Bridging the Gap Between Rich and Poor in South Africa

17–19 May 2000Sizanani CentreBronkhorstpruit

Introduction 5Bishop Kevin Dowling, Chairperson, Southern African Catholic Bishops’ Conference (SACBC),Justice and Peace Department

Welcoming Remarks 7Dr Michael Lange, Resident Representative, Konrad Adenauer Foundation – Johannesburg

Opening Remarks 11Bishop Hubert Bucher, Bishop of Bethlehem Diocese, Free State

Income Inequality and Unemployment in South Africa: Facts, Causes and Perspectives 13Prof. Charles Simkins, Department of Economics, University of Witwatersrand

Minimising the Gap Between Rich and Poor Through Democratic Local 27Development FinanceProf. Patrick Bond, School of Public and Development Management, University of Witwatersrand

Globalisation: Facts, Problems, Prospects 37Mr Elroy Paulus, Fair Share, School of Governance, University of the Western Cape

The Importance of a Basic Framework for a Sound – Effective and Social – 47Economic OrderProf. Franz Josef Stegmann, Professor of Christian Social Teaching, Bethlehem Social Academy

Recommendations from the SACBC Pastoral Statement “Economic Justice 57in South Africa”Bishop Kevin Dowling, Chairperson: SACBC Justice and Peace Department

The Biblical Jubilee Principle and the Relevance of Debt Cancellation for Redistribution 61Rev. Peter-John Pearson, Director: SACBC Parliamentary Liaison Office

Table of Contents

3

Women, Micro Job Creation and Self-Employment: The Experience of People's Dialogue 63Ms Iris Namo, Director: People's Dialogue

The Effectiveness of Social Security Systems in Reducing Inequality 71Prof. Hans Hemmer, World Economy and Social Ethics Study Group, German Catholic BishopsConference

AnnexeEconomic Justice in South Africa: A Pastoral Statement 73

Programme 99

Participants’ List 101

Seminar Reports 105

Occasional Paper Series 107

4

Table of Contents

The conference Bridging the Gap Between Rich and Poor in South Africa was held at the SizananiCentre, Bronkhorstpruit on 17–19 May 2000. It was organised by the Economics Desk: Justice andPeace Department of the Southern African Catholic Bishop’s Conference, together with the BethlehemSocial Academy and the Konrad Adenauer Foundation.

The conference was held, we believe, at an important time in our country’s history. After the inaugura-tion of the new dispensation and as part of the economic transformation of South African society, wehad to search critically for strategies to bridge the gap between rich and poor in this country.

The Justice and Peace Department believes it is important for local people to be involved with localgovernment in the process of transformation, since this is their democratic right according to thenational constitution. Economic literacy is therefore one of our main programmes, the aim of which isto help people play a more meaningful role in their communities.

We believe this conference and this compendium of the conference proceedings takes us to a new levelof debate on economic issues.

Bishop Kevin DowlingBishop of Rustenburg, Northwest ProvinceChairperson, Southern African Catholic Bishops’ Conference, Justice and Peace Department

5

Introduction

INTRODUCTIONOn behalf of the Konrad Adenauer Foundation(KAF), I would like to extend a very warmwelcome to you all. It is a great pleasure tocooperate for the first time with the BethlehemSocial Academy and the Justice and PeaceDepartment of the South African CatholicBishops’ Conference. We hope this colloquium– Bridging the Gap Between Rich and Poor inSouth Africa – will mark the start of a moreintense working relationship with both theseorganisations, particularly when they choose totackle issues that form part and parcel ofKAF’s ongoing efforts to contribute to the suc-cessful socio-economic transition of this coun-try.

1. BACKGROUNDFor those not familiar with KAF, allow me toprovide a brief background to the Germanpolitical foundations and to outline some of theactivities that our Foundation is involved in, inSouth Africa.

The German political foundations are aunique feature of today's democratic culture inGermany. The move behind their creation,which dates back to the 1960s, was the expec-tation that political or civic education wouldhelp develop and consolidate democracy inpost-war Germany.

Both in Germany and abroad, the founda-tions seek to further development and encour-age people to play an active part in the politicaland social lives of their communities. Theyassist in strengthening the concept of humanrights and help to implement social justice andthe rule of law.

KAF is one of five political foundations inGermany today and is closely affiliated to theChristian Democratic Union Party – a centristpolitical party in Germany.

The Foundation proudly bears the name ofone of the founding members of the ChristianDemocratic Union Party, Konrad Adenauer,who became the first Chancellor of post-warGermany. Our work still reflects the spirit ofthis remarkable German statesman.

KAF has been cooperating with partnersthroughout the world for more than 35 years.Some 85 representatives of the Foundationworking abroad, oversee some 200 projects andprogrammes in more than 100 countries. In thisway, we believe we are actively assuming ashare of responsibility for shaping internationalrelations.

2. KAF IN SOUTH AFRICAIn South Africa, the Foundation cooperates notonly with political parties and their respectivethink-tanks, but also with reputable educationand research institutions. It has wide-rangingprogrammes in different provinces in SouthAfrica.

In the political realm, our main projects con-centrate on: constitutional development atnational, provincial and local levels; policyaspects of local development; and the trainingof government officials and councillors. Wealso assist provincial governments in theirattempts to integrate their different localadministrations.

In the economic realm, we engage primarilyin what we call “economic policy dialogue”regarding economic systems, such as the

7

Welcoming Remarks

Michael Lange

8

Lange

German social market economy. The aim ofthis dialogue is to clarify the fundamental ele-ments of the social market economy as an eco-nomic approach, combining the principle ofeconomic freedom with that of social equality.

KAF believes very strongly that the socialmarket economy as an economic system has noparallel with regard to its ability to facilitate theimplementation of concepts such as personalfreedom, equality of opportunity, private own-ership, growing prosperity and social progressfor all citizens of a country.

3. RECENT DEVELOPMENTA rapid change has taken place in Africa sincethe end of the Cold War. Almost the entire con-tinent has in an amazingly short time maderemarkable progress towards political participa-tion and economic emancipation.

While the former is proceeding at a slow,sometimes barely recognisable pace, the latterhas increasingly gained momentum over thepast few years, as can be seen by the economicpolicies of erstwhile socialist or even commu-nist regimes in Zambia and Moçambique.

Even the African National Congress (ANC)has over the past couple of years implemented aturnaround in its economic policy from therather state-driven, market-assisted Recon-struction and Development Programme (RDP)to the more market-driven, state-assistedGrowth, Employment and Redistribution(Gear) strategy. The ANC (albeit belatedly)realised that in the economic reality of a global-ising world economy, governments will nolonger be able to guarantee lasting employment– this can only be done with the help of entre-preneurs and the private sector.

There has simultaneously been an emergingconsensus that the key test of the success ofSouth Africa’s democracy will be how and towhat extent the government – or society – willeffectively deal with the problem of povertyalleviation.

Recent polls are proof of the fact that theimplementation of democracy and the rule oflaw, together with the economic transformationof South Africa, cannot be continuously imple-mented without causing frustration and disap-pointment to many who – since the electionvictory of the governing parties – yearn forinstant material rewards.

This is even more understandable in light of

the fact that some 19 million South Africans,representing almost half of the population, mustbe considered poor in the sense that theirincomes fall below the poverty line. SouthAfrica’s Gini-coefficient – a measure forinequality in a society – is considered to be oneof the highest in the world.

This means that the top 20% of the SouthAfrican population accounts for 70% of nation-al expenditure, while the bottom 20% accountsfor a mere one per cent. This makes SouthAfrica one of the countries with the highestinequality of income in the world.

4. GULF BETWEEN RICH AND POORA recently published United Nations (UN)report indicated that if one takes ‘white SouthAfrica’ as a country on its own in a ranking ofper capita income groups, the country wouldoccupy 13th place next to Spain. If, however,one did the same with ‘black South Africa’, thecountry would occupy 113th place next to theDemocratic Republic of Congo (DRC).

Recent studies have shown that the gulfbetween South Africa’s rich and poor haswidened since the first democratic elections in1994. Analysts from economic consultancyagents WEFA Southern Africa stated in areport that the growth in inequality stems fromworld trends, including industrial restructuringin the face of fierce international competition,combined with a decreasing demand forunskilled labour and an increasing demand forprofessional skills.

A study on income distribution conductedbetween 1991 and 1996 shows that the richcontinued to get richer, while the poor – espe-cially in the black community – lost furtherground.

