Patrick Bond responds

David, thanks for the time and trouble you went to in offering detailed rebuttals to the critiques of the dozen deals I felt Mandela should not have authorised during the 1990s. Here are my responses (in bold and with PB: to avoid confusion).



[Ed note: The initial critique by Bond is in italic, followed by DRL rebuttal in type. Read the first piece: The Devil in Patrick Bond’s policy time machine]

1. “The repayment of the US$25 billion apartheid-era foreign debt. This denied Mandela money to pay for basic needs of apartheid’s victims.” If you were one of the supporters of the Jubilee campaign against apartheid debt, campaigning alongside the late Dennis Brutus for the annulment of the apartheid regime’s accounts, like me, you would have been very disappointed. Mandela’s hands unfortunately were tied by international bankers, since a pre-requisite for accessing capital markets and finance, like any business, was repaying the loans taken out by the previous owner or regime. South Africa was not granted any leeway here, so strike one on a simple point of fact.

PB: The entire point of writing about Mandela’s ‘deals’ is that they did not have to be done. Most simply, to insist that “Mandela’s hands unfortunately were tied by international bankers” would mean that there is no way to question Odious Debt. That puts you to the right of the International Monetary Fund: In actual fact, plenty of countries have repudiated such debts, and in Mandela’s case it would have been relatively easy to gather hundreds of thousands of followers at Wall Street and the City of London in mid-1994 to force this issue, politically, had the neoliberals not persuaded him otherwise. Dennis Brutus, who worked at my centre in Durban the last five years of his life, always felt this deal – with the creditors – was the most revealing:,79

2. “Giving the South African Reserve Bank formal independence. This resulted in the insulation of the central bank’s officials from democratic accountability. It led to high interest rates and the deregulation of exchange controls.” Bit of a red-herring if you ask me (excuse the pun), there are really three parts to this assertion. Firstly independence does not mean absence of state control, rather, it stems from the idea of a separation of powers, in this case independence from interference by the executive. Do we really want an executive with keys to the treasury printing money whenever it feels so inclined? The latest debacle surrounding the appointment of the finance minister by the president provides a good case as to why the Reserve Bank and Treasury should not be beholden to any particular branch of the state, not least the party. Second, high interest rates are a factor of the currency, not simply policy, as we see today. We currently have the same repo rate as Papua New Guinea. All nations with higher interest rates such as Brazil and Russia are performing badly. Should our interest rates come down, Investec’s Brian Kantor certainly thinks so. Thirdly deregulation of exchange controls was an absolute necessity in order for finance to flow back into the country, luckily it did, and we experienced the longest post-war boom period in South African history, which came to an abrupt end in 2009. Was Mandela involved in any of these policy decisions? More likely it was Thabo Mbeki.

PB: If you read my point, you see that it refers not to “an executive with keys to the treasury printing money whenever it feels so inclined,” but to democratic accountability. The extremely high interest rates prevailing in South Africa are indeed a matter of SARB policy, and need to be challenged by democratic forces (the African National Congress does get votes but on economic policy it is easy to show how undemocratic its choices have been – far more influenced by Moody’s and other credit ratings agencies and financial institutions, than by the national mood).

PB: As for the argument that “deregulation of exchange controls was an absolute necessity in order for finance to flow back into the country,” this is factually wrong, because there were no exchange controls on inward financial flows in 1994. The relaxation of controls – especially the Finrand’s abolition in 1995 and the subsequent permission granted to the largest firms to delist their primary stock market residence in Johannesburg – did not affect incoming inflows. There are still very substantial exchange controls in place – on 75% of SA institutional investor (pension and insurance) funds, and that has no bearing on the choice of international investors to park hot money or long term investment in South Africa.

