Budget 2009: Great Transformation or Illusion Leading to Delusion

Minister Trevor Manuel referred to debates on the size of deficits as an illusionary delusion, asking South Africans to focus on the effectiveness and quality of spending. Underlying this perspective is an important assumption that tough choices in economic policy have placed us in a better position.

Today, we have more money, and are able to responsibly increase the deficit, because of these choices, argues Minister Manuel. Assessing the record of government in this manner is however, an example of another illusionary delusion. 

The delusion is that so-called ‘good economic management’ has improved the economic and social development of our country. It is, for instance, tempting to suggest continued improvements when one looks at service delivery indicators, which measured at a national level indicate significant progress. However, when measured against the challenges we face, including the trends for inequality, poverty and employment, one becomes more circumspect about the triumphalist tone suggested in Minister Manuel’s speech.

These trends, reflected in the official development indicators, provide a depressing picture of the cost of fiscal adjustments undertaken over the last decade. Poverty indicators show a small decline in headcount poverty rates, which stands at 48% using a poverty line of R 462-00. Sadly, this represents less than a 10% decrease in poverty when compared to 1995.

Most worrying is that inequality has remained the same, despite attempts at interventions. In 1993, the poorest 10% of the population held 0,6% of total income, while the richest 10% accounted for 72,7% of total income. In 2007, the numbers are 0,6% and 72,5% respectively. The Gini Coefficient in official statistics has decreased slightly, but remains high by international standards at 0,66. However, independent studies put the Gini Coefficient much higher at around 0,7%, which would represent a significant increase. 

These indicators are partially explained by the inability of the economy to create employment and particularly jobs with incomes that provide opportunities for accumulation by the poor. So while jobs have been created in the economy, they fall significantly short of meeting the target of halving unemployment by 2014.

In this period of economic crisis, the challenge to create around 500 000 new jobs annually until 2014 is a daunting target, especially considering that we were unable to meet these targets in the so-called good times. 

The significance of development indicators point to some circumspection praising our country’s economic management. However, these indicators are about the challenge we face as a country attempting to break structural poverty and inequality, under conditions of an international economic crisis.

In interpreting the global financial crisis and praising the ability of South Africa to respond, Minister Manuel drew inspiration from the sociologist Karl Polanyi. In The Great Transformation, Polanyi’s masterpiece centres his analysis on a double movement. The first, movements towards increased self-regulation of markets are strong, especially in our context because of the level of economic concentration and uncompetitive behaviours. The second movement is the reaction of society against the self-regulation of the markets, through attempts to protect people and society from the vagaries of self-regulated markets. In undertaking this double movement, markets are then once again embedded in societies. But, the significance is that this double movement fundamentally changes the relationship between markets, states and societies. The consequences are potentially a fairer distribution of incomes, based on reciprocate and redistributive forms of integration, to use Polanyi’s terminology. 

The question then arises as to whether or not the illusory triumphalism of “good economic management” – that has entrenched market dominance, reinforced inequality and failed to create sufficient quality jobs – is being replaced with something else? 

Surprisingly, Budget 2009/10 indicates that significant thought and plans have been put in place to keep development indicators on track, whilst responding to the economic crises.

First, public spending remains moderately expansionary. The Budget Review indicates that government expenditure is targeted to increase by 9.1% between 2009 and 2012. The National Treasury has thus honoured a commitment to revert to a deficit – based on the calculation of a structural budget balance – should there be an economic downturn. However, does this approach constitute a long run strategy to protect social spending over the next generation? The commitment to continued expansion will be tested in the next budget, especially if Minister Manuel’s projections for economic growth are not reached. 

Second, there is recognition that government has a direct role to play in employment creation through its commitment to a public employment programme. The plans have yet to be unveiled, but should focus on youth unemployment. The problem is significant with youth unemployment being the biggest challenge to reaching the target of halving unemployment. The strategy is thus not a modest one, as it potentially will seek to widen opportunities for first time employment, and offer entry for the young and the unemployed into the labour market. 

Third, the emergence of rural development, as a priority, is significant.  This focus provides the promise of livelihoods for rural households — a potentially important mechanism out of poverty. The proposals, here again, are focussed on small-scale agriculture, amounting to an allocation of R 1,8 billion. The allocation is paltry given the size of the budget, but signals a change in government thinking. The challenge of rebuilding small-scale agriculture, however, requires addressing value chains dominated by large multi-national companies to provide entry into markets. Thus, here again, only the implementation phase will determine whether the challenge of economic concentration will be addressed. 

Previous commitments to expand free basic services, school feeding schemes, expanding no fee schools, and implementing the national HIV/Aids strategy are all given additional budget allocations. The one area of disappointment is the further cash injection into South African Airways. 

Budget 2009 represents an important shift in public spending, suggesting that more systemic change is being planned. However, the interventions are neither complete, nor part of a national development strategy.

One of the major criticisms of the National Treasury is that it is has been the de facto planning agency. Nevertheless, proposals for a national planning commission should provide space for civil society to influence government spending. Proposals such as those from the People’s Budget Campaign offer a vision for the kinds of interventions that are needed to provide us with a fighting chance to achieve a more equal society. It suggests a vision that could provide the means to embed development policy and practise in society with social partners more actively involved in policy discussions as well as more committed to implementation. 

What, then, are the further interventions that are needed? The areas that will require further interventions are economic concentration and building asset-based social policy. These areas are important; because whilst our national finances seem to have survived the global turmoil, poor working class households still face the brunt of decreased economic demand, retrenchments and a slow down in job opportunities. In short, our economic management has not cushioned the blow to the poor, except with respect to future debt payments. 

In analysing the budget, there is little doubt that some commentators will call this a ‘shift to the left’. The ideological posturing often without alternatives is getting tiresome and is counterproductive. Instead, it would be worth reflecting on pressures that argue for a change in how to embed the market.

Service delivery protests, ‘xenophobic attacks’ and to some extent violent crime, all suggest that the breakdown of social cohesion explicitly indicates a significant problem of social and economic exclusion that is simply not sustainable. This would be to heed the warning of Karl Polanyi — that if markets are not embedded and new forms of inclusion not created, societies will not be able to undertake the ‘great transformation’.

In our circumstances, this means changing power relations to support inclusion. Budget 2009 offers hope, but public spending is still a long way off from supporting structural change.