Final Paper

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Assignment Submission Form - Individual Assignment Student Name: Canovai Ludovico Student ID Number: HSF15001 Module Title: HSB354 Globalization and Change Assessment Title: Globalization and post-apartheid South Africa: economic reforms, poverty and inequality Lecturer(s): Santhosh R Date Submitted: 15/04/2015 Signed: Date: 15/04/2015 1

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Transcript of Final Paper

Page 1: Final Paper

Assignment Submission Form - Individual Assignment

Student Name: Canovai Ludovico

Student ID Number:

HSF15001

Module Title: HSB354 Globalization and Change

Assessment Title: Globalization and post-apartheid South Africa: economic reforms, poverty and inequality

Lecturer(s): Santhosh R

Date Submitted: 15/04/2015

Signed: Date:

15/04/2015

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Globalization and post-apartheid South Africa: economic reforms, poverty and inequality It is always a delicate topic when it comes to judge a series of events that are currently shaping today’s international arena. The query regarding “globalization”, and it being considered truly favourable or not, certainly is one of the most controversial. For this reason, I find it very interesting to investigate its impact on a historically difficult country as South Africa. Globalization has certainly impacted events in different parts of the world, surely being an inevitable, ineluctable occurrence. As aforementioned, this essay addresses the impact of globalization on poverty and inequality.

Initially I will give an introduction to the issue of “globalization” as a worldwide phenomenon, explaining why and how it is relevant to highlight the unusual impact that globalization has on a post-colonial country. I will analyse the consequences of the post apartheid regime, in particular poverty and inequality. As South Africa conducts a review of the first ten years of its new democracy, the question remains as to whether the economic inequalities of the apartheid era are beginning to fade. Using new, comparable consumption aggregates for 1995 and 2000, this paper finds that real per capita household expenditures declined for those at the bottom end of the expenditure distribution during this period of low GDP growth. As a result, poverty, especially extreme poverty, increased. Furthermore the inequality also increased, mainly due to a jump in inequality among the African population. I will also consider the contemporary nature of the current stage of global economic expansion, considered by many critical observers to be the latest stage of capitalist imperialism. This analysis connects many of the challenges faced by post-apartheid South Africa to the international economic and political relations that have shaped the development of the peripheral economies in the contemporary global economic system. Finally, I will pay attention on the economic globalization and its complex relation with the State, hence its political and sociological influence on the country.

Globalization has been exposed to a myriad of definitions, but the most comprehensive one is given by Mittelman. He regards globalization as a syndrome of processes and activities, rather than a single, unified phenomenon. The processes and activities, in general, refer to the reduction of barriers between countries. This borderless world is typically referred to as the global village where distance and space disappear, and in which a single community and a common pool of resources exist. The process of globalization has necessarily encouraged closer economic, political, and social interaction. This, in turn, necessitated the activation of multiplicity of levels of analysis in the fields of economics, politics, society, and culture. In most basic terms, the globalization of the world economy is the integration of economies throughout the world through trade, financial flows, the exchange of technology and information, and the movement of people. The extent of the trend toward integration is clearly reflected in the rising importance of world trade and capital flows in the world

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economy, in addition to the revolution in information, communication and transportation technology. (Mapuva J. citing Mittelman, 2010: 391).

It could be easily said that globalization is characterized by the fact that distance and national borders do not exist anymore, the ease with which economic, social and political interaction among different countries is made, and that the nation state is not relevant anymore for economic purposes. This certainly presents a broad set of opportunities, bringing huge benefits along. However, scepticism towards globalization is continuously rising.

This economic interaction and interdependence among distant and different members of the global community is usually defined “economic globalization” and most scholars regard to it as “the increasing internationalization of the production, distribution, and marketing of goods and services”. (Harris, 1993: 26). To be more precise, another curious, complete definition is outlined in the United Nations Development Program’s Human Development Report (HDR) of 1997, which acknowledges that the concept of “globalization” has been used to both describe as well as prescribe the existing system of economic relations in the world today. To cite the exact words accurately:

“A dominant economic theme of the 1990s, globalization encapsulates both a description and a prescription. The description is the widening and deepening of international flows of trade, finance, and information in a single, integrated global market. The prescription is to liberalize national and global markets in the belief that free flows of trade, finance, and information will produce the best outcome for growth and human welfare. All is prescribed with an air of inevitability and overwhelming conviction”. (UNDP, 1997: 82).