3. Borrowing $850 million from the International Monetary Fund in December 1993, with tough conditions persisting for years. These included rapid scrapping of import surcharges that had protected local industries, state spending cuts, lower public sector salaries and a decrease in wages across the board. So far as the IMF loan is concerned, I couldn’t agree more, but then where else would the country have borrowed the money? South Africa’s finances were in a precarious state in 1993, the IMF loan is arguably a factor of the interim administration under FW de Klerk. So far as the big bang opening up of our economy to international competition is concerned, nobody expected the sanctions-era to last forever, and not all surcharges were scrapped, we have only begun eliminating them, as the Agoa trade war confirms. Did the state cut spending? This allegation isn’t backed up with empirical data, on the contrary it would appear spending was ramped up, South Africa under Zuma currently spends 40% of its budget on salaries, so no Mr Bond, you’re demonstrably wrong. Decrease in wages? This one is debatable with the rand depreciation, wage value also decreases.

PB: The 1993 IMF loan was not necessary in any financial sense (as a fig leaf, it was termed a ‘drought relief’ balance-of-payments support loan but the drought was long finished) and besides, the premises behind this question – “where else would the country have borrowed the money?” – need to be examined. The IMF loan was granted not because SA was running out of $ reserves or gold at the time, but for psychological reasons, to give Mandela’s South Africa the appearance of playing by international rules for future borrowing purposes. But had he not repaid the $25 billion apartheid debt in subsequent years, that would not have been necessary. The vast inflows of hot-money (‘portfolio capital’) that you celebrate actually do much more harm than good, it is widely recognised (this is why the IMF supports capital controls now). In February 1996 when there was a rumour Mandela was ill, the rush to the door caused the currency crash that in turn brought on Gear. The 1994-98 period was one of worsening austerity and when the crash of 1998 hit, the fiscal shock was devastating, and led to cutbacks on basic water projects in rural South Africa to the great regret of the water minister (Kader Asmal) for whom I was then a budget advisor.

4. “Reappointing apartheid’s finance minister Derek Keys and Reserve Bank governor Chris Stals, who retained neoliberal policies.” Bond may have a point here but these appointments were really short-lived, since the ancien regime was quickly followed by Trevor Manual and Tito Mboweni, two home-grown black politicians. The main allegation could be better stated — Why did Mandela with very little political room, fail to make a clean break from the ancien regime, instead choosing a slow segue into the new era? This undoubtedly was a tough compromise which came out of CODESA. Did all this translate into retaining neoliberal policies? Not if one looks at the dirigiste economy, the many failed command-style, statist policies kept on by the ANC to the country’s detriment, one has only to look at the fate of SAA, Telkom, Eskom and other state (public-private partnership) monopolies, arguably worsened by listing on the market.

PB: For Keys and Stals, it is not correct to blame “a tough compromise which came out of CODESA.” In fact, it was at a meeting in early 1994 between Mandela (with his leading economic advisors) and IMF Managing Director Michel Camdessus where the latter told Mandela that he would have to reappoint Keys and Stals, because Mandela’s ANC was still not trusted. This was covered byBusiness Day’s fine journalist Greta Steyn at the time.

5. “Joining the World Trade Organisation on adverse terms, as a “transitional”, not developing economy. This led to the destruction of many clothing, textiles, appliances and other labour-intensive firms. ” I can’t argue here, how were the terms adverse and what does Bond mean, would appear to be nothing more than a semantic quibble attached to the same gripe under point 3, since we still get preferential treatment in terms of tariffs and trade via Agoa, as a developing nation. How is Mandela responsible for the World Trade Organisation?

PB: The adverse terms meant a much more rapid retraction of tariffs and quotas on imports (as ‘transitional’) than would have been required were SA ‘developing’. US Secretary of Commerce Ron Brown led the charge to get SA downgraded in November 1993 and by appealing to the US public over Bill Clinton’s and Brown’s head, Mandela could have fought that. (Agoa was only introduced in 2000 and if you get sick from diseased US chickens this year, you know where to look for blame.) As for this question, “How is Mandela responsible for the World Trade Organisation?,” it is a non sequitur.

