Gear: A bureaucratic story, and some tough questions and challenges

Asiyifuni Gear [We do not want Gear].” This was a common slogan by unionists in response to the government’s Growth, Employment and Redistribution Strategy. It reflected opposition to Gear. Eleven years later, Gear is still hotly debated. Recently, Finance Minister Trevor Manuel offered a spirited defence of the consultation process leading up to Gear. Manuel, responded to Xolani Xundu’s article on a seminar. Manuel, in support of his view, cites meetings, several quotations and formal resolutions. I have heard several incomplete versions of what happened, and frankly I am still not able to piece together what actually took place. So because I cannot piece together the full story, I will try to give a slightly personal (obviously bias) account of why I think there was no consultation around Gear.

On the day Gear was announced, I was a junior bureaucrat at the then Department of Development Planning, Local Government, Public Works and Environment. (Do not ask me why this department had so many functions; I simply do not know.) I can remember standing in my office, and someone asking if I had a radio. The word was out: the government was making a major announcement. We never did listen to the announcement on the radio. I heard something about Gear on the news that evening.

I phoned the Finance Department the following day, and the document was faxed. As required by bureaucratic protocol, I sent copies of this up the hierarchy — an odd mix of apartheid-government types and activists-turned-bureaucrats. Most read the document with interest. Some suggested finally that the government had taken the tough decision, but others argued that this was going too far. The apartheid-government types said nothing, and soon left the public service.

One of my tasks was to work in a team providing secretarial services and coordinating the Gauteng Planning and Development Forum. This forum was set up as a provincial equivalent of the National Growth and Development Strategy (NGDS). The NGDS was already viewed as a watering-down of the Reconstruction and Development Programme. As part of a process of consultation, we undertook road shows to the different local governments in the province. During this consultation period, Gear was announced.

I disagreed with the strategy. It had, in my view, structural adjustment programme written all over it. At the same time, the team working on the road shows was instructed that the presentations needed to be changed; there was a new policy. Seniors in the department developed a new presentation. Several people argued unsuccessfully that the presentation be focused on assessing the relevance of this strategy to reaching the goals of the RDP. Nonetheless, the presentation was developed — with much huffing and puffing. When presented a few weeks later, it was clear that local leaders in government — all newly elected — had no clue of the details of the strategy. They asked many questions.

Soon after Gear was announced, it hurt to read of the then deputy president, Thabo Mbeki, quipping: “You can call me a Thacherite.” It hurt even more that the document was “non-negotiable”. But, what hurt most was that the SACP had initially supported the document, before then arguing that it did not. That is how I recall it; members of the SACP can set the record straight. But, in doing so, please find the CC resolutions from 1996. I simply cannot find it. There is, however, an Umsebenzi summarising the CC decisions in 1997 — linked here — that reads as follows:

When Gear was first unveiled in June 1996, the SACP CC reacted cautiously but constructively. We were unhappy with the closed technocratic process behind Gear, and especially unhappy with the declaration that the policy was “non-negotiable”. However, while voicing these concerns, we indicated a preparedness to engage constructively with Gear. We believed that we needed to give the SACP a chance to understand and debate the proposals. We also believed that the proposals should be tested in practice.One year on, there are signs that Gear is failing to deliver. Growth is slowing down and will be below the envisaged 2,9% for the year. The very centrality of growth to Gear calls the overall policy assumptions into question.

Even more seriously, it is clear that far from producing a modest growth in jobs; one year of Gear sees jobs down by an estimated 1,3%.

The SACP is convinced that a thorough-going review of macro-economic policy is essential. Too much emphasis has been placed on creating an “investor-friendly climate” and hoping that the market will do the rest. It is not working, and it will not work.

(Author’s emphasis)

So, Manuel might not be so incorrect in the assessment of the SACP. That is a difficult concession to make. After this, it is, however, true that the SACP was opposed to Gear, and provided support to campaigns aimed at protesting against Gear and its effects. The ANC adopted Gear as its policy at its 1997 Mafikeng congress, after Gear was announced as government policy.

Cosatu, however, rejected Gear very early on. It was not alone; an array of civil society organisations was opposed to it from the start.

This little story, of a little bureaucrat in a big ideological world, told me three things.

First, the meetings referred to by Manuel could be seen as rubber-stamping process. It is hardly consultation to meet leadership and not provide the time for them to receive organisational mandates. I was a Nehawu member at the time, and remember a report saying exactly that we were not given an opportunity to receive an “organisational mandate”. That was one of the reasons our branch choose to oppose Gear.