I found both definitions remarkable and clear. However, what it is not precise in either of those is that when it comes to examine the realities of existing system of economic relations in the world today, especially in African countries, it is quite obvious that this system has contributed to a growth in material wealth and human welfare of only a privileged minority, and this is the main critics that aforementioned sceptics pose to the issue. The latter ones give a broader explanation of what globalization stands for, considered to be the latest stage of global expansion and imperialism. (Harris and Lauderdale, 2002: 423)

The matter of whether globalization is truly “global” or not goes beyond the scope of this essay, what I can firmly say is that it does undoubtedly have a different impact on the diverse areas of the world, and that its distribution is surely not even. In the field, South Africa represents an exceptional case study, as whereas most countries in Southern Africa have experienced globalization as externally imposed, in South Africa it has been largely internally generated by the state and the major business groups that dominate the economy. (Carmody, 2002: 255).

When South Africa achieved its transition to non-racial government in 1994, a debate took place about the future direction of economic restructuring. The Reconstruction and Development Programme was seen as an integrated, coherent socioeconomic policy framework that would carry forward the national democratic revolution. The initial impetus

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for the RDP came from the Congress Of South African Trade Unions in consultation with other popular organizations. In fact, propelled by concerns that the apartheid was being channelled into a narrowly political process focus on formal, instead of substantive democracy, some key figures within COSATU proposed a reconstruction accord in 1993.

From this gave birth to a economic and political program which was addressed to overcome the legacy of apartheid, and which has later been revisited by the African National Congress and which consisted in the RDP base document. This document was then implemented in the so-called RDP White Paper, which, according to its preface, incorporated submissions from different offices of government, agencies, multiparty forums etc. The RDP White Paper claimed to set out a strategy for the new Government of National Unity to further implement the text. In reality, critics quickly pointed out that the RDP operated on a deeply contested terrain, in crucial respects eradicating sources of contradiction replacing its Keynesian thrust with neoliberal trickle-down, and conceptualising the state as an unproblematic instrument of the RDP itself. The RDP was also blamed to develop a consensual model of society which was the premise for the accomplishments of its own goals. (Hart, 2002: 18).

Two years later the Government of South Africa changed its development strategy by adopting an orthodox economic reform programme. The launch of the GEAR in 1996 declared the real collapse of the consensual model, and contrasted the former consultative process that gave rise to the RDP. The GEAR was, indeed, the product of a team of technical experts, and is premise was that an orthodox neoliberal package, which included tight fiscal austerity, monetary discipline, wage restraints, reducing corporate taxes, trade liberalization and phasing out exchange controls. (Ibidem: 18). At that time, it was seen as necessary to adopt the reforms included in the GEAR, and “globalization” appears as a clear, existing issue that the ANC has to cope with. In fact, it was outlined that economic globalization and the effect of technological progress on a world scale imposed a certain surrender of a nation state’s control over many key areas.

Nowadays, as it was beforehand, the South African economy is now rapidly globalizing, but the nature of that globalization differs significantly from that experienced by the rest of the region. As previously said, while most of Southern Africa has experienced globalization as something externally imposed and mediated through World Bank/International Monetary Fund (IMF) structural adjustment programmes, in South Africa globalization has been mainly internally generated.

The two sets of actors that have most promoted globalization from within are the state and the country's major conglomerates. How this politico-economic project evolves has important implications for globalization theory, the popular classes of South and Southern Africa, and their resistance to it. The major conglomerates in question are four, and controlled the 83% of the companies listed on the Johannesburg Stock Exchange prior to the end of apartheid, whose scope of action is still framed by state policies, and the context in which they, in turn, are embedded. (Carmody, 2002: 256) Hence, the state, along with the big economic players, is a leading actor in the situation.