6. “Lowering primary corporate taxes from 48% to 29% and maintaining countless white people’s and corporate privileges.” This one is a real chestnut, should the ANC have maintained high corporate taxes which would have further exacerbated capital flight? Lower rates resulted in an influx of corporate business, what would a better rate be, 35%? That the ANC protected the interests of various white persons and their corporate interests is one of life’s minor tragedies, I have only to point to the ongoing problem with Naspers. So plus 1 for Bond.

PB: Yes, the rate of taxation on corporate profit should have been kept high; lowering it so much did not result in Foreign Direct Investment and new fixed capital. The main flow of capital into South Africa was short-term hot money, with only a few mergers&acquisitions representing ‘FDI’, but these did no good (e.g. Telkom investors, Barclays Bank buying ABSA, etc). By 2013, the IMF noted that South Africa had one of the world’s highest corporate profit rates: Yet still, Global Financial Integrity last month accused SA corporates of Illicit Financial Flows averaging $21 billion/year during 2004-13: So yes, higher taxation is vital, especially given that the money SA corporates have kept within South Africa is not being invested in productive investment, but instead represents a R700 billion cash fund sitting idly in speculative outlets:

7. “Privatising parts of the state, such as Telkom, the state-owned telecommunications company.” Privatisation without elimination of the underlying monopoly is the real sin. The State via the PIC maintains a major shareholding in these entities, thus the correct phrase would be ‘partial privatisation’. Yes, the sorry tale of Telkom and SBC Malaysia is really an example of what can go horribly wrong when you have ‘too many chiefs and not enough Indians’.

PB: True, partial privatisation, but no, the sorry tale of Telkom is one in which private profiteering – an excessively influential motive for the Texans and Malaysians, with only a 30% stake, in part because the minister at the time (Jay Naidoo, 1996-99) was very weak – destroyed the company’s mandate to roll out fixed-line infrastructure to millions of poor households (the privatisers disconnected nearly all these because they set tariffs too high for affordability) and in the process devalued Telkon by $5 billion. Details are here:

8. “Relaxing exchange controls. This led to sustained outflows to rich people’s overseas accounts and a persistent current account deficit even during periods of trade surplus, and raising interest rates to unprecedented levels” South Africa now has more assets abroad in terms of value than inside the country, a result of relaxing exchange controls, the results can be seen in positive dividend inflows from abroad which fund business and contribute to the country, despite the economic climate. As for the deficit, running a deficit has been a policy of the ruling party for over two decades.

PB: Sorry, but the net outflow of dividends from South Africa far exceeds the inflow from SA firms and individuals abroad, by more than double. The SA Reserve Bank’s Quarterly Bulletin (second quarter 2015) listing of dividend outflows over inflows put the latter at just 45% of inflows. The balance of payments deficit that results from profits, dividends and interest flooding out is the main reason that we have such a huge current account deficit (even though the last couple of months have shown a moderate trade surplus). Yes, the ruling party’s policy has been to let this happen – but that policy is terribly destructive, as even the ruling party General Secretary admitted last year, in the case of Old Mutual:

9. “Adopting the neoliberal macroeconomic policy Gear. This policy not only failed on its own terms, it also caused developmental austerity.” If providing citizens with RDP homes in terms of Gear is a “neoliberal policy” then I am all in favour of neoliberalism, Bond once again demonstrating that he can’t see the wood for the trees. Is Gear responsible for “developmental austerity”? Would appreciate if Bond could expurgate on this point, since it appears to be a contradiction in terms.