The study specifies that although the ‘black’sshare’ of national income rose to 35.7% in1996 from 29.9% in 1991, the ‘white’s share’during the same period fell from 59.5% to51.9%; more than 90% of the increase in theincome of blacks stemmed from economicgrowth – sluggish as it has often been – withless than 10% attributable to a redistributionaway from whites.

Many – not least the president of this country– therefore continue to speak of a persisting‘economic apartheid’, where it seems that theSouth Africa of today is less of a rainbownation and more of a country of two nations;

9

Lange

one predominantly white and relatively pros-perous, and another predominantly black andrelatively poor.

We also have to realise that the changing faceof wealth in South Africa has mostly benefitedan emerging black middle class, with the pro-portion of black households in the richest 10%increasing from a mere 2% in 1975, to 9% in1991 and reaching an astonishing 22% in 1996.

At the same time, the black poor becameworse off, with the poorest 40% of blackhouseholds seeing a 20% drop in their incomefrom 1991 to 1996. As a result, the authorscame to the conclusion that inequality withinthe African community is almost as great aswithin the whole country.

While the creation of a black middle classmay be high on the agenda of the ruling party,growing inequality is bad news for a govern-ment dedicated to creating a better life for all.

While government policies of poverty allevi-ation – for example, the provision of housingfor lower-income families and running waterfor the rural poor – may soften the harshereffects of poverty, these policies do not closethe widening income gap.

This gap is the result of job losses in the for-mal sector and the shift towards higher skills.The gold mining industry has, for example,shed more than 200 000 jobs from a peak of530 000 in 1987. Even when the economy grewby 1.7% in 1997 another 142 000 jobs werelost, while the labour force grew by about 320 000 that year alone. Companies thatenjoyed state protection during the apartheidera now find themselves exposed to globalcompetition. As a result, jobs continue to belost and newcomers to the shrinking job marketare forced to join the swelling ranks of theunemployed.

Unemployment today stands at between 23%and 38% of the labour force, depending on thedefinition of unemployment used. These ratesseem to many to be unacceptable.

At the same time, however, we are witness-ing further retrenchments in the public sectorand more restrictive labour legislation, which isfrustrating efforts by the private sector toemploy more people.

It should also be remembered, however, thatbetween 1991 and 1996, there was an 80%increase in blacks employed in highly skilledoccupations, making full use of both affirma-

tive action and the growing premium placed onthe scarce skills they possess.

It is obvious that so far only the educatedurban black elite and middle class have gainedfrom the socio-economic realities of the newSouth Africa. The promised better life for allstill eludes the majority of poor people in thiscountry.

A fair distribution of economic opportunity,and as a result income, is a prime element of asocial market economy and therefore an indis-pensable policy concern to us. It is here that wesee a role for the state, namely to ensure equali-ty of opportunity (not outcome) and to assistwith tax measures so that the proceeds of acountry’s economic wealth is distributed moreequitably.

While we encourage the government toremain committed to its economic policyframework of restructuring the public sectorand pursuing financial discipline, surveys andopinion polls show that crime is of foremostconcern to most, if not all, South Africans.What seems true, however, is that aspects suchas crime, poverty and unemployment are inter-related.

5. CHALLENGESMany say that the rule of law has all but disap-peared. Criminals seem better protected underthe new law of the land (the constitution) thanthe average law-abiding citizen. Some profes-sional observers of the crime wave have evenwarned that the situation has moved dangerous-ly close to anarchy.

If we define tyranny as the ‘public orderwithout freedom’ and anarchy as ‘freedomwithout public order’ we somehow seem to wit-ness in the South Africa of today, the formerbeing replaced by the latter. We cannot believethat the people of this country have struggledagainst the tyranny of apartheid, only to have tolive with the anarchy of crime.

Nevertheless, in the case of South Africa it ispuzzling to me that when processes of politicaland societal transformation aimed at the creation of democratic market economy sys-tems are intensifying all over the world, thereare still ministers, trade unionists and party rep-resentatives, who seem to have missed the pointand are perceived to be holding in high regard,nostalgic ideas of social engineering .

The government pronouncing itself worried

10

Lange

about the fate of the poor and unemployed, hasat least until recently, jumped to meet thedemands of the trade unions which – as we allknow – represent the privileged few peoplewho already have jobs, while forgetting aboutthe unemployed. A country which so badlyneeds foreign long-term investment capital canill afford a situation where crime, and the cli-mate of fear resulting from it, is increasinglybecoming an effective discouragement for for-eign and local investment.

One need not be an economist to realise thatthe urgently needed millions of jobs will onlybe created if a climate exists that is conducivefor existing businesses to grow and for entre-preneurs to invest their money in new enterpris-es.

With the collapse of communism, marketeconomies have proved their superiority asengines of human prosperity. The benefits of asocial market economy are being increasinglyrecognised not only worldwide, but in Africa aswell.

CONCLUSIONIn view of the current situation in Zimbabwe, Itrust we share the conviction that the process oftransformation will be successful only if

democracy, the rule of law, and the principle ofa just participation in the economic develop-ment of the country by all sectors of society areunderstood, accepted and continuously imple-mented.

Building and maintaining a strong and endur-ing democracy will depend on a continuingcommitment by all segments of South Africa’sdiverse population to reconciliation and far-reaching economic and social transformation.

The purpose of this workshop is to allowexperts from different backgrounds to producea common understanding of all issues involvedand to attempt a thorough discussion of theways to cope with the challenges posed by thewidening gap between rich and poor in SouthAfrica.

Let today’s workshop be an example of themuch needed cooperation between governmentand civil society, in analysing the situation andits effect on the fabric of South Africa’s soci-ety. Let this workshop be our humble contribu-tion to the quest for peace and justice in SouthAfrica.

KAF is willing to contribute to this process. Ican only hope that at the end of today you con-sider our workshop to have been an interestingand worthwhile event.

INTRODUCTIONIt is more than a coincidence that the German-based Konrad Adenauer Foundation is co-host-ing this conference with the Bethlehem SocialAcademy and the Justice and Peace Depart-ment of the Southern African CatholicBishop’s Conference.

It was Konrad Adenauer – the first chancel-lor of the Federal Republic of Germany – who,together with his Minister of Economic AffairsLudwig Erhard, was the architect of Germany’srenaissance after the country’s military defeatin 1945. The engine behind that renaissance –which was soon to be acclaimed as the“German economic miracle” – was Germany’ssocial market economy: a policy aimed atsecuring prosperity for all the country’s inhabi-tants.

1. CONCEPTS AND REALITYIn South Africa, President Thabo Mbekirecently initiated the much vaunted talk aboutthe “African Renaissance”. It is one of thosebuzz words, so typical of the new South Africa.Like archbishop Tutu’s reference to SouthAfricans as the “Rainbow Nation”, ThaboMbeki’s talk about the ‘African Renaissance’quickly gripped the people’s imagination andhas since entered into our every day vocabu-lary.

However, just as the beautiful concept of the

“Rainbow Nation” has not itself done awaywith taxi violence and frequent wildcat strikes,talk of the “African Renaissance” will not heallike magic our nation’s wounded social fabricand endow it with a vibrant economy.

South African’s have experienced their own“miracle”, when under the unbelieving eyes ofthe world they accomplished the peacefultransformation of their society from itsapartheid past to a democratic dispensation,which is the envy of many other countries onthe continent and beyond. What we have yet toachieve, however, is to bridge the enormousgap that exists between the very wealthy andthose at the bottom end of the income range,which is another legacy of our country’spainful history.

CONCLUSIONSocial academics, acting as think-tanks, playedan important role in post-war Germany takingthe road of its successful social market econo-my. It is our hope that the Bethlehem SocialAcademy, in a small way, may be able to assistSouth Africa in addressing its many pressingsocial woes.

Let us strive to sent out a message that willhelp South African society become more cen-tered on the demands of justice and, in conse-quence, make our country a better place to livein for all its inhabitants.

11

Opening Remarks

Hubert Bucher

INTRODUCTIONBy far the greater part of the post-apartheidelectorate look forward not only to better livesbut to a society in which inequalities are lessstark and less racially structured than before.The government responds to this aspiration bystressing that many of its programmes – bothregulatory and direct provision – are shaped bythese ends. The claim is reasonable, though theextent and nature (particularly width versusdepth of redistribution) of the change is not yetclear. Of course, the government itself is con-strained in what it can achieve, both by thedemands of macroeconomic balance and thelimits on state capacity.