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Under globalization, capital is deregulated through the international regulation of states. While the policy formulation of most developing countries is highly circumscribed, the new post-apartheid South African state seemed to have more freedom to pursue a good development strategy given its relatively low level of external debt. Nonetheless, as we have already said, the South African government adopted an orthodox economic reform programme in 1996. What has yet to be premised is that there has been a hardly debated discussion about the reasons behind the rightward shift in economic policy, and the effective abandonment of the social democratic RDP in favour of GEAR. For some scholars, the government's conservatism was related to the externalised nature of the liberation struggle, and the petit bourgeois nature of the African National Congress (ANC) leadership. For others it was an outgrowth of domestically embedded structures of economic power, 'elite pacting', the influence of the neo-liberal discourse of the 'transnational managerial class', and the 'governmentalising' of the RDP. (Carmody, 2002, 257).

Sure it is that the apartheid was heavily based on a strongly statist system, characterized by protectionism, which was deemed to be the principal cause of the economic stagnation of lateapartheid. Hence, the government must have adopted the GEAR in attempt to stem the fall of the RAND by reassuring international investors. In fact, given that the realities of the global and national situation were, and still are, such that big capitals controls substantial resources without which they could carry forward the national democratic transformation. In other words, the process of reconstructing production and the economy would surely require the participation of the state and international capital. And the need to engage with global capital in order to realize the goals of transformation had introduced a profound contradiction whereby the demands of the former strongly impact and delimit the scope of the latter. In other words, the new government at that time, as already explained, designed the RDP as a framework for economic policies, which placed the challenge of meeting basic needs at the center of economic growth and programs, in order to develop human resources, rebuilding the economy and democracy, and encouraging synergy among the different departments. However, the RDP was indeed blamed to be a socialist measure which was incompatible with the demands of globalization, while the GEAR was seen as much more outward-oriented and investor-friendly. The GEAR was designed to encourage foreign investment, it was quickly beset by one of the principal contradictions of globalization, that maintaining stable capital inflows often has contradictory effects on domestic growth. Financial investors had negative effects on growth because of speculative and short-term investors dominated the globalized world economy. Hence the GEAR manifestly failed to provide a credible framework for productive, rather than speculative, investors, and the hopes for increasing the foreign direct investment was not realized, and the currency value dropped.

Thus, that said, it should be outlined that developing countries require a proactive development state whose interventions should be targeted, planned, and highly coordinated.

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The state’s role is to ensure equitable and efficient revenue collection, initiate capital investment projects, broaden the base of the economy to include the vulnerable, and ensure a wide spread network of social services. However, given that in South Africa the reconstruction and development program remains the cornerstone of the country’s growth and development strategy, the implementation is unfortunately poorly coordinated, and even the country’s state’s attitude towards globalization seems to be self-contradictory. On one hand it has been extremely liberal pursuing a tight fiscal policy, even exceeding that proposed in GEAR, and cutting tariffs more deeply than required by the World Trade Organisation (WTO). On the other hand, it initially introduced stricter labour market regulation in the form of the Labour Relations Act. As a result of South Africa's crisis of over accumulation, the ANC inherited a state that was shedding employment in the manufacturing sectors, and the majority of Africans were unemployed or underemployed. Affordable housing was virtually non-existent, while overbuilding and speculative construction of commercial property generated artificially high land prices in central business districts. At the same time, basic needs goods at affordable prices were not produced, while luxury goods were overproduced. The economy desperately needed productive investment to create jobs, but capital was flowing out of the country into speculative foreign investment.