Second, provincial leadership of government had little idea that Gear was coming, although I now realise that I should have listened to the whispers. Again, there was virtually no process of engagement at a provincial level prior to the announcement of which I was aware.

Third, even if one accepted the tactical necessity of Gear, there was a bigger responsibility — to fight the ascendancy of policies oriented towards big business. Discussing the strategy does not mean giving up the right to organise against it. Manuel knows that better than most of us.

For these three reasons, my experience with the Gear strategy and its announcement tells me that there was little information sharing, and very limited consultation.

Some fulminations on strategy and discourse
Let us get back to the RDP. The RDP was non-committal on fiscal policy, size of the public service and the role of state-owned enterprises. This reflected tensions in the ANC. The question that arises from Gear is whether it furthered the mandate of the RDP, or deviated from it. In spirit and orientation, Gear certainly moved away from the RDP. It embraced the argument that governments crowd out markets, that we should liberalise economic sectors, and that we needed a very tight fiscal stance. You could argue it the other way — that Gear implemented the RDP; I am, however, not convinced of this argument.

There is another argument that we needed belt-tightening to achieve the fiscal space we needed today. But, hold on, it was during the Gear period that the South African government negotiated the arms deal; when we asked pensioners, schools, hospitals and police stations to tighten their belts. In Manuel’s defence, his team in the Treasury proposed several less expensive options. The responsibility lies perhaps in the Cabinet collective. And it is topical in this week of load shedding that arms trumped spending on new electricity-generation capacity. If we had the funds for arms, why not invest in more pressing social conditions?

Again, the argument is restated: stabilisation provided the space for further growth in the budget. I agree with that 100%. But, we must judge Gear on what it promised with its sophisticated — but still secret — macroeconomic model. It promised what its name implies: growth, employment and redistribution. Gear met its fiscal targets, but not its investment, growth and employment targets. Judged by these criteria, we have more money to spend, which is excellent, but the social crises have deepened.

The impact on public services was immense and reduced capacity significantly. Today, questions of service delivery need to be contextualised in a period of significant budget restraint. The decline in public-service capacity is not an unusual result from Gear-type strategies, as across the globe there has been a decline in public-service performance and productivity once SAP-type programmes are implemented. Of course, Gear is not the only problem, but in many ways front-line delivery institutions are only now beginning to purchase equipment, materials and invest in improved performance. The lag between a moderately expansionary fiscal stance and effects on front-line institutions is also not unusual, judging from comparative contexts.

Unemployment, poverty and inequality increased during the period of Gear. Anyone wanting to challenge this had better take the queries to the Presidency, as these are the official trends from 1996 to 1999. I think these trends are directly linked to the excessively tight fiscal stance under Gear. We must also accept that our economic growth path was not structurally shifted from consumption to production during Gear; mostly because despite the government’s best efforts to get the fundamentals right, private-sector led investment — which is needed for job creation — has lagged significantly behind interventions aimed to catalyse it.

At the same time, South Africa not only reduced the deficit and tax ratios as a proportion of income, we also offered rich people significant tax breaks. We opened markets, in which only large multinationals and not small businesses could succeed. The distributional question must be asked: Who benefited?

But, I do not think it is fair to paint Manuel as being a nasty. It is true that even during the Gear period, his team worked very hard to reprioritise spending. There was significant work done on equalising spending between race groups, for instance in education. In addition, budget information has become transparent and accessible, but budget reform remains incomplete until Parliament has amendment powers.

In addition, we must not fail to understand the context in which Gear emerged. We had currency volatility, the Nats had spent too much, and we risked an externally imposed structural adjustment programme. And, thus we risked bequeathing a ballooning national debt to our children. It is for this reason that Adam Habib — quoted in Xundu’s article linked above — dramatically argues that even Karl Marx would have implemented Gear. Were the constraints on us so overwhelming? I do not think so. To understand this perspective, we must distinguish between deficit reduction on the one hand and the “integrated” package in Gear on the other.