At the same time, there are aspects of theeconomy not determined by current govern-ment policy. The international economy pro-vides both opportunities and threats for thegoal of poverty and inequality reduction. Sofar, the South African economy has beenaffected less than many middle-income coun-tries by the international financial turbulence of1998, but a sharp rise in interest rates is likelyto choke off growth for a year or so (bad newsfor an economy which struggles to achieve aneconomic growth rate in excess of the popula-tion growth rate), putting pressure on govern-ment spending programmes and pushing out bya year the achievement of the target budgetdeficit. Equally, the distribution of endow-ments and the structure of the economy at theend of the apartheid era (the inheritance) mustbe regarded as exogenous to current govern-ment policy.

There are therefore questions to be askedabout the speed and limits of changes in

inequality (here conceptualised as the distribu-tion of income among households). Howquickly will changes take place? Will there bea new equilibrium level of inequality? If so, itis likely to be lower than at present, but will itbe still at a relatively high level by internation-al standards? Or will it decline more or lesscontinuously over decades? Against the back-ground of these questions, what would count asa good performance by a government trying toreduce poverty and inequality?

Answers to these questions will emerge overtime.

Measurement is crucial. There are severalsources of information, all of them incompleteand defective to some degree.

The art of measurement lies in painstakingreconciliation of information (which is some-times years in arrears), supplemented by theuse of judgement. Up to now, the margin oferror has been much wider than one would like,making estimates controversial.

Information has, however, improved recent-ly, partly because of new surveys inspired by agreater official interest in income distributionand poverty, and partly because (unlike the past20 years of apartheid), the whole country isnow covered in public and private sectorsources. But the delays remain, and it will besome years before the changes in the first fiveyears after apartheid can be identified.

Measurement must be informed by a sense ofwhat one is looking for. So a discussion ofmechanisms producing poverty and inequalityoutcomes is crucial, too. It is with a prelimi-nary identification of these mechanisms thatthe current study is concerned.

13

Income Inequality and Unemployment in South Africa: Facts, Causes

and Perspectives

Charles Simkins

14

Simkins

1. THE MAIN COMPONENTS OF THE ANALYSISWhatever one thinks of the detailed argumentsin Charles Tilly’s Durable Inequality, the bookat least raises an interesting and importantquestion for South Africans: what are the socialmechanisms which reproduce inequality overtime? One possible answer to that question isthat inequality of material outcomes merelyreflects inequality of natural talents; that, ofcourse, is not Tilly’s view. His explanationmakes use of the notion of categorical inequali-ty (categories being constituted by asymmetri-cal relations across a socially recognised divid-ing line), with the associated mechanisms ofexploitation, opportunity hoarding, emulationand adaptation. It is important to note that cate-gorical inequality is not a feature of many stan-dard models of a competitive capitalist econo-my.

Indeed, there is a degree of ambiguity in theimplicit normative backdrop of Tilly’s book: isit a perfectly competitive capitalist system orsome form of social democracy? However, it isclear that a racially stratified society offersmany examples of what Tilly expounds in gen-eral terms, and the index to his book shows thatthe number of references to South Africa is sec-ond only to entries for the United States (US).

Tilly’s central concern in the book is theoreti-cal, but he does offer the prediction aboutSouth Africa that:

“Over the medium run, [the] shift in politi-cal power will most likely cause someequalisation in wealth, income, education,health, housing and living conditions acrosswhat had been one of the world’s starkestdivisions of categorical inequality” (p 228).

The “shift in political power” includes the dis-mantling of the racial estate system whichunderpinned a whole range of categoricalinequalities. In fact, it is possible to argue (asJohn Kane-Berman does in his Silent Revolu-tion) that these inequalities were being alteredin the two decades before the abolition ofapartheid as a political system. Much of thisperiod can be characterised as a time of eco-nomic liberalisation. Moreover, the post-apartheid adjustment in the pattern of inequalitywill not be instantaneous, as Tilly implicitlyrecognises.

There is plenty to do to elaborate, debate andcriticise Tilly’s prediction. The issues includethe following:

• A discussion of the levels and trends ofinequality in personal income and wealth.While it is not the purpose of this study toadd to the measurement literature, it is worthbriefly recounting its main findings. Racialshares of personal income were first estimat-ed by Lehfeldt from data for 1917; betweenthen and 1970, racial shares were more orless constant, with Whites receiving about70% of personal income, Africans about20% and coloureds and Asians the rest(McGrath, 1982). Since 1970, these shareshave shifted, with whites receiving about52% in 1995, Africans about 34% andcoloureds and Asians the rest. (These are theauthor’s estimates. Whiteford and McGrathestimate the shares at 61% for whites and28% for Africans in 1991. Some of the dis-crepancy between the estimates can beexplained by the difference in the dates, but itis implausible that all of it can. Whitefordand McGrath relied on the 1991 Census,whereas the estimates for 1995 are puttogether from a number of sources.) Recentestimates of the Gini coefficient vary fromabout 0.58 to 0.68 for all households; thelevel for African households is not muchlower. Narrowing relative gaps between theraces may be accompanied by increasing rel-ative inequality among Africans. Estimates ofthe proportion of households living in pover-ty depend on the poverty line used; the pro-portion below the least generous regularlycalculated line (the minimum living level –MLL) is between 35% and 40%. The povertygap (the money required to bring each house-hold below the MLL exactly up to it) is of theorder of 8% of personal income. The onlystudy of the distribution of wealth we have,dates from the 1970s, when application of theestate-multiplier method by McGrathassigned 88% of personal wealth to Whites.

Up to the mid-1990s, measurement hasbeen made difficult by limited, spotty andoften not very accurate data; analysts coulddo no more than produce synthetic estimatesfrom a number of sources, and identificationof trends has been (and remains) controver-sial.

There is now greater government interestin collecting relevant information than thereused to be: the October Household Surveyssince 1994 (and particularly the Income and

15

Simkins

Expenditure Survey which accompanied the1995 October Household Survey) and theshortly to be released 1996 PopulationCensus are all sources capable of sheddingnew light on the issues. The constraint nowmay be analytical interest and capacity ratherthan information.

• An analysis of the determinants of incomeinequality. The salience of race (found in allsocial, economic and political studies ofSouth Africa) is greater than usual when itcomes to the analysis of inequality. But thereare other determinants to consider. A coupleof decades ago, Adelman and Morris (1967)noted that mining-led economies tended tohave high levels of inequality, and there ismore recent literature on the subject (e.g.Auty,1997). This suggests that economieswith high levels of natural resources in theirexports grow more slowly than othereconomies, that policy error is more likely inresource-based economies, that periods ofdeclining real wages are more likely to occurin resource-based economies (the “stapletrap”), that income inequality is likely to behigher in low and middle income resource-rich countries than in their resource-deficientcounterparts and that rates of human andsocial capital formation may be slow inresource-rich countries. This line of argumentis not without its critics (just what are themechanisms which produce these outcomes?)but may provide some insights into the SouthAfrican case.

Related issues arise from the structure ofcommodity-exporting, import-substitutingeconomies with high tariff barriers, especial-ly with an oligopolistic industrial structure.One can imagine a number of inequality-pro-ducing mechanisms in such a system. (And,indeed, there is literature on the political con-sequences of liberalising such a system andtransforming it into an export-oriented econo-my. Some analysts – notably those whosought to explain the 1970s Latin American“bureaucratic authoritarianism” – see, forinstance, Schmitter (1973) – have thoughtthat this entails increasing inequality, withconsequent dangers for democracy. What theconsequence of the recent South African pol-icy mix is for inequality is hard to predict.Orthodox fiscal and monetary policy and par-tial trade and capital account liberalisation

have been accompanied by increasing labourmarket regulation – an unusual mix.) Thesedebates have had virtually no resonance sofar in the South African literature. But theyare important, because they bear on the limitsof feasible change.

Also to be considered are the travails ofupper-lower middle and upper middle incomecountries when it comes to sustaining growth.An alarming number of them have shown atendency for real per capita incomes to fallover much of the period since 1980. Even themost promising category (East Asian) is cur-rently stumbling in a way that was not antici-pated a few years ago.

• A debate about policies to reduce inequalityand poverty. Of course, within this broadband there is more than one way to specifyobjectives. Two aspects of policy need con-stant stressing in South Africa: (a) the unin-tended consequences of seemingly attractivepolicy options; and (b) an accurate assess-ment of available policy instruments. Themethod of analysing the consequence of statepolicies by predicting the best response ofmaximising individuals and firms to new pol-icy rules is not in wide use; not surprisingly,a simple command and obedience model stillsatisfies most intuitions. Nor is there much ofa sense of where the system is positioned onthe equity-efficiency frontier. Even underapartheid, the fiscal system redistributedfrom white to black and from rich to poor,and recent reforms have strengthened theflow.