Moreover, in regards to the industrial sector, the emphasis was on export orientation and competitiveness, which underscored the importance of the domestic market and domestic demand. The trade was liberalized and even more machinery and intermediate goods were imported, further exacerbating existing tendencies toward an underdeveloped capital-goods sector and a bias against the production of affordable consumer durables for the domestic market. No attention was paid to the possibility that growth could be driven by an increase in domestic consumption demand, rather than by exports. No attention was given to the possibility that the redistribution of income and the promotion of higher wages (both components of an inward investment strategy) could provide the engine for economic growth, development, and redistribution. (Magubane, 2002: 101)

The GEAR and the proposed industrial policies were meant to be the key instruments, by which the government hoped to grow the economy, in order to create jobs, redistribute income and provide funds for social expenditure and welfare programs. But these policies were and are in turn, strongly influenced by the states incapability of implementing them properly and by the challenges of globalization as a whole. More particularly, in recent years, the international economic regime, and especially the IMF and World Bank have become more and more aggressive in their efforts to transform African states into what Robinson called "transmission belts and filtering devices for the imposition of the transnational agenda". (Robinson 1996:19).

What has just been outlined is a problem that South African, and its leading political figures, had already clear in mind in the 1990s, when the loss of sovereignty became an increasing concern in a country that was considered to be a “hot” emerging market. In this regard, even Mandela expressed his worries quite clearly saying that South African decision makers

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were deeply concerned about what they perceived as a significant loss of sovereignty, identifying in the financial markets and the institutions of international governance the main beneficiaries of this struggle for sovereignty. (Magubane, 2002: 95). And here we get to the core of the question: the great challenge faced by the ANC therefore was, and still is, how to maintain the momentum of socioeconomic transformation in the era of capitalist globalization wherein the state is rapidly losing its room for maneuver, due to the so-called “time – space compression”, wherein the time horizons of private and public decision making have shrunk, and decisions are made within a more variegated space. (Magubane, 2002: 92).

In South Africa, progress towards equality is a thorny project. The world is beset by the demands of global capitalism whose strict financial rules often put countries under intense economic pressure, leaving little room for reforms at a more local level. The basic profitrelated programs of global expansionists with varied social consciousness remain fundamentally different from those of governments. Third World governments often just do not have the financial and political wherewithal to support both the social and political reforms needed in their countries and the economic programs required by globalization to link fully to the global economy. It has therefore been an unfortunate age for the country in question to have to embark upon reforms with a view to righting the racially based wrongs of the old apartheid state and of its colonial history. Hence, as previously affirmed, the demands of global capitalism are widely felt, considering the demise of the nation-state and the powerlessness of the nation-state in the world today, which is of an essential, systematic consequence of the global phenomenon.

Thus, this conjectural analysis is also suggestive of how the fiscal and political crisis of the local state in the neoliberal post-apartheid order is intimately linked with memories, meaning of racialized dispossession, and ways in which they have both shaped the conditions of labour, and carried over into the constitution of the local state. (Hart, 2002: 47) Globalization does have a strong impact also on the stance that the ANC has taken toward state sponsored social welfare initiatives. Most of the new government's policies of nonintervention from tariff liberalization to free-market reforms and the privatization of state assets-were actually forms of active intervention that shifted market forces in such a way as to further entrench historical patterns of inequality. As a consequence, one of the most relevant, yet negative, effects that globalization had on the country is the impact it has had on elite conceptions of what states can and cannot do in the name of social welfare expenditure. It gave to the people an idea of injustice, institutionalizing the ideas that the state is a consumer of wealth, instead of a producer and that the states’ unsustainable economic policies caused poverty, which is lived as a fundamental obstacle to the exercise of civil and political rights. (Magubane, 2002: 106).

In 1995 at least 58% of all South Africans, and 68% of the African population was in poverty, while poverty was virtually non-existent for Whites (Income Expenditure Survey, 1995). The country also inherited vast inequalities in education, health, and basic infrastructure, such as access to safe water, sanitation, and housing. For instance, while only a quarter of

