20th century AD

Social Research, Fall, 2005 by Vishnu Padayachee

In power, the ANC rapidly brought the sometimes dissident constituencies among its allies (COSATU, the South African Communist party) and some left ANC factions into line and consolidated its economic ideas around an essentially neoliberal program. This was first evident in the November RDP White Paper, which Adelzadeh and Padayachee (1994) described at the time as representing "a very significant compromise to the neoliberal 'trickle-down economic policy preferences of the old regime," despite assurances from ANC ministers that only the language of the old RDP had been changed to suit the new demands of governance (Adelzadeh and Padayachee, 1994: 2).

The Growth, Employment ,and Redistribution Strategy (GEAR) was published in the wake of the currency crisis in June 1996 (Ministry of Finance, 1996). As even senior state bureaucrats now admit, an orthodox macroeconomic policy was central to GEAR. Thus, for example, Alan Hirsch, a key figure in the policy world since the late 1980s and then at the Department of Trade and Industry, argued that, faced with new global realities, the ANC took the view that it had to "play the globalization game, but try to play it our way.... So we adopted a fairly orthodox set of policies," especially with respect to monetary, fiscal, and trade policy (Hirsch, n.d., 1-2). A key feature of the "our way" (according to Hirsch) was a "slew of supply-side measures" (1-2) regarding trade, industrial policy, and support for new investment, innovation, small business, and black economic empowerment.

The underlying premise of GEAR, which aimed to attain a growth rate of 6 percent annually and job creation growing annually to reach 400,000 by the year 2000, held that growth would best be promoted by freeing the private sector from the fetters of the distorted racist logic and constraints of the apartheid era. The essential need to remove all vestiges of a state-imposed, racially based economic order has been extended to argue for a much more sweeping "roiling back of the state." These include the abandonment of arguably important policies such as a discrete and effective public investment program, tariff protection for vulnerable industries, essential reform of the conglomerate-controlled domestic financial system, and the tightening of controls to prevent capital flight, among others (Michie and Padayachee, 1998: 627).

4. THE ECONOMIC RECORD, 1994-2004

Let us now sketch some of the major features of and changes in the key macroeconomic narrative in South Africa's first decade of democracy. We can break up the period into two distinct phases: the GEAR years of fairly orthodox economic policy (1996-1999), and a relatively more expansionary phase (2002-2004). First, the GEAR years.

Table 1 (which draws on Seidman-Magketla, 2001 and 2004) captures the essential data for the period between 1996 and 1999. What is striking about this data is that it shows government policy was remarkably successful in the areas of fiscal restraint, tariff reductions, and inflation control and stunningly off the mark on the real economy (growth and employment). Real interest rates remained higher and private sector investment lower than that projected on average for the period.