And what are we to make of efficiency wherereal per capita income fell by close to 20%between 1976 and 1994, and post-1994 eco-nomic growth has struggled to keep ahead ofpopulation growth? A sort of Zimbabwean-isation of the South African economy (i.e., asituation where the private sector starts to col-lapse under heavy state intervention) must beregarded as an ever-present threat, but there islittle in the way of analysis of political and eco-nomic factors which might keep South Africafrom that path.

When it comes to policy instruments, statecapacity is the key concern. One thing the cur-rent government has in common with itsapartheid predecessor is a tendency to overesti-mate what the state can achieve. (This com-monality arises as a consequence of a sort of

16

Simkins

amour propre, a comfortable self-justifyingideology, when a nationalist movement cap-tures the state and uses it as an instrument forgroup enrichment. In the end, however, limitedstate capacity softened apartheid. It might alsosoften some of the less desirable policies of thenew government.) Policy proposals in contem-porary South Africa which require much statecapacity to monitor and to intervene must belooked at with some scepticism when it comesto predicting their effectiveness.

From a political economy point of view,there is the danger that South Africa could endup in the way that David Landes describesArgentina in the 20th century:

“Labour was not happy and took to thoseideological nostrums ... which are therevenge of the powerless. This alienation[can be attributed] to the discrepancybetween economic backwardness and socialindifference on the one hand, political pre-cocity on the other. The people wanted whatneither economy nor state could give” (TheWealth and Poverty of Nations, WWNorton, 1998: 327).

A fourth direction of enquiry (and the one towhich the rest of this study will be devoted) isto ask about the persistence of apartheid’s foot-print in the sand of poverty and inequality.Apartheid, in this connection, has to be con-ceived of as a set of state interventions(between 1948 and 1994) in the economy andsociety.

2. APARTHEID’S FOOTPRINT: GENERALIn thinking about persistence, the followingissues have to be confronted:• Insofar as accumulations of wealth are the

basis of persistence, in whose economicinterests was apartheid? Lundahl andWadensjo (1984), for instance, argued con-vincingly that whites were not uniformly thebeneficiaries of apartheid and blacks did notuniformly pay the price. A complex patternof differential incidence of costs and benefitshave made compensation-based approachesto adjustments in the distribution of wealthand income practically impossible in mostfields.

It is worth noting that while compensation-type claims have been made post-1990, thesehave really consisted of (a) appeals for helpfrom those currently with wealth, whether

there is a real compensation claim against itor not and (b) moves in the predator–preygame between a new government and minori-ty wealth holders. This game has a logic ofits own, quite different from a compensationlogic.

Nor do compensatory adjustments neces-sarily point in the same direction as develop-mental policies; land reform is a case inpoint. Allocation of land in compensation forremovals under apartheid will not necessarilyfurther agricultural development. Survey evi-dence before the process started and currentexperience both indicate that such land mayvery well be used for residential rather thanagricultural purposes.

• How rapid is the speed of adjustment oncecircumstance change? South Africa’s rela-tively well-developed financial markets, forinstance, are quite quick to adjust to new cir-cumstances. Wealth in the form of claims tofinancial assets at some time in the future viapension or provident funds has accrued tomany black people as (a) the occupationaldistribution has changed, (b) the access ofblack people to higher level occupations hasincreased and (c) industrial relations havebecome more modern. Accompanying thischange has been the transformation of morethan one trade unionist to an asset manager.Financial engineering of one sort or anotherquite rapidly gave black control to 10% ofthe assets on the Johannesburg StockExchange (JSE) in 1998. Beneficial owner-ship stood at about 4% at the same time. InFebruary 1998, there were 53 black-led com-panies listed on the JSE with a total marketcapitalisation of R111 billion. The compara-ble figures at the end of 1996 were 33 com-panies with a market capitalisation of R58billion; in November 1994 there were eightcompanies with a market capitalisation ofR3.5 billion. These figures refer only to listedcompanies; the small business sector alsoincludes many businesses run and/or ownedby black people. (SAIRR, 1998). The highgearing exposes some owners to substantialrisk; nonetheless, change testifies to the effi-ciency of South African financial markets.

• Apartheid cannot be conceived of as a uni-form 46-year block of time. It took someyears after 1948 for sufficient state control tobe built up to implement key planks of the

17

Simkins

initial National Party (NP) programme. The1953 and (to a lesser extent) the 1958 elec-tions were serious competitions and NP rulethroughout the 1950s was subject to openextra-parliamentary competition. For only adozen years (from the post-Sharpeville crack-down in 1961 to the Durban strikes in 1973)was there little sign of organised domesticblack contestation. The Verwoerdian inelasticfunding of black education introduced in1954 came to an end 15 years later.

The tough stance on influx control was effec-tive for only slightly longer – from the mid-1950s to the mid-1970s. Some effects ofapartheid on inequality arose only in the periodduring which apartheid was in its clear and ter-minal decline – from 1984 onwards.

3. APARTHEID’S FOOTPRINT: SPATIAL SEPARATIONThe most grandiose aim of apartheid was terri-torial separation of the races and, while the lib-erals argued that this goal could not beachieved (the attempt ultimately leading to thedemise of the system), the effects of apartheidpolicy on the spatial distribution of the popula-tion were nonetheless great and their conse-quences should not neglected. Between 1960and 1970, the net movement of Africans to thecities was stopped or even slightly reversed.From the 1950s on, there was a massive rural-to-rural migration from the “white” farms to thereserves/homelands/Bantustans/national andindependent states. In 1950, 39% of Africanslived in reserves and 35% on the farms; by1985, these proportions had changed to 53%and 12%, respectively. (There are some bound-ary changes to be taken into account; nonethe-less, the change was spectacular.) Net emigra-tion from the commercial farms may be contin-uing to this day. There were certainly interven-tionist pushes in the form of relocation of peo-ple from “black spots” (isolated reserve areas)as well as labour determined to be surplus oncommercial farms. Technological change alsomeant reducing farmer needs for regularemployees as well as casual workers and labourtenants.

Rising population density in the reserves ledto a complex pattern of urbanisation there,ranging from formal townships and dense set-tlements on the fringes of some cities (Durban,Pietermaritzburg, Bloemfontein and East

London), to “betterment villages” (rationalisa-tion of agricultural holdings, with inhabitantssettled in villages), and “closer settlements”(often sites to which people were removed fromother areas). Formal settlement, together withinformal settlement and the growth of singleaccommodation in hostels, created a complexspectrum (a recent Centre for Development andEnterprise study for the Department ofTransport suggested a 14-item typology.) Someof this urbanisation must be regarded as “dis-placed”, in the sense that people would havesettled closer to the core urban areas had theybeen allowed to. Displacement means separa-tion between people and work opportunities,creating a structural impact on unemployment.

The interesting thing about this configurationnow, is its apparent stability. Anxious calcula-tions about flows to cities were done in the yearsimmediately before the repeal of the pass laws in1986, but it now appears that urbanisation in thedecade after that date was no faster (and possiblyslower) than in the decade before it.

The stabilising factor seems to be mainly theinvestment people have made in housing (oftenequivalent to a year or more’s wages) for whichthere is effectively no market. Transport (bus,and to some extent, rail) subsidies were alsoused to make commuting from displaced urbanareas to centres of employment affordable, butthese matter less with the rise of the private,unsubsidised taxi industry; the subsidies stillexist but are spread in a way that is by nowhighly arbitrary.

Given a complex range of settlement forms,one really needs a defensible and empiricallygrounded settlement typology and an associatedmeasure of “remoteness”, to replace the currenturban/non-urban distinction (based essentiallyon an administrative criterion) as an index ofspatial disadvantage. The l996 PopulationCensus offers new opportunities for analysis ofthis sort. Its some 86 000 enumerator areas arenow mapped on to a geographical informationsystem (GIS); the impetus for producing theGIS came not from the census itself but fromthe Independent Electoral Commission plan-ning for the May 1999 election.

Reconceptualisation of South Africa’s settle-ment geography could have a number of usefulspin-offs, including forming a basis for a morecoherent strategy for allocating public invest-ment (and support for its continuing operation)

18

Simkins

outside South Africa’s cities and large towns.The practical issue here is how far one can takerural development, and how one sequences andintegrates it. Early Reconstruction andDevelopment Programme (RDP) efforts all ranthe risk of waste from lack of information andprioritisation. Moreover, maintenance of publicinvestments is a major issue. It is only in thecurrent 1998/99 financial year that rationalisa-tion of central government grants to localauthorities for operating expenditures hasbegun. The formula used for allocation reflect-ed the fact that, within state budgetary con-straints, it is possible only to support democrat-ic institutions and to subvert operating expendi-tures on basic services to the poorest third ofSouth Africa’s households.

