New South African Review 1 - Anthony Butler

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flight during this period (Mohamed and Finnoff 2005). After democracy there was huge restructuring of the South African corporate sector, many of the largest conglomerates embarking on a process to increase their international operations and to reduce their South African businesses. In line with the demands of the shareholder value movement, they simplified their corporate structures and increasingly focused on core business activities when they restructured. In short, much of big business had diversified its businesses to reduce their exposure to the South African economy after 1994. At the same time, South Africa had a weak industrial structure focused around a minerals and energy complex because of the political, economic and historical processes that shaped its industrialisation. The corporate restructuring further weakened the industrial structure of the economy.

      The economic policies of the new democratic government were aimed at attracting and appeasing foreign finance and investment. It was probably believed that foreign investment would pour into the new South Africa and reshape and modernise the industrial landscape. The economic policies were deliberately neoliberal because it was believed that foreign investors would be attracted to a country where the government was willing to show its credibility by ensuring low inflation and low budget deficits. The government did not adopt or implement an industrial policy to address the industrial structural weaknesses because of the fiscal implications and because their neoliberal policies favoured less state intervention in the economy.

      The neoliberal macroeconomic and financial policy choices of the government proved disastrous. The policy choices left them unable to deal with the effects of financialisation and the corporate restructuring and deindustrialisation crisis in the economy. These policy choices further integrated the economy into the global economy and opened it to relatively uncontrolled hot money flows. The surges of hot money into and out of the economy led to volatility in macroeconomic variables such as exchange rates and interest rates and had a huge impact on liquidity in financial markets. The effect of this volatility was to exacerbate the declining interest in long-term, productive industrial investment and instead there was a misallocation of capital towards speculation in real estate and financial markets and debt-driven consumption.

      The integration into global financial markets has increased the risk of financial crisis and the vulnerability to contagion from financial problems elsewhere. The weak industrial structure and continued dependence on mining and minerals exports creates a balance of payments risk because imports for consumer goods and capital equipment for mining and infrastructure investment have increased. The large corporations and wealthy South Africans with their liquid and mobile capital are able to respond to macroeconomic volatility and the risk of financial crisis in South Africa by moving their money abroad. The government’s policies have made this capital flight easier. Poor South Africans are forced to bear the brunt of the poor economic policy choices of their government. They have lost their jobs or have had the quality of their jobs reduced through outsourcing. They have become more dependent on government grants, such as child support and old age pensions. Unless there is a huge effort to address the industrial decline in South Africa and new economic policies implemented to support industrial growth and transformation, the majority of South Africans will face an increasingly bleak economic future.

      NOTES

      1 The quote is from the article ‘Defaults hit upmarket mortgages’, in Business Day, 14 May 2009 (available online at http://www.businessday.co.za/Articles/Content.aspx?id=71123). For another report on the state of the property market in 2008 and early, 2009 see ‘Auctions reveal the immediate truth and nothing but the truth’ published in Property: The Property Magazine, available online at http://www.thepropertymag.co.za/pages/452774491/Auctions/09/April/auctions.asp.

      2 ‘Consumers struggle to hold onto their cars’, in Business Day, 1 April 2009, available online at http://www.businessday.co.za/Articles/Content.aspx?id=62152.

      3 ‘150 000 Consumers under debt review by Christmas’, in Business Day, 1 September 2009, available online at http://www.businessday.co.za/Articles/Content.aspx?id=80240.

      4 The NCR said in November 2009 that on average 80 per cent of new mortgages provided during June 2008 to June 2009 were to people whose gross income was over R15 000 a month.

      5 See Terreblanche (2002) for an account of the response of white people and big business to the political changes.

      6 For an interesting discussion on the growing influence of institutional investors and the emergence of maximising shareholder value as a ‘new ideology for corporate governance’ see Lazonick and O’sullivan 2000, p.13). It is worth noting that the growth in importance of the business media industry and their influence over business structure and executive behaviour is also significant.

      7 Mohamed and Finnoff (2005) show that capital flight from South Africa was higher during the period after the democratic elections (1994 to 2000) than it was before the election (1980 to 1993). They argue that mis-invoicing of trade made up a significant share of capital flight, indicating that it was probably big businesses with large export and import volumes involved in mis-invoicing of trade.

      8 The central place of workers’ struggles in the liberation struggle meant that the demands of the workers for labour relations reform were high on the agenda throughout the negotiations period and when the ANC took control of the government. The labour relations reforms were passed very quickly and by the time GEAR and more conservative policies were accepted, many within the ANC and the new state were giving a sympathetic ear to business when it complained about inflexible labour markets.

      9 Omar and Webster (2004) examine the responses of management to changes in labour markets. They draw their conclusions from sociological studies of workplace and managerial changes in the mining industry, footwear manufacturers and call centre operators.

      REFERENCES

      Epstein G (2005) Introduction: Financialization and the world economy. In Epstein G (Ed) Financialization and the World Economy. Cheltenham and Northampton: Edward Elgar.

      Ernst & Young (2006) Mergers and acquisitions: A review of activity for the year 2005. Ernst & Young South Africa (available online at http://www.ey.com/ZA/en/Home).

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