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Africans had access to piped water in their houses, Asians and Whites had universal access. Many other aspects of the South African economy are equally challenging. Crime is so prevalent that it leads to emigration of South African professionals of all ethnic groups (Dodson, 2002), possibly also discouraging investment and stifling growth. The broad unemployment rate is estimated to be between 30-40% and has been steadily increasing since 1995, making South Africa’s unemployment rate one of the highest in the world. Many communities in the former homelands have little economic activity to speak of – mean unemployment rates in these communities approach 75%. The share of the workforce in the informal sector is no more than approximately 15% in South Africa, a figure that is remarkably small when compared with, say, Latin American countries (Rama, 2001; Kingdon and Knight, 2004). According to UNAIDS, HIV prevalence increased from 10.5% in 1995 to 22.8% in 19981 Human Sciences Research Council projected that more than 375,000 South Africans would die from HIV/AIDS in 2003, a 30% increase from the estimated number of deaths in 2000.5

Besides under the program (GEAR), the average annual GDP growth rate was to increase from a base projection of 2.8% to 4.2% between 1996-2000 and the deficit to be reduced to a target rate of 3% of GDP (Government of South Africa, 1996). The main goals of the RDP were reiterated in GEAR, including reforms to make the labor markets more flexible, to improve productivity, and to increase training and employment of the unskilled.

The failure of the economy to grow and create enough jobs gave way to an “...interrogation of the compatibility between GEAR and the labour legislation and a growing concern with rising unemployment and poverty.” (Leibbrandt, van der Berg, and Bhorat, 2001) The government stated its commitment to GEAR again at the Presidential Jobs Summit in 1998, which brought together government, organized labour and the business sector. Despite consensus on the need for occupational training and job creations schemes, significant changes in labour market legislation did not follow. Nor did any significant land reform materialize, although it was identified as a source of improvement for long-term employment and rural income growth. Narrow unemployment rate increased from 17% to 24% between 1995 and 1999, while the broad unemployment rate, which includes the so-called “discouraged workers” increased from 29% to 38% during the same period (Klasen and Woolard, 2000). During the same time period, the demand for high-skilled labor increased, while it declined for low-skilled labor, a trend that Rama (2001) relates, to some extent, to trade liberalization. Rama (2001) also reports a tendency towards outsourcing in the manufacturing sector, which led to an increase of worker who are in the informal sector between 1995 and 2000. Bhorat (2003) reports that the expansion of the informal sector accounted for 84% of the 1.1 million jobs created between 1996-1999. However, the labor force expanded by 3.1 million over the same period, causing the increase in the rate of unemployment. Employers in manufacturing perceived labor market regulations as a major hindrance to hiring workers (Rama, 2001; Economist, Jan. 15, 2004). The result is a segmented labor market, the high-skill tier of which is characterized by excess demand (Rama, 2001), while the low-skill tier displays large excess supply.1 Available: http://www.unaids.org/hivaidsinfo/statistics/fact_sheets/pdfs/Southafrica_en.pdf

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Unemployment is very high in rural areas, highlighting not only the lack of economic activity in former homelands, but also the fact that unemployed individuals stay in or move back to rural areas to attach themselves to households with adequate public or private support (Klasen, Woolard, 2000). Under these circumstances, one would expect an increase in inequality due to rising incomes for a small group of educated and skilled South Africans and stagnant or declining incomes for a much larger group of low-skilled individuals.

They also report that inequality within racial groups increased substantially while between group inequality declined only slightly, as a result of which total inequality increased in South Africa between 1995 and 2000. Echoing Lam and Leibbrandt (2003), we find a deterioration of expenditures at the bottom end of the distribution, as a result of which poverty, especially extreme poverty, increased significantly. There were approximately 1.8 million (2.3 million) more South Africans in 2000 living with less than $1/day ($2/day) than there were in 1995. However, these losses were not uniform: Colour eds made significant gains against poverty over this period, so did several provinces, such as Western Cape, Northern Cape, and Free State. Inequality also increased, main ly due to a sharp increase among the African population. The fact that the growth rate was low and that the materialized growth was not pro-poor were the main reasons for the lack of progress against poverty in this period. (Johannes G. Hoogeveen and Berk Özler, 2005; 3).

The wide-spreading poverty has changed the positive attitude that people assumed in the immediate post-apartheid era, changing their ideology about the crucial role of the state and markets in fostering developmental goals through social policies. However, the state is not always capable to cope with the struggles posed by globalization. In fact, it should also be noticed that, according to what has been aforementioned, in the current situation of diminishing state power, attempts to (re)construct national identities and a national culture also thanks to the Truth and Reconciliation Commission, after a long history of institutionalized racism , are weakened by globalization.