An associated (and currently unclear) issue isthe current status of migrant labour, whichsplits households at least during the workingweek and often much longer. Apartheid, ofcourse, encouraged it as a means of retardingAfrican urban settlement. One of the early pro-jects of the new government was to upgrademunicipal hostels, often turning them into fami-ly accommodation. The indications from the1995 October Household Survey is that migrantlabour has contracted considerably, but this canbe taken only as a provisional results. Theanswers to the question specifically aboutmigrant labour do not add up and there remainworries about the October Household Survey’ssample frame’s coverage of (mostly male) “sin-gle” African households. The ratios of womento men in the preliminary results of the 1996Census and in a recent Human SciencesResearch Council survey from the IndependentElectoral Commission are high (55:45) andsuggest either that some men are systematicallybeing missed or that adult male mortality isremarkably high. All this matters for incomedistribution because (a) methodologically,treatment of split households affects the com-putation of standard measures of incomeinequality and (b) substantively, a decline inmigrant labour may leave remote rural commu-nities more marginalised and without sources ofincome than before.

Indeed, from the point of view of empiricallybased analysis, the end of apartheid has meantthe end of the apartheid ideal-type of the splithousehold, with individual workers in citiesand towns remitting to households of origin on

the farms and in the homelands. Consider thecase of E, a domestic worker with roots in theCiskei, but working in Johannesburg. Underapartheid, it would have been natural to assumethat a proportion of E’s income (estimated fromsurvey data) would have been remitted to ahousehold in the Ciskei. E’s current situation isa lot more complicated. She has four children:one daughter died in a taxi accident a few yearsago, leaving E with a granddaughter (N) to lookafter. A second daughter, Y, is periodicallymentally ill; she in turn has a daughter (T). Ysometimes gets a disability grant. When Y iswell, she is able to look after N and T in ashack in Orange Farm, an informal settlement50 km south of Johannesburg. They are joinedby S, E’s adult son and D, E’s last son, still achild. E’s three-generation family no longer hasany component in Ciskei, though E’s sisterlives there and hosts E for her annual holiday.E, N, Y, T and D essentially depend on E’sincome, supplemented by Y’s disability grantwhen it gets paid, and S’s contribution (now thefunctional equivalent of the old remittance). Shas considerable discretion over the allocationof his income; it by no means all enters thehousehold pot. So he should be regarded as aseparate household. There remain two house-holds, as under the apartheid ideal-type, but thedistribution of members between them are dif-ferent, as are their spatial locations. Patterns ascomplex, or more so, may have developed inhundreds of thousands of African households,greatly affecting the demographic base for thedistribution of income across households, but inways that are not well understood.

4. APARTHEID’S FOOTPRINT: HUMAN CAPITALIf the footprint of apartheid remains detectablein settlement patterns, it is also firmly imprint-ed on the current stock of human capital, anoth-er variable slow to adjust. South Africa’s rela-tively poor endowment is well known: the rankorder of South Africa on the United Nation’s(UN’s) human development index is wellbelow its rank of gross national product, eitherin US dollar or PPP terms. Verwoerd got towork on “native education” before he formulat-ed territorial apartheid as a key objective, andhis words about its intended limitations as heintroduced an inelastic funding formula havenever been forgotten:

“[Racial relations] cannot improve if the

19

Simkins

wrong type of education is given to Natives.They cannot improve if the result of Nativeeducation is the creation of frustrated peo-ple who as a result of the education theyreceived, have expectations in life whichcircumstances in South Africa do not allowto be fulfilled immediately, when it createspeople trained for professions not open tothem, when there are people who received aform of cultural training which strengthenstheir desire for the white-collar occupationsto such an extent that there are more suchpeople than openings available” (SecondReading Bantu Education Bill, 17September 1953, Hansard 83: 3576).

In the longer sweep, however, he was unable toarrest the upward march of enrolments, and thelong economic expansion of the 1960s with anassociated increase in the demand for skilledlabour destroyed the funding formula within 15years of its introduction. By the end of theapartheid era, over 90% of children agedbetween seven and 16 were enrolled in school;the new government’s objective of at least nineyears of education for every child had largelybeen achieved by the time of its announcement.Such indications as are available suggest thatpupils and students are relatively highly moti-vated, compared with their Australian andEnglish counterparts. (This is not so surprising,given the lack of income support for able-bod-ied adults out of work and the fact that thechances of being unemployed drop significant-ly only with the achievement of some kind ofqualification beyond the matriculation exami-nation written at the end of twelve years ofschooling.) Higher education enrolmentsexpanded rapidly in the decade between 1985and 1995; by the latter date, the ratio of highereducation enrolments to the population betweenthe ages of 20 and 24 was over 20%, placingSouth Africa’s higher education system on thelower part of the mass higher education spec-trum.

But the education and training system is desperately inefficient, despite the high bud-getary priority given to it. The inefficiency ismanifested in high school repetition rates (ittakes the average African pupil 6.33 years toget through a five-year secondary school cycle)low matriculation pass rates (these have fallenin the 1990s, when it comes to universityentrance passes) and dropouts from universities

and technikons in excess of the number of grad-uates every year. Formal apprenticeship train-ing has been declining for many years. The rea-sons for this situation are manifold and oftenintractable. They include the following:• The problems of equalising physical and

human capital endowments per pupil. At theend of apartheid, the pupil: teacher ratio inthe African systems was about double that forwhites, coloureds and Asians. Nearly all theclassroom and facilities backlogs were in theAfrican sectors. The small capital budget inthe last years of apartheid was spent random-ly; since then some progress has been madein directing capital expenditure where it ismost needed. The adjustment of the teachingforce and redeployment of teachers, however,has been fraught with difficulty, not surpris-ingly because the newly defined “surplus”was among minority groups in urban areasand the “deficit” among Africans in ruralareas.

• Institutional misalignment. The Constitutionspecifies that primary and secondary school-ing is the responsibility of provinces. How-ever, salaries and conditions of service are setnationally, so the fiscal mechanism for align-ing salaries and employment with availablefunds are missing. Settlements at the centreput pressure on provincial budgets. Salariesand conditions of service should be settled atthe provincial level, and should be allowed tovary across provinces. But the unions will nothear of it.

• Inexorable pressure of salaries on the totaleducation budget. The national/provincialbudget constraint is weakly represented at thesalary bargaining table; this, plus a salarysystem which is linked to qualifications, hasmeant massive upward pressure on teacherunit costs over the past 15 years (a period inwhich the removal of race and gender dis-crimination meant that everyone moved up toa formerly white male standard). This putsgreat pressure on complementary inputs suchas (much needed) development of managerialcapacity, text books and the like. So the inputcombination is far from optimal.

• A cluster of problems for which the SouthAfrican shorthand is “the culture of teachingand learning”. Time on task far below thenorms began to be a feature of townshipschooling in the period after 1976, when fre-

20

Simkins

quent turmoil disrupted classes. Radicallyshortened effective school hours continue inmuch of the system. In part, this is now aconsequence of inappropriate incentives forteachers, who rapidly found that they hadmore time to improve their qualifications andthereby their pay. This development wasaccompanied by a breakdown of the schoolinspectorate who could easily be charac-terised as agents of the system. Poor pupilpreparation meant that entry for the publicmatriculation examination came to be seen asa ticket for the jackpot, with payoff more amatter of luck than reward to effort.

• Inappropriate system goals. The new educa-tional elite has been desperate to distanceitself from the ideology of the old. Instead ofChristian National Education, with its funda-mental pedagogics, the emphasis now falls onoutcomes-based education. The trouble isthat there is no effective in-service teachertraining system which can support thischange of goal, which in general demands ahigher level of skills and resources than thesystem can sustain. Under such circum-stances, the resulting confusion can lead to aworse performance than ever.

One important development should be noted:the demographic pressure on the education sys-tem is starting to ease off. It looks as though thenumber of new entrants into primary school isdropping. This is the result of quite rapidlydecreasing fertility (a necessary but, alas, notsufficient condition for moving up the middleincome country ranks). The South AfricanTotal Fertility Rate is now not much more than3, down from 5 two decades ago. The removalof the pressure from the primary and later thesecondary schooling system is an unambigu-ously positive development.

