South Africa: A R37bn gamble
http://www.mg.co.za/Content/l3.asp?a=12&o=33382
The government made a calculated gamble of over R30-billion this week to accelerate growth and begin to weld together South Africa’s two economies - a first of high skills and decent work and a second of informal work and extreme vulnerability. The Medium Term Budget Policy Statement (MTBPS), presented to Parliament this week by Minister of Finance Trevor Manuel, marks a clear shift in the government’s economic growth and social development policy.

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By Harald Pakendorf, Political Analyst
12 November 2003

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Seldom could such a drastic reversal in direction have attracted so little attention. The market simply ignored it. There was little or no comment on it. And yet President Thabo Mbeki announced a fortnight ago that the neo-liberal market economic approach must be abandoned.

Just back from a Meeting of the Socialist International - a grouping of socialist and social-democratic parties - he wrote in ANC Today that consistent state intervention has become a must. The poor and underdeveloped section of the economy cannot be left to market forces. Help is needed.

And this week, ahead of the mid-term budget announcement, he steps into the ring and makes public a three-pronged state intervention plan to assist precisely that section of the economy.

Which leaves two questions: why did the market not take fright at this bold statement of a reversal in fundamental economic approach and why does he find it necessary to intervene so massively in the lower end of society.

Thabo Mbeki is a pragmatic man and a realist. He will have heard from ANC headquarters - and seen in opinion surveys - that the new urban middle class is more likely to be critical of government's performance than the desperately poor, urban but in particular rural. He will also know that his popularity among these people remains high

So for pure party political reasons, he serves his constituency. But he has said over years that alleviating the lot of the poor is a primary aim of the ANC. It would be the right thing to do anyway. And putting all that money into the economy can only help with growth - which in turn can assist in creating jobs.

But denouncing neo-liberal market economics after averring earlier that the ANC was never a socialist party, came as a surprise. It does represent a shift, even if it does not mean that he will not abandon the fundamental economic approach the ANC has been following from about 1993 onwards - fiscal discipline, reducing the budget deficit, making the country attractive to investors, giving the private sector room to grow.

Once that has been achieved, Plan Two kicks in: with funds now available, put more into the welfare departments and infrastructure. That started two budgets ago, but the money has not yet trickled through the economy.

Just before an election, you step up that programme.

If you then verbally denounce that which makes your alliance partners - the SACP and Cosatu - unhappy, there is an added advantage: you take one issue off the table.

If at the same time Cancun was a disappointment and you are increasingly lining yourself up with countries like India and Brazil to take on the developed North, it makes sense to be seen to be on the side of the poor.

The markets certainly do not think that Thabo Mbeki has become an overnight socialist. Either they did not pick up his pronouncement or simply do not see evidence of an about-turn.

And there isn't, despite the rhetoric. South Africa has reached a level of stability in its political and economic life where such pronouncements are seen to be what they are - placating a part of your constituency, here and abroad.

Mbeki is doing the old classical political thing: talking left but doing right.