Cultural and identity production is based on the aspirations to see socio-economic growth, nation building, and the development of social and moral stability as complementary, simultaneous projects. This shift in cultural policy to celebrate Africanness may be as harmless as suggesting a vision for the healing of the whole of Africa; a moral and ethical desire for a continent “forgotten” by the Western/Northern; now remembered by its healthier appendage. (Mistry, 2001:18).

I also strongly believe that in addressing the issues of the country global expansion must confront its own prejudices, escalating xenophobia, immigration, and the newfound superiority emergent from its liberation and democracy. And this will be possible in a condition of political and economic security and stableness. While high expectations regarding the alleviation of poverty, the emancipation of women, a successful confront to the scourge of HIV disease, to the lack of technology and to the poorness of information and intellectual property, accompanied the advent of the new political dispensation in South Africa since 1994, little progress appears to have been made in this regard. (Mistry, 2001: 13).

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As this essay highlights, the pursuit of neoliberal policies that encourage foreign investments and the ”opening up” through deregulation of the national economy constrains the governments of the country from implementing policies aimed at combating the more obvious inequalities and disparities suffered by the impoverished majority of the population in South Africa.

Over time, the failure to adequately address these inequalities and disparities undermines the government’s popular support, political stability, and democratization in these societies. The urgency of addressing the growing inequality and social injustices in most parts of the contemporary global economic system has given rise to increasing calls for replacing this system at the global level, as well as the structures at the national and sub-national levels that provide the foundations for, reinforce, and/or are dependent upon the system. My hope is that the international community as a whole will address socially driven and sustainable policies in order to uniform the currently existing inequalities spared by a strongly liberal attitude, and an unskilled and precipitous state.

As the essays in this special issue indicate, the role of the state and the relationship of the domestic economy to the global economy constitute the essential elements that determine the development of the land, resources, and general welfare of the population of peripheral societies such as South Africa. Considering the situation in South Africa in the post-apartheid period, I am convinced that globalization has had a negative impact on the country’s economy, and consequently on the social aspects of itself. The usual challenges brought by globalization have not been treated and dominated in a good manner by the state, which demonstrated to be almost powerless in properly addressing the issue.

While substantial progress was made in other areas, such as access to safe water and sanitation, or coverage for social transfers like the old-age pension program, the government’s macroeconomic strategy failed to generate the projected growth and create enough jobs to bring down the high rate of unemployment. Even if the projected growth rates were achieved, it should not be assumed that substantial reductions in poverty would follow. Without a progressive shift in the expenditure distribution, even if South Africa grew at a remarkable annual rate of 8% per capita – similar to China’s growth rate in the 1990s – it would take approximately 10 years for the average poor household to escape poverty. Hence, it is unlikely that growth alone – without explicit poverty reduction strategies – could have lifted many South Africans out of poverty. South Africa needs to grow in a way that also improves the distribution of incomes if it is to make significant progress against poverty in the short to medium run. Some puzzles remain.

There are a myriad of challenges, as well as opportunities, associated with integration into the global economy, which was, in the case of South Africa, mostly driven by trade. Putting the economic policies in place that would make economies sufficiently flexible to accelerate their growth rates further and to strengthen their ability to respond to shocks is one of the challenges confronting the global economy today. Others include the need to adapt the

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multilateral framework, established in 1945, in a way that reflects the changing structure of the world economy; and the need to ensure that the benefits of globalization will accrue while being spread even more widely than has been the case hitherto.

Of course it should be said that these challenges also represents opportunities, like the one to consolidate what was achieved in the second half of the last century as we look ahead to further economic progress in the present one. Making the most of these opportunities requires, first and fore most, the pursuit of macroeconomic stability linked with pro-growth policies by national policymakers, which is something that they did not succeed in doing in the post-apartheid era in South Africa.

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