The pressure is also off higher education, fora much less satisfactory reason: the recent slowgrowth in the number of pupils getting past thematriculation examination hurdle. The exami-nation can be passed at two levels: universityexemption (the higher level, usually requiredfor entrance into universities) and school leav-ing (the lower level, adequate for entering tech-nikons and colleges). Those passing with uni-versity exemption dropped from approximately88 000 in 1994 to 69 000 in 1997 and in thepast couple of years a number of universitieshave reported absolute drops in new enrol-

ments, in contrast with a growth rate in theorder of 5% per annum in student enrolmentsbetween 1985 and 1995. This eases the pressureon government subsidies to universities, whichdropped fairly steadily in per student termsfrom 1985 to 1995. However, from a nationalhuman capital formation point of view, therecent development is seriously bad news in thelight of the demand for a rapidly improvingskills profile in the modern sector labour force.

Of course, the controversies about educationand inequality find their application in contem-porary South Africa. An optimistic egalitarianview sees education as equalising and as a com-mon foundation for citizenship in a hithertodeeply divided society. But there are groundstoo for seeing the education system as a mecha-nism for reproducing inequality, both naturaland social. One front on which the battle hasbeen joined has been the so-called Model Csystem, introduced in the last years ofapartheid.

This sought to guarantee the position of sub-urban schools by vesting school assets in gov-erning bodies, allocating state grants to pay-ment of teachers according to a formula, andthen permitting schools to employ additionalteachers and operate additional facilities bylevying fees and engaging in other forms offund-raising. New educational elites were gen-erally opposed to this system, and school assetshave been re-nationalised. However, the educa-tion system has been unable to dispense withparental contributions; in that sense, the ModelC system has been generalised throughout theentire system. The next development will be amove away from equal state support for allschools to a system of supplementary grants toschools for whom parental contributions arelikely to be smallest. How far compensatingstate support will go, remains to be seen; spe-cial allocations are limited by the pressure ofsalaries on provincial budgets. There is also aquestion of how far it is desirable to go, giventhat suburban schools provide much of the bestquality schooling. Resource pressure on theleast well endowed of these may prejudice asource of successful matriculants without necessarily creating a combination of the quantity and quality of education.

Education and training have long been sepa-rated in South Africa, and in terms of govern-ment responsibilities they still are; supervision

21

Simkins

of training belonging to the Department ofLabour. The integration of education and train-ing at the “further” (i.e. post-Grade 9 level) isnow government policy and progress has beenmade by developing a National QualificationsFramework and passing a Skills DevelopmentAct designed to increase the spread, effective-ness and portability of training. One difficulty(to be discussed more fully presently) is thewide gap in time between further education andtraining for young Africans. Further educationcharacteristically takes place in the late teens.There is then a long period of waiting before afirst job, and it may take some time after thatfor people to be put on training ladders. Thepolicy response has been to develop low-wage“learnerships” (effectively a generalisation ofapprenticeships) to try and speed up entry intoemployment and the acquisition of skills. It hasyet to be seen whether this system can deliverat scale, but at least it tries to tackle the keysocial problem of youth unemployment.

5. THE LABOUR MARKETA full assessment of the impact of the labourmarket on income distribution in general termsis not a task anyone can hope to undertake forSouth Africa at this stage. Peter Moll testedeconometrically industry wage differentialsagainst several labour market models of effi-ciency wages and rent sharing against evidencefrom the 1960, 1970 and 1980 South AfricanPopulation Censuses (Moll, 1993). He foundthat the differentials could not be explained byrent extraction, gift exchange, union threat,unobserved ability, compensating differentials,shirking/monitoring or turnover models.

But there are some themes that more recentdata can be used to explore. One is the transi-tion from school (including higher education)to work. This is of great importance when deal-ing with unemployment, since slightly morethan two-thirds of the unemployed have neverhad a job. There is a two-stage cumulation ofadvantage/disadvantage here. On the one hand,whites and Asians on average pass through theeducation system in little more than the mini-mum required time. Both groups experiencerelatively short periods of search for their firstjob. Coloured and African pupils progressthrough the education system more slowlycoloureds, interestingly, have the lowest ratesof attainment (so they leave the education sys-

tem at much the same ages as whites andAsians), but they experience shorter searchesfor a first job than Africans. Africans leave theeducation system later and they spend a lot oftime looking for their first job, which manyfind only in their late 20s.

Employment status affects marriageabilityfor men, and 1995 October Household Surveydata yield an estimate of the singulate mean agemarriage for African men of 32 (the Whitemale mean age is 25). Since most young SouthAfricans (even whites) leave their householdsof origin only when they marry, this means thathouseholds bear the burden of youth unemploy-ment. Indeed, many African households seemnever to lose young people between the ages ofzero and 15, even when the household headbecomes very old.

This suggests that the key to tackling theunemployment problem lies in tackling itamong the young. A shorter transition fromschool to work, with more emphasis on trainingin the early years of work at relatively lowwages would induce a degree of substitutionbetween younger, better educated workers andolder ones, putting pressure on real wages andhence improving the prospects for employmentgrowth. Modern time series econometricsshows how complex it is to make decent esti-mates of important economic magnitudes, suchas the wage elasticity of employment; perhapsthe recent Fallon and Lucas (1998) estimate of–0.71 for the average long-run wage elasticityof black employment is not too far from thetruth. Of course, the impact of these develop-ments on the economic growth rate would behard to trace; even more complex would be theimpact on the distribution of income betweenhouseholds, since greater employment of youngmen would lower the mean age at marriage andhence increase the number of households.

One trend in the labour market is clear: thetendency to a more skilled occupational struc-ture in the formal sector. As the Table (overpage) shows, the rate of growth of employmentby skill category has been directly correlatedwith the level of skill for the past two decades,and the trend looks set to continue.

Low unemployment rates among the eco-nomically active with a post-matriculationqualification confirm a continuing thirst forskilled and highly skilled labour amidst a sea ofunemployed semi-skilled and unskilled work-

22

Simkins

ers. Breaking current constraints on skill forma-tion (the unsatisfactory secondary school sys-tem, technical education system and industrialtraining system) will continue to be a potentstrategy for reducing inequality, both in termsof changing relative wages and of providing animportant complementary input for low orunskilled labour.

A new development in the South Africanlabour market is the passing of the EmploymentEquity Act, modelled on US affirmative actionpractice. This requires companies (above cer-tain size limits) to develop plans for improvingthe representation of “disadvantaged” groupsamong their employees. These plans are to bemonitored and penalties (including fines) willbe imposed on companies failing to meet theirtargets. The definition of “disadvantaged”includes a racial dimension. Critics of the Actdeplore the reintroduction of race as a legisla-tive category; they also point out that imple-mentation of the Act is overly demanding ofstate capacity and introduces new opportunitiesfor selective enforcement and downright cor-ruption. Analogies with segregationist andapartheid policies of job reservation are drawn,and certainly the Act increases the potential forincreased inefficiency in the labour market.

Proponents of the Act must assume that thereis pervasive discrimination in the labour marketfor the Act to be necessary in terms of bothequity and efficiency.

It is reasonably clear from the evidence that,if attempts are made to push upwards the repre-sentation of the disadvantaged in the highlyskilled labour market beyond the improvements

currently being attained, there will be seriousadverse consequences. Supply constraints willimply the emergence of a segmented market,with substantial divergences between ages andmarginal product, with the attendant economicefficiencies. (This has already been the conse-quence of rapid change in the composition ofthe civil service, as well as private sectorattempts to produce a more politically accept-able employee profile.) The Act may well havea more useful effect on the lower end of theskilled market and particularly when it comesto recruitment to industrial training slots frommatriculation graduates and other senior sec-ondary schools leavers.

Complementing the medium and large firmsaffected by the Employment Equity Act aresmall and micro enterprises, of interest becauseof their potential to expand employment at rela-tively low capital/output ratios and to provideincomes for those with little formal educationbut some entrepreneurial talent. Issues relatingto the promotion of smaller business include:(a) the range of exemptions from taxes, levies,

labour force regulation, complex accountingand the like

(b) an appropriate range of financial institutionscapable of supporting them

(c) access to markets, which can be improvedby suitable municipal regulations and townplanning.

The current state of play with respect to (a) iscomplex and probably not optimal. In relationto (b), financing arrangements are improving, atleast in urban areas. Rural areas are much hard-er to reach, and conditions may go backwardsas well as forward (e.g. the closure of postoffice branches). There is something of a pen-dulum swing in relation to (c); apartheid –through rigid control of street trading, throughsegregated urban forms racially based on thenumber of enterprises and their location – madethings difficult for small businesses, at least upto the end of the 1970s. An enthusiastic periodof deregulation followed which brought its ownproblems (over-enthusiastic competition,increased unplanned pressure on services, etc.)which has led to a degree of re-regulation.

