elite have been overtaken by greed, is that there is more to South Africa's revolution than just conspicuous consumption. Day by day the country is becoming more "normal".

Society remains, of course, in many ways unthinkingly racist. How is it that so many whites still talk of their gardeners as "garden boys" when they are referring to adult men? Yet, despite Mbeki's Africanist insistence, aired in his weekly online columns, and repeated to me in person, that racism still poisons society, my impression is that race relations have improved vastly. It is far rarer now, as a white man, to be met with the pre-emptive cringe that used to be the hallmark of so many interracial encounters. I remember, soon after my arrival in 1993, hearing of the experience of a black American colleague. She was queuing in Thrupps, the Fortnum & Mason of Johannesburg, and a white woman looked over her shoulder at the French cheeses in her basket and said: "Oh, what good taste your madam has." "I am the madam," my friend replied. That encounter is impossible to imagine now.

The country is also no longer so out of date. In the Nineties many whites, and not just Pretoria civil servants with their beehive hairdos and floral print dresses, or their shapeless suits and grey shoes, dressed as if in a Fifties sitcom. Black South Africans were by and large no more contemporary: township style was a scruffy T-shirt and jeans. I remember Dali Tambo, the designer and chat-show-host son of the late ANC leader, shaking his head in despair over South Africans' dress sense. Since then there has been a collective make-over. Go to one of the half-dozen malls that have opened in Soweto in the past year or so. They are little different from the malls in Johannesburg's suburbs - or, indeed, the rest of the world.

What's getting worse?

So where is the catch? My second morning back, I was reflecting on my impressions of the "new normal" when I met up with a former senior government official and ANC stalwart. What should I keep my eyes on, apart from the boom, I asked? "Corruption, incompetence, unemployment and crime," he said. "They are all getting worse."

South Africa has between 20 and 40 per cent unemployment. Trevor Manuel, the well-regarded finance minister, who has just overseen South Africa's first budget surplus in recorded history, concedes that this keeps him awake at night. After dithering, the ANC is rolling out vast infrastructure projects, in particular for the 2010 World Cup. But 5 per cent growth will not make inroads into unemployment.

Manuel shrugs off the charge that he could have been bolder in seeking higher growth. Speaking to me before he delivered his budget speech, he also rejected the idea that a surplus was an "embarrassment of riches". Rather, he suggests it is an insurance policy against harder times. But he is also the first to rail against the incompetence of swaths of the government which are unable to spend his bumper revenues. He bemoans the lack of a skilled workforce, and concedes that credit levels are dangerously high, because South Africans, particularly members of the black middle class, borrow to the hilt.

"The situation reminds me of Bolivia or Peru," says one businessman. This is not, as you might think, the caustic one-liner of a disillusioned "whitey". Rather, it is the view of Moeletsi Mbeki, the president's younger brother, one of the government's more trenchant critics. In particular he is appalled by the Black Economic Empowerment policy. It is, he says, just a cosy arrangement between white business and the black elite that will return to haunt South Africa.

There are many places in South Africa where the Bolivia/ Peru analogy rings all too true. There is not much bling in Boikhutso, a down-at-heel township in the old Western Transvaal. The main road is at last tarred and more houses have electricity than in the old days. But life is still grim, with unemployment over 50 per cent. It is places like this that spew out the young men who feed the crime wave, possibly the main disincentive to investors as they choose between South Africa and other developing markets.

Crime was appalling ten years ago when I left after my first stint. Now, anecdotally at least, it is just as bad. Take the 24 hours before I wrote this article: the family of a prominent regional politician was held up by a gang at gunpoint at the family house in northern Joburg; millions of rand were stolen in a raid on a military base in Pretoria; a Capetonian I met had been bound with his family and frogmarched through a wood by gun-wielding thugs, expecting to be killed.

The greatest threat to Mbeki's legacy is not crime, however, but a backlash against bling. This is the tussle that will come to a head in December at the ANC's five-yearly conference, when radicals have vowed to take on the centrists, including Thabo Mbeki. I accompanied him recently to Soweto on one of his rare township tours. Bridget Ngeleza, an unemployed secretary, watched his progress from the garden of her shoebox bungalow. She was far from starry-eyed, but thought his embrace of capitalism was right.

"He wants people to help themselves," she said. "He doesn't like to spoon-feed people." My guess is that she reflects the bedrock of the party. It may be ugly, but the era of bling has some years to run yet.

Alec Russell is the southern Africa correspondent of the Financial Times

South Africa’s wealth by numbers

16% increase in number of dollar millionaires in 2005

$11,000 average annual income, compared to $1,750 for the rest of sub-Saharan Africa

25% rise in demand for credit in 2006

3 number of South African billionaires on Forbes's 2007 Rich List

55 number of BMW dealerships in the country (plus one Rolls-Royce and two Porsche showrooms)

Research by Shabeeh Abbas and Jonathan Pearson

This article first appeared in the 07 May 2007 issue of the New Statesman, Blair: The reckoning

Jeremy Corbyn. Photo: Getty
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Lexit: the EU is a neoliberal project, so let's do something different when we leave it

Brexit affords the British left a historic opportunity for a decisive break with EU market liberalism.