PB: The Gear policy made it much harder to redistribute income. The RDP called for 5% of the SA budget to be spent on housing, but with Gear, any momentum that Joe Slovo tried to start before he died in 1995 was reversed, and housing did not get more than 1.5% of the budget during the Gear era. There are plenty of critiques of Gear available – e.g. mine here or the National Institute for Economic Policy’s here or some SACP dissidents’ here – but there is no doubt that the adoption of the Washington Consensus in mid-1996 led to declining per capita growth over the subsequent five years, to a massive increase in unemployment, and to redistribution from poor to rich. This was a policy of Decline, Unemployment and Polarisation Economics, not Gear but ‘Dupe.’

10. “Giving property rights dominance in the constitution, thereby limiting its usefulness for redress.” If Bond could supply us with a working alternative then by all means, but how does one create a legal system without property law and without removing the necessary distinction in law between those with title deeds and those without, and what about the pickle of stolen goods? There is nobody who seriously thinks the way forward is outright theft, though many would want to see greater redistribution of wealth. How to achieve this, if not via a social wage, rent stabilisation, income equalisation and a generous housing allowance?

PB: Yes, we agree that we need a genuine social wage – not the tiny tokenistic grants (children get US$0.67/day now, two thirds lower than even the World Bank’s notion of a universal poverty rate), or the housing subsidy that has generated huts further away from jobs than even during apartheid, often has as large as a 40 square meter ‘matchbox’ – and upward (not downward) wealth redistribution, but the overarching power of property rights does indeed empower the wealthy and corporations, as does granting ‘juristic personhood’ to the latter within the Bill of Rights. Leaving those clauses out of the Constitution is the ‘working alternative’ that would improve South Africa. Just one trivial example is the experience I had, suffering arrest on the Durban beachfront so that Sepp Blatter could exercise his property rights over that (once-public) space ahead of my rights to hand out anti-xenophobia leaflets:

11. “Approving the “demutualisation” of the two mega-insurers Old Mutual and Sanlam. It was the privatisation of historic mutual wealth for current share owners.” Bond merely demonstrates he doesn’t understand insurance, a mutual fund is for the mutual benefit of its members, when a fund demutualises, members receive a lump sum payout, usually with an option to invest the proceeds in another scheme, this has nothing to do with public money, Bond is thus wrong once again.

PB: A mutual fund is the aggregate (total) sum of all historical funds that have been collected. What the 1998-99 decision to demutualise the two main ones did was privately appropriate the historic investment commons that, according to the RDP mandate in 1994, should instead have been reinvested in socially-useful projects. Old Mutual took the funds abroad with its new London listing, a disaster:

12. “Permitting most of South Africa’s ten biggest companies to move their headquarters and primary listings abroad in the late 1990s. The results are permanent balance of payments deficits and corporate disloyalty to the society.” Comes down to a question of loyalty, should corporates be allowed to move their headquarters? Does it matter if a stock is primarily listed in rands or in a foreign currency? Stock in foreign currency strangely acts to help our balance of payments, the more so when our currency is devalued because of bad leadership and policy issues. None of the businesses one would assume Bond refers to have actually left the country. Building a Berlin wall isn’t conducive to business, if we can’t keep corporate headquarters here, we need to ask ourselves why, instead of bemoaning the fact that like many East Germans, corporates find life in the West preferable to living under a Marxist dictatorship. Again, all surely a question of corporate governance, and nothing to do with Mandela’s legacy?

PB: To this question – “should corporates be allowed to move their headquarters?” – the fact that the capital was largely accumulated during apartheid and that the corporations have permanently removed those funds, is an ethical and economic travesty. To this question – “Does it matter if a stock is primarily listed in rands or in a foreign currency?” – yes, as explained above, when SA private firms – especially Anglo, De Beers, Old Mutual, SAB, Investec, Didata, Gencor, Mondi, Sasol, Liberty, Richemont and others – move their financial headquarters abroad, the impact on the local economy is devastating. And to this point – “if we can’t keep corporate headquarters here, we need to ask ourselves why” – do you think the answer might include race, patriotism in terms of democracy (most relistings occurred after Mandela was released from jail), and a level of inequality that has become, for capital, potentially self-destructive?

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