RW Johnson says govt alone is never going to push ahead with the necessary reforms

In a recent article in Business Day (8 August) Peter Bruce took issue with my PoliticsWeb piece of 1 August (“Our Coming Train Crash”) in which I argued that for South Africa now “all roads lead to the IMF”. I went on to say that this was not undesirable since it would mean that the necessary structural reforms would be forced through and this would cause a fundamental re-orientation of South Africa’s economy and politics.

In another apparent response the Reserve Bank Governor, Mr Lesetja Kganyago, argued that South Africa could avoid an IMF bail-out: “We don’t have to get there. These problems are within our grasp, we know exactly what must be done.” As Fin24 put it (August 8), “He added that the government would need to take bitter medicine in order to prevent matters from spiralling out of control.”

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Mr Bruce also wants the ANC to act without the spur of the IMF but his argument is different:

“No one should want the IMF in here. Cost cuts and labour market reforms are just the beginning of a restructuring. The political effect is frightening...the ANC shrivels and the EFF grows. An IMF bailout 100% fuels populism.”

The first thing to note here is the deliberate and studied vagueness with which both these gentlemen refer to the things that need to be done. This is very much in line with the Presidency and the Treasury, both of whom talk about the need for “tough measures” and “hard choices” but never get round to telling us what these are. Mr Kganyago simply refers to “bitter medicine”, while Bruce mentions cost cuts and labour market reforms but says these “are just the beginning”, without somehow being able to tell us more.

If you think about it, what this means is that the government, both these gentlemen and, indeed, various businessmen who have inveighed about the need for (unspecified) hard decisions, are all somewhat nervous about actually speaking aloud about what needs to be done. If you reflect on this general timidity you realise that all these parties – including the government – are anxious not to have their names associated with the list of reforms which come under the heading of What Is To Be Done. To be fair, the cases are different. Mr Kganyago and a businessman like, say, Mike Brown of Nedbank, are under clear professional constraints not to fully speak their minds. Mr Bruce, on the other hand, is free to speak the unvarnished truth.

But if everyone is scared even to mention what restructuring means, what real chance is there that the government will actually name all these reforms, take responsibility for them and drive them through? I certainly wouldn’t put any money on that. If any of these gentlemen wish to place a bet with me on this, I will happily take it. But if I am right about this then it means that Messrs Bruce, Kganyago and not a few others, are in denial. They want to keep suggesting that the government can and will act simply because the alternative makes them very uncomfortable. Come now, gentlemen, this is not speaking truth to power or even to yourselves.

I have in fact spelt out very fully the list of necessary reforms in Fighting for the Dream (2019) and, indeed, before that in How Long Will South Africa Survive ? (2015 and 2017). I am aware that this is not comfortable reading for many but, for the life of me, I cannot see why one should be bothered to write anything at all if one doesn’t try to tell the whole truth as far as one is able. We only get one life after all. This is not a dress rehearsal. Why waste one’s time?

However, let me summarise again. We need to get rid of affirmative action, BEE and EWC. We also need to privatize many, probably most, of the SOEs and to liberalise the labour market so as to let the ten million unemployed compete for jobs. Why are wages for textile workers more than ten times higher in South Africa than they are in Ethiopia? The result of that is that the Ethiopian textile industry thrives and employs many thousands of people, while ours is dead. We also need to cut our civil service and public sector wage bill pretty drastically by a mixture of redundancies and wage freezes.

How can one possibly justify the fact that average wages at Eskom are around R800,000 p.a. - including many thousands of unnecessary jobs ? And we need to comprehensively reform our education system. We cannot really pretend that we are preparing to maintain our present state, let alone any fourth industrial revolution, if our schools are worse than they were under Bantu Education and our universities are in general decline. Forget the new cities and the bullet trains. Can we maintain our supply of water and electricity?

Not only has the IMF been saying many of these things for ten years but so have the World Bank, the rating agencies, the OECD and not a few independent commentators. Under both the Zuma and Ramaphosa regimes the ANC and government has stolidly refused to listen, let alone act. And after all, even comparatively simple reforms like splitting up Eskom into three or scrapping our crazy visa system have not actually been carried out. Yet Messrs Bruce, Kganyago et al. apparently believe this will all change completely and very quickly and a whole raft of drastic reforms will be forced through. Really?

After all, as Bruce admits, the government could transform the situation if it invited the business community in to help sort things out. But that would mean appointing some leading white businessmen to run some of the SOEs. If the government lacks the nerve even to do that, how can I believe in the wager that Bruce and Kganyago are making? I am taking bets, gentlemen, and I’d like to see the colour of your money.

After all, what is the evidence? Thus far Ramaphosa has made not the slightest move towards any restructuring and yet he has been happy to support a whole series of damaging initiatives – EWC, a land reform which will threaten food security, and the pure impossibility of NHI. He failed even to choose his own cabinet (which the constitution empowers him to do) or to prevent the appointment of some of the worst elements in the ANC to run the parliamentary committees. He has backed down before the Zulu king, the unions and even Magashule. If Bruce and Kganyago think he believes that “boldness be my friend”, I am puzzled.

What of Bruce’s argument about the rise of populism?