In this regard, Gear only began to make sense to me with the release of an ANC discussion document called State and Social Transformation, and the response, State, Property Rights and Social Transformation. These documents essentially argued that Gear (without mentioning it by name) was a tactical retreat, and that there was no alternative. The arguments particularly around deficit spending made sense from the perspective of avoiding a debt trap. But Gear went much, much further. The proposals included privatisation, trade liberalisation and proposals for wage moderation. Before we enter into a debate that this is a caricature, it is important to quote Gear itself. It defined the core elements of its integrated package as: an acceleration of the fiscal reform process, including a tighter short-term fiscal stance to counter inflation, an appropriate medium-term deficit target to eliminate government dissaving, further revision of the tax structure, and a range of budgetary restructuring initiatives to sharpen the redistributive thrust of expenditure and contain costs; a further step in the gradual relaxation of exchange controls, the maintenance of monetary policies consistent with continued inflation reduction and exchange-rate management to stabilise the real effective exchange rate at a competitive level; a consolidation of trade and industrial policy reforms, incorporating a further lowering of tariffs to compensate for the real depreciation, the introduction of tax incentives for a fixed period to stimulate investment, a campaign to boost small and medium firm development, a strengthening of competition policy and the development of industrial cluster support programmes, among other initiatives; the implementation of the public-sector asset-restructuring programme, including guidelines for the governance, regulation and financing of public corporations, and leading off with the sale of non-strategic assets and the creation of public-private partnerships in transport and telecommunications; an expansionary public infrastructure investment programme to provide for more adequate and efficient economic infrastructure services in support of industrial and regional development and to address major backlogs in the provision of municipal and rural services; a structured flexibility within the collective bargaining system to support a competitive and more labour-intensive growth path, including greater sensitivity in wage determination to varying capital intensity, skills, regional circumstances and firm size; reduced minimum wage schedules for young trainees, reducing indirect wage costs; and increasing the incentives for more shifts, job sharing and greater employment flexibility; and a social agreement to facilitate wage and price moderation, underpin accelerated investment and employment and enhance public-service delivery.

So many would have supported the reduction of the deficit, but not the so-called integrated package. I still think that we could have dealt with the problem of the deficit in 1996, without reducing the tax:GDP ratio. There was an alternative to Gear. It was certainly not the expansionary tactic that we would have wished for, but an alternative strategy would have been possible to construct that would have supported long-run economic growth, and stronger poverty reduction. This argument requires some elaboration.

Before the publication of the ANC discussion document, there was a policy memorandum by Ashgar Adelzedah called From RDP to Gear: The Gradual Embrace of Neo-Liberalism in Economic Policy. The document was a smash hit, offering a clear rebuttal and something to challenge Gear. In my view, these two documents set the tone for most of the social analysis today that traces the evolution of policy. It is an example of how important ideas are in this debate over the “development path”. As I mentioned — only half in jest — to Asghar last year, he might need to right a memo with the title A Gradual Embrace of the Development State given some of the changes since 2000.

All in all, we must accept the costs and benefits of Gear when we say we have fiscal space today. The cost was high, but the future will tell us if “short-term pain will result in long-term gain”. From this perhaps “ultra-nuanced” reflection on Gear, the focus might be too much on balancing different views. But, distributional outcomes of fiscal policy are complex and complicated. It is this complexity that we must deal with in making assessments of the performance of Gear. It is advice that I hope Manuel and those criticising him will take.

But, something “funny” has happened in our discourse. It sometimes feels as if we are still in 1996. Trevor Manuel highlights the impressive achievements — more fiscal space, autonomy and increased social spending. Since 2001, it is, in fact, difficult to fault Manuel as he has increased budgets significantly and taken bold decisions. I did a budget preview earlier this year that discusses the difficult challenges in determining fiscal policy. It is a tough process, and has winners and losers. However, much more is feasible as the People’s Budget Campaign shows. Social and economic policy has had a left turn. In all of this, social pressure from civil society played a significant role. This pressure was based on widening support for developing alternatives, and linking it all to mobilisation. Sometimes, we must wonder if civil society should not speak the truth, and claim hard-fought (but tentative) victories — nay, gains. More like the “2007 Class Project” on which we need to focus. Manuel has crafted a strategy to maintain public spending that is controversial. However, running a surplus offers South Africa consistent public spending across economic cycles. It is a strategy that must be engaged.

However, Manuel is right to ask us to concentrate on the quality of spending today. In focusing on this, we must ask about the adequacy of allocations to front-line delivery institutions, and pose hard questions and uneasy answers to improve services. To say that we have enough funds because we have a surplus is thus an inadequate vantage point to assess public policy failure. In concentrating on the quality of spending, we must start from the perspective of users of public services. It is then that we can assess the costs of implementing a structural budget balance.

Times change, conditions change. We must defend our actions in opposing Gear, but at the same time there is a future waiting to be created. However, we might be so trapped in the debates from 1996 that building a developmental project in 2007 seems remote, despite the building blocks being constructed through struggles. For this reason, the slogan “Pantsi Palace Politics! Pambili! Redistribution! Pambili!” might be an appropriate one for this week, and later.

Most of the links are to PDFs

This article first appeared on the Thought Leader group blog hosted by the Mail and Guardian.