The Brexit vote to leave the European Union has many parents, but "Lexit" – the argument for exiting the EU from the left – remains an orphan. A third of Labour voters backed Leave, but they did so without any significant leadership from the Labour Party. Left-of-centre votes proved decisive in determining the outcome of a referendum that was otherwise framed, shaped, and presented almost exclusively by the right. A proper left discussion of the issues has been, if not entirely absent, then decidedly marginal – part of a more general malaise when it comes to developing left alternatives that has begun to be corrected only recently, under Jeremy Corbyn and John McDonnell.

Ceding Brexit to the right was very nearly the most serious strategic mistake by the British left since the ‘70s. Under successive leaders Labour became so incorporated into the ideology of Europeanism as to preclude any clear-eyed critical analysis of the actually existing EU as a regulatory and trade regime pursuing deep economic integration. The same political journey that carried Labour into its technocratic embrace of the EU also resulted in the abandonment of any form of distinctive economics separate from the orthodoxies of market liberalism.

It’s been astounding to witness so many left-wingers, in meltdown over Brexit, resort to parroting liberal economics. Thus we hear that factor mobility isn’t about labour arbitrage, that public services aren’t under pressure, that we must prioritise foreign direct investment and trade. It’s little wonder Labour became so detached from its base. Such claims do not match the lived experience of ordinary people in regions of the country devastated by deindustrialisation and disinvestment.

Nor should concerns about wage stagnation and bargaining power be met with finger-wagging accusations of racism, as if the manner in which capitalism pits workers against each other hasn’t long been understood. Instead, we should be offering real solutions – including a willingness to rethink capital mobility and trade. This places us in direct conflict with the constitutionalised neoliberalism of the EU.

Only the political savvy of the leadership has enabled Labour to recover from its disastrous positioning post-referendum. Incredibly, what seemed an unbeatable electoral bloc around Theresa May has been deftly prized apart in the course of an extraordinary General Election campaign. To consolidate the political project they have initiated, Corbyn and McDonnell must now follow through with a truly radical economic programme. The place to look for inspiration is precisely the range of instruments and policy options discouraged or outright forbidden by the EU.

A neoliberal project

The fact that right-wing arguments for Leave predominated during the referendum says far more about today’s left than it does about the European Union. There has been a great deal of myth-making concerning the latter –much of it funded, directly or indirectly, by the EU itself.

From its inception, the EU has been a top-down project driven by political and administrative elites, "a protected sphere", in the judgment of the late Peter Mair, "in which policy-making can evade the constraints imposed by representative democracy". To complain about the EU’s "democratic deficit" is to have misunderstood its purpose. The main thrust of European economic policy has been to extend and deepen the market through liberalisation, privatisation, and flexiblisation, subordinating employment and social protection to goals of low inflation, debt reduction, and increased competitiveness.

Prospects for Keynesian reflationary policies, or even for pan-European economic planning – never great – soon gave way to more Hayekian conceptions. Hayek’s original insight, in The Economic Conditions of Interstate Federalism, was that free movement of capital, goods, and labour – a "single market" – among a federation of nations would severely and necessarily restrict the economic policy space available to individual members. Pro-European socialists, whose aim had been to acquire new supranational options for the regulation of capital, found themselves surrendering the tools they already possessed at home. The national road to socialism, or even to social democracy, was closed.

The direction of travel has been singular and unrelenting. To take one example, workers’ rights – a supposed EU strength – are steadily being eroded, as can be seen in landmark judgments by the European Court of Justice (ECJ) in the Viking and Laval cases, among others. In both instances, workers attempting to strike in protest at plans to replace workers from one EU country with lower-wage workers from another, were told their right to strike could not infringe upon the "four freedoms" – free movement of capital, labour, goods, and services – established by the treaties.

More broadly, on trade, financial regulation, state aid, government purchasing, public service delivery, and more, any attempt to create a different kind of economy from inside the EU has largely been forestalled by competition policy or single market regulation.

A new political economy

Given that the UK will soon be escaping the EU, what opportunities might this afford? Three policy directions immediately stand out: public ownership, industrial strategy, and procurement. In each case, EU regulation previously stood in the way of promising left strategies. In each case, the political and economic returns from bold departures from neoliberal orthodoxy after Brexit could be substantial.

While not banned outright by EU law, public ownership is severely discouraged and disadvantaged by it. ECJ interpretation of Article 106 of the Treaty on the Functioning of the European Union (TFEU) has steadily eroded public ownership options. "The ECJ", argues law professor Danny Nicol, "appears to have constructed a one-way street in favour of private-sector provision: nationalised services are prima facie suspect and must be analysed for their necessity". Sure enough, the EU has been a significant driver of privatisation, functioning like a ratchet. It’s much easier for a member state to pursue the liberalisation of sectors than to secure their (re)nationalisation. Article 59 (TFEU) specifically allows the European Council and Parliament to liberalise services. Since the ‘80s, there have been single market programmes in energy, transport, postal services, telecommunications, education, and health.

Britain has long been an extreme outlier on privatisation, responsible for 40 per cent of the total assets privatised across the OECD between 1980 and 1996. Today, however, increasing inequality, poverty, environmental degradation and the general sense of an impoverished public sphere are leading to growing calls for renewed public ownership (albeit in new, more democratic forms). Soon to be free of EU constraints, it’s time to explore an expanded and fundamentally reimagined UK public sector.

Next, Britain’s industrial production has been virtually flat since the late 1990s, with a yawning trade deficit in industrial goods. Any serious industrial strategy to address the structural weaknesses of UK manufacturing will rely on "state aid" – the nurturing of a next generation of companies through grants, interest and tax relief, guarantees, government holdings, and the provision of goods and services on a preferential basis.

Article 107 TFEU allows for state aid only if it is compatible with the internal market and does not distort competition, laying out the specific circumstances in which it could be lawful. Whether or not state aid meets these criteria is at the sole discretion of the Commission – and courts in member states are obligated to enforce the commission’s decisions. The Commission has adopted an approach that considers, among other things, the existence of market failure, the effectiveness of other options, and the impact on the market and competition, thereby allowing state aid only in exceptional circumstances.

For many parts of the UK, the challenges of industrial decline remain starkly present – entire communities are thrown on the scrap heap, with all the associated capital and carbon costs and wasted lives. It’s high time the left returned to the possibilities inherent in a proactive industrial strategy. A true community-sustaining industrial strategy would consist of the deliberate direction of capital to sectors, localities, and regions, so as to balance out market trends and prevent communities from falling into decay, while also ensuring the investment in research and development necessary to maintain a highly productive economy. Policy, in this vision, would function to re-deploy infrastructure, production facilities, and workers left unemployed because of a shutdown or increased automation.

In some cases, this might mean assistance to workers or localities to buy up facilities and keep them running under worker or community ownership. In other cases it might involve re-training workers for new skills and re-fitting facilities. A regional approach might help launch new enterprises that would eventually be spun off as worker or local community-owned firms, supporting the development of strong and vibrant network economies, perhaps on the basis of a Green New Deal. All of this will be possible post-Brexit, under a Corbyn government.

Lastly, there is procurement. Under EU law, explicitly linking public procurement to local entities or social needs is difficult. The ECJ has ruled that, even if there is no specific legislation, procurement activity must "comply with the fundamental rules of the Treaty, in particular the principle of non-discrimination on grounds of nationality". This means that all procurement contracts must be open to all bidders across the EU, and public authorities must advertise contracts widely in other EU countries. In 2004, the European Parliament and Council issued two directives establishing the criteria governing such contracts: "lowest price only" and "most economically advantageous tender".

Unleashed from EU constraints, there are major opportunities for targeting large-scale public procurement to rebuild and transform communities, cities, and regions. The vision behind the celebrated Preston Model of community wealth building – inspired by the work of our own organisation, The Democracy Collaborative, in Cleveland, Ohio – leverages public procurement and the stabilising power of place-based anchor institutions (governments, hospitals, universities) to support rooted, participatory, democratic local economies built around multipliers. In this way, public funds can be made to do "double duty"; anchoring jobs and building community wealth, reversing long-term economic decline. This suggests the viability of a very different economic approach and potential for a winning political coalition, building support for a new socialist economics from the ground up.

With the prospect of a Corbyn government now tantalisingly close, it’s imperative that Labour reconciles its policy objectives in the Brexit negotiations with its plans for a radical economic transformation and redistribution of power and wealth. Only by pursuing strategies capable of re-establishing broad control over the national economy can Labour hope to manage the coming period of pain and dislocation following Brexit. Based on new institutions and approaches and the centrality of ownership and control, democracy, and participation, we should be busy assembling the tools and strategies that will allow departure from the EU to open up new political-economic horizons in Britain and bring about the profound transformation the country so desperately wants and needs.

Joe Guinan is executive director of the Next System Project at The Democracy Collaborative. Thomas M. Hanna is research director at The Democracy Collaborative.

This is an extract from a longer essay which appears in the inaugural edition of the IPPR Progressive Review.

 

 

This article first appeared in the 07 May 2007 issue of the New Statesman, Blair: The reckoning