He says he knows the future and that “an IMF bailout 100% fuels populism”. He gives us the example of how an IMF bail-out in Argentina triggered the victory of the disastrous (Peronist) Kirchner regime. But this rather omits the fact that the most powerful political tradition in Argentina is Peronism so that a Peronist reaction to any crisis is always likely. Happily, this is not the case elsewhere. When Labour had to invite the IMF to bail out Britain, the electorate reacted by electing Mrs Thatcher who was no sort of Peronist and not a populist either.

Personally I don’t have any 100% certainties about the future. I agree that there is a danger of a populist response. But after all, if Bruce and Kganyago are right and the ANC is about to amaze us by pushing through all these drastic reforms, then they still have nearly another five years before they have to test their parliamentary majority. And the lesson of history is that the parliamentary ANC slavishly follows whoever is President. They voted for whatever Mandela said, they supported Mbeki despite his crazy Aids policy which cost hundreds of thousands of African lives and they supported Zuma despite Nkandla, the Guptas and all the rest. Of course Magashule will pull in another direction but ANC MPs know that it was Ramaphosa, not Magashule, who won the election for them.

Secondly, my own conclusion from a lot of polling evidence is that the overwhelming issue is jobs and that black (and other) voters will follow anyone who can plausibly promise that what he does will lead to more growth and jobs. EFF voters were only too happy to vote for privatization, to discard BEE, EWC and affirmative action if only the result was more jobs. Thirdly, there are a large number of ANC voters – not to mention Opposition voters – who will not trust Malema under any circumstances.

Fourthly, as I have argued elsewhere, in the 1980s the Nats were paralysed for years by the thought of what a move towards reform might do to help their populists – Treurnicht, the AWB and so on. Yet when De Klerk acted decisively in 1990, the danger from such groups simply melted away. De Klerk had created a whole new situation and everyone could see that such elements were now irrelevant within it.

But in any case, even if I were to concede Bruce’s point – and as I say, I don’t know the future – the fact would still have to be faced that a complete restructuring is both necessary and inevitable, whatever the political results. The fact that the results of such reforms might play upon Bruce’s (or Ramaphosa’s) anxieties is not really an argument. If we’ve had a drought and need rain and it’s anyway going to rain, is there really any point in listening to someone who says “I fear the political results of people getting wet”?

There are several other key points. One is that so many African countries are currently either involved in IMF bail-outs or are desperate to get one that it is quite odd that South Africans should have such a holy horror of that eventuality. Pakistan is on its eighteenth IMF bail-out. Even Britain has had one. Second, if we are going to go through the rigours of restructuring would you really prefer that we do it all on our own resources or with the help of (say) an extra $50 billion to tide us over? Thirdly, one of the big points about an IMF bail-out is that it enables local politicians to lay the blame on the IMF for the unpopular reforms that then have to go through. Do you really think our local politicians would prefer to take all the blame themselves? There isn’t exactly much evidence for that, is there?

Finally, we should be mindful of Zimbabwe. After 1980 Mugabe’s government (like ours) lived well beyond its means. Quite a lot of good things were done, though a lot was also stolen. And, as in our case, the government succeeded in scaring away foreign investors. The result was that by 1990 Mugabe had agreed to a structural adjustment programme in return for an IMF loan. But he had no understanding of economics, resented the IMF and laid obstacles in front of its reforms.

In 1997 the war vets demanded higher pensions. Mugabe caved in and gave them over four billion Zim dollars. The IMF protested against this violation of its strict controls on government spending. At first Mugabe tried to raise the money by taxation but that was unpopular so he abandoned that and instead told the IMF to “go to hell”. He also refused to pay back any of the money Zimbabwe had already received from them.

This was how the Zimbabwean catastrophe began. Deprived of IMF support the economy began to go backwards and discontent mounted. Mugabe desperately called on his supporters to “strike fear into the hearts of the white man, our real enemy”. This merely made things worse and there was a large flight of capital. By 2000 Mugabe lost a referendum and faced electoral defeat, so land invasions began. We know the rest. Note that had there been free and fair elections, Mugabe and his anti-white populism would have lost resoundingly. I was doing polls in Zimbabwe during that time and the MDC always led Zanu-PF by around three to one.

Now, with the country an irrecoverable wreck, the Mnangagwa regime is desperately pleading for an IMF loan – but can’t get one until it pays back the previous IMF loan. As one looks back one can see quite clearly that the crucial moment came when Mugabe did what Bruce is now doing – placing a supposed political “imperative” before economic necessity. Yet Mugabe could and should have faced the war vets down, especially since many of them were bogus war vets to begin with, far too young to have fought before 1980. It is easy now to see that, after Zimbabwe had spent itself into bankruptcy, an IMF loan was the only possible way out. If Mugabe had only seen the reforms through to the end an enormous amount of human suffering might have been spared.

So, would we be better off if we took our advice from Mugabe and Bruce and decided that we must keep the IMF out at all costs? And if we said that, despite having spent ourselves into bankruptcy, we would rather refuse the lender of last resort, even though we have no plan or willingness to force reforms through on our own? Even Mr Kganyago, after all, implicitly accepts that if things carry on as they are now, the situation will spiral out of control. Is that what we want? Or would we rather place all our money on a long odds bet that the government and ANC will suddenly wise up, summon up courage and carry out all the reforms which it has resisted for ten years? Place your bets, gentlemen, place your bets.

R.W. Johnson

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