The increased market orientation of the1980s brought with it an enthusiasm for theinformal sector (not, in the end, a very helpfulcategory) and the Central Statistical Service(CSS) started to measure its size from the early

Occupational distribution by skill level, 1973and 1993

1973 1993(thousands)

Professionals and managers 212 488Associate professional and 271 495techniciansSkilled clerical, transport and 1376 1954services, artisans, foremen and supervisorsSemi-skilled and unskilled 2947 2748

Total 4806 5685

Source: Manpower SurveysNote: These surveys cover most of the formal sector outsideagriculture.

23

Simkins

1990s. The CSS includes domestic workers inthis category; indeed, they make up nearly halfof the measured total. There are also specialoccupational codes for the sector (traditionalmedicine practitioners and faith healers, sourmilk producers and scavengers are some exam-ples). The October Household Survey found 1 740 000 people employed in the informal sec-tor, 413 000 of which were employees. The restworked for their own account. Against thelonger sweep of studies of the informal sector,one may ask whether a great deal has changedin the relation between it and the formal sector.

The total monthly contribution to grossdomestic product (GDP) from the informal sec-tor was estimated at R2.7 billion. (This comesto R321 billion for the whole of 1995, when theGDP was R431 million).

One cannot leave the labour market withoutconsideration of the contentious issue of inter-national migration. This can be divided intothree components: skilled migration (potential-ly from anywhere in the world), unskilledmigration (effectively from Southern Africa)and emigration. The desirability of at leastsome forms of skilled immigration is generallyagreed, though opinion is divided betweenthose who favour a US approach (where the cri-terion for entry tends to be a high endowmentof human capital and permission to work tendsto be general) and those – the majority – whofavour a West European approach (where entryis restricted to specific sectors where shortagesare identified).

The tougher problem is that of unskilledimmigration from neighbouring countries.South Africa has a long and leaky northern andeastern border. From time to time estimates ofillegal immigrants are produced based (if theyare based in fact at all) on shaky and exiguousdata. Some estimates have put illegal immi-grants at five million (about one-eighth of thetotal population). Data on people by place ofbirth put the foreign born population at a muchlower figure of 250 000. The truth is probablysomewhere in between, but at the lower end therange. The difficulties of measurement areinsuperable in present circumstances. SouthAfrica has divided linguistic groups, so peoplecan shuttle between segments of family net-works with ease and informally naturalisethemselves. There is a considerable trade inforged identity documents, so that informal nat-

uralisation can become formal. Clusters of ille-gal immigrants can live on employer premises,shielding themselves from bouts of xenophobiathat strike immigrant communities. Certainlymany people are arrested for illegal residence,and there are detention centres and trainloads ofdeportees every year. As in the last years ofinflux control, there is a sense of futility indeportations when people who are determinedto return do so (and with lower probability ofdetection than in the days of the pass laws).

It is hazardous to hold a view with certaintywhen so little is known, but the best conjectureseems to be that the rate of movement fromneighbouring countries is low, for much thesame reasons that the rate of urbanisation inSouth Africa itself is low. Urban unemploy-ment and crime reduces attraction and the moreremote the household of origin, the less likelythat a migrant will find a network of support.Again, if impressionistic evidence is anythingto go by, it is more likely that war and otherforms of social unrest (including massive eco-nomic dislocation) will produce more immi-grants than the usual disparities in economicconditions. From an income distribution pointof the view the point is this: there is a potential-ly large supply of the poor from neighbouringcountries and waves of them might be expectedfrom time to time.

The pattern of emigration has implicationsfor income distribution as well. South Africanswho emigrate are, and will, be disproportion-ately drawn from the highly skilled and minori-ty groups. South African emigration statisticsdo not capture the phenomenon adequately; acomparison between South African statistics onemigration to the five main receiving countries(United Kingdom, US, Australia, Canada andNew Zealand) and the receiving countries’reports of immigration by South Africansshows large discrepancies. The actual move-ment tends to thin at the top end of the incomedistribution, reducing income inequality.However, the opportunity to emigrate (withoutactual emigration) keeps the income of highlyskilled people tied to their international coun-terparts, placing limits on redistribution.

6. SOCIAL SERVICES AND REDISTRIBUTIONSocial services have an impact on income dis-tribution (if one takes the broad view and sub-tracts taxes from income and adds benefits

24

Simkins

from expenditure). The proportion of thenational/provincial budget devoted to educa-tion, health, housing and welfare must be closeto its ceiling, at nearly half total expenditure(including interest on the national debt). Fundsallocated to economic services (roads, water,etc.) have been steadily squeezed in favour ofsocial services. Education receives the greatestallocation and the low efficiency of expenditurehas already been discussed. Health has beenreallocating expenditure to primary servicesand opening new clinics, at the cost of puttingserious strain on the major public hospitals.There have been fights over pharmaceuticalspolicy and tensions over a national health insur-ance scheme, the final details of which have notbeen announced.

Insofar as there has been a shift towards pur-chase of private medical insurance, someresources have been reallocated in this sector,though the full costs and benefits of policyreform are far from clear. Housing is interest-ing, in that policy during the 1990s has becomemore market-oriented than before; the bulk ofhousing expenditure takes the form of capitalsubsidies of up to R15 000 to low-income, first-time home-buyers.

The major reform in income maintenance isthe planned introduction of a child benefit toreplace a far from universal support system forabandoned mothers and children. The compo-nents of the income maintenance system havetraditionally been: • a non-contributory, means-tested old age

pension (which reaches more people than anyother component of the system)

• disability grants• maintenance grants • a small number of war pensions. Maintenance grants are being phased out infavour of an important new income mainte-nance programme: the provisions of grants tothe primary care givers of children under theage of seven. So far, the coverage of the newprogramme is very limited; as it increases, theresources required will become large, and sometrade-off between the grants available to sup-port old people and grants to support childrenwill ultimately have to be made.

Changes since 1994 have made redistributionthrough state revenue and expenditure greaterthan before. The last estimate we have of redis-tribution through the fiscal system was made by

McGrath et al using the Saldru/World Bankdata of 1993/94.

It found that the taxation system is slightlyregressive (taking a pre-redistribution house-hold income – excluding pensions – Gini of0.708 to between 0.715 and 0.722), but the pat-tern of expenditure is such that a marginal randraised in taxation and then spent by the state isprogressive (taking the post Gini down again tobetween 0.600 and 0.484). It is therefore notsurprising that there are frequent calls (mostlyby trade unions) for a relaxation of the govern-ment’s objective to limit taxation to 25% andthe budget deficit to three per cent (a targetoriginally set for the 1999/2000 financial year).So far, the government has maintained its com-mitment to these goals, apart from a year’spostponement of the realisation of the deficittarget announced in October 1998 (and theachievement, while not perfect, has been rea-sonable) as a means for encouraging foreigninvestment and maintaining macroeconomicbalance, for fear of being forced into Inter-national Monetary Fund (IMF) receivership.But there remains a not insignificant chance ofa bout of macroeconomic populism in the nextdecade or two, and what that would bring isimproved income distribution for a (short) time,followed by a long and serious hangover.

CONCLUSIONWhat will happen to South African inequalityin the coming years? Two cases can be distin-guished:• Economic growth does not keep up with pop-

ulation growth, in which case impoverish-ment will be distributed – not necessarily –across the centres of economic activity in thecountry, and little or no spatial diffusion ofincome will take place. Emigration of highlyskilled labour is likely to increase with atten-uation of the upper tail of the income distrib-ution; the lower tail will thicken as peoplefall out of a relatively high paying formalsector employment. The net effect oninequality is hard to predict under such cir-cumstances, and it may depend on the mea-sure being used.

• Economic growth exceeds populationgrowth, in which cases some new centres ofactivity (e.g. the Maputo corridor betweenPretoria and southern Moçambique) willemerge, spreading income. It is unlikely that

25

Simkins

all the spatial development initiatives current-ly being planned will succeed, or that lowincomes and employment levels in manyparts of the country will not continue. Indeed,imperfections in the labour market will limitthe diffusion of benefits from new develop-ments, and islands of relative affluence in asea of poverty will remain for decades. Thesea should decline in relative terms to the restof economic growth is well ahead of popula-tion growth. New developments will inducean inflow of skilled labour, thickening theupper tail of the distribution of income.

In either case, South Africa will continue to be

a high inequality country with a somewhatunpredictable – and hard to measure – evolu-tion of the standard indices of inequality. Withrising real income per capita, it should beincreasingly possible to reduce poverty by moreextensive redistribution through the state bud-get. Should real income per capita fall, there isnot a great deal of room left for the state to off-set rising poverty. Overlaying the patterns inboth cases will be the wider diffusion of humancapital, which tends to decrease inequality. Thestrength of the human capital effect will dependon the quality of education which, unlike thespread, is not guaranteed to improve steadily.

26

Simkins

ADELMAN, IRMA AND CYNTHIA TAFT MORRIS.1967. Society, politics and economic develop-ment: a quantities approach, John HopkinsPress.

AUTY, R.M.S. 1998. Environmental, export andhuman development problems in naturalresource-based growth models. DiscussionNote, Department of Geography, LancasterUniversity, UK.

CENTRE FOR DEVELOPMENT AND ENTERPRISE.1995. Income distribution model second edi-tion, Johannesburg.

CENTRE FOR DEVELOPMENT AND ENTERPRISE.1995. A new approach to cross-bordermigration in South Africa, CDE Research:Policy in the Making, No 7, Johannesburg.1997.

CENTRE FOR DEVELOPMENT AND ENTERPRISE.1998. The displaced urbanisation of theapartheid era: its current remnants and con-sequences. Draft report for the Department ofTransport.

FALLON, PETER AND ROBERT LUCAS. 1998.South African labour markets: adjustmentand inequalities, Typescript, January 1998.

DEPARTMENT OF FINANCE. 1996. The Growth,Employment and Redistribution strategy,Pretoria.

KANE-BERMAN, JOHN. 1991. The silent revolu-tion, second edition, SA Institute RaceRelations, Johannesburg.

LANDES, DAVID. 1998. The wealth and povertyof nations, WW Norton.

LUNDAHL, MATS AND ESKIL WADENSJO.1984.Unequal treatment: a study in the neo-classi-cal theory of discrimination, Croom Helm.

MCGRATH, M D. 1982. Distribution of personalwealth in South Africa, University of Natal,Durban.

MCGRATH, M D. 1983. The distribution of per-sonal Income in South Africa in selectedyears over the period from 1945 to 1980,PhD Thesis, University of Natal.

MCGRATH, M D, C JANISCH AND C HOMER.1997. Redistribution through the fiscal sys-tem in the South African economy. Paper pre-sented to the Economics Society of SouthAfrican Conference, Potchefstroom.

MOLL, PETER G. 1993. Industry wage differen-tials and efficiency wages: a dissenting viewwith South African evidence, Journal ofDevelopment Economics, 41, 1993: 213-246.

NATIONAL COMMISSION ON HIGHER EDUCATION.1996. A framework for transformation, TheCommission, Pretoria.

SCHMNITTER, PHILLIPE C (ED). 1973. Militaryrule in Latin America: function, conse-quences and perspectives, Sage Publications.

SIMKINS, CHARLES. 1983. Four essays on thepast, present and possible future distributionof the black population of South Africa,Southern Africa Labour and DevelopmentResearch Unit, Cape Town.

SOUTH AFRICAN INSTITUTE OF RACE RELATIONS.1998. South African Survey 1997/98,Johannesburg, SAIRR.

TILLY, CHARLES. 1998. Durable inequality,University of California Press.

WHITEFORD, ANDREW AND M D MCGRATH.1994. The distribution of income in SouthAfrica, Human Sciences Research Council,Pretoria.

REFERENCES

I sympathise with those who would min-imise, rather than with those who wouldmaximise, economic entanglement amongnations. Ideas, knowledge, science, hospi-tality, travel – these are the things whichshould of their nature be international. Butlet goods be homespun whenever it is rea-sonably and conveniently possible and,above all, let finance be primarily national.

John Maynard Keynes, 1933 (emphasis added)1

INTRODUCTIONThis paper2 was drafted in the immediate after-math of the April 16–17 2000 “Mobilisationfor Global Justice” protests in Washington,DC. But it is also very conscious of protestssuch as that which rocked Bolivia (leading tomartial law) on April 12, when in Cochabambathe mass of the citizenry rose up in protestagainst a World Bank–designed water privati-sation scheme that would have dramaticallyraised the cost of water to the average house-hold – on average to 25% of income. Some 30000 protesters in Washington, and tens of thou-sands in Cochabamba, shared the samepremise: development and its financing shouldbe a matter that is primarily national – andlocal in origin – and that must be determined ina democratic manner. These principles cameinto direct conflict with the InternationalMonetary Fund (IMF), the World Bank, waterprivatisers (in this case, the British firmBechtel) and indeed with the general overre-liance placed today on international investmentand finance for domestic development. (Similarcritiques could be made of international trade

and its regulation by the World TradeOrganisation [WTO], but for reasons of space,this paper is limited to development financeissues.)

There are enormous problems in the worldfinancial system, which have been the mainreason for amplified global inequality since theearly 1970s. Then, the difference between thelowest-income and highest-income countrieswas 1 to 30; today it is 1 to 90, according to theUnited Nations (UN). In absolute terms, theaverage African household today consumes20% less than it did 25 years ago.

In South Africa, inequality has increased dra-matically over this period as well, and not eventhe end of many artificial racial subsidies pre-vented South Africa from overtaking Brazil lastyear as the most unequal country in the world.There are many causes, but this paper focuseson global financial trends, and advocates theirreplacement with more aggressive access tolocal development finance. After consideringthe establishment of a post-war global financialsystem in 1944, we unpack the character of theeconomic crisis that enveloped the world, terri-bly unevenly, during the last quarter of the 20thcentury. We then consider the specific ways inwhich the IMF and World Bank have beencalled upon to manage the crisis. This raisesthe problem of whether a “world state” isindeed equipped, and can be equipped underthe present balance of forces, to address globalfinancial volatility in an equitable way. Instead,as the conclusion argues, it is through national(and in future, regional) processes of financialregulation (and domestic development financialmobilisation) that at least in the short run

27

Minimising the Gap Between Rich andPoor Through Democratic Local

Development Finance

Patrick Bond

28

Bond

appear most logical as sites of progressivefinancial-market advocacy. To get from here tothere entails, simply, campaigning to limit – notto reconstruct – the global financial apparatus.

The need for posing the problem of develop-ment finance initially in global terms, should beobvious, notwithstanding arguments that the1997–99 stage of the crisis is over, with globalfinancial disaster averted. A series of measureswere taken to ease what many commentators,including then Treasury Secretary RobertRubin, called the worst financial threat sincethe Great Depression. These included the suc-cessful public-private bailout of the Long TermCapital Management hedgefund, slightly looserFederal Reserve monetary policy, a new $90billion IMF Contingent Credit Line, the con-vening of key countries in a Forum onFinancial Stability and a “G24” group, and amodicum of debt relief for very poor borrowers(but with extreme neoliberal conditionsattached, such as the quintupling of cost-recov-ery from Moçambique public health clinics).

However, the recent adjustments only averted– but did not extinguish – the most seriousproblems associated with financial volatility.Evidence abounds of growing tensions, includ-ing the recent 30% share crash of the highly-celebrated United States (US) economy’s tech-nology sector, not to mention vast US trade andbudget deficits, dramatically overinvested con-sumers and corporations, and a New York stockmarket more overvalued than in 1929. (The riseof the gold price by 20%, from $255/oz to morethan $300/oz, in just two days in late Septem-ber 1999 was another indicator of speculativepanic and underlying fragility.) The next set ofcurrency crises, debt defaults, financial panicsand associated geopolitical tension will againmake the countervailing strategies under dis-cussion in European churches all the more cru-cial. It is in that spirit that the paper commenceswith a look backwards.

1. GLOBAL FINANCIAL MARKETS AND ECONOMIC CRISESWe all have our own way of explaining the ori-gins of the ongoing economic “crisis,” bywhich I mean slowing world growth (thoughnot slowing environmental decay), risinginequality between peoples, and extremevolatility in financial and commercial activity.Some date the problems to the mid-l990s reali-

sation that “emerging markets”, such asMexico, were not as successful as had beenadvertised. Others cite to the phenomenon of“casino capitalism” which began during themid-1980s. Some might take up the story in thelate 1970s when the US dollar had to be sta-bilised through unprecedented interest rateincreases. Others refer to the rise of unsustain-able Third World debt during the 1970s. I wantto go further back, even beyond the early 1970semergence of global economic stagnation, orthe late 1960s decline in the rate of profit inmost G-7 industrial economies, to the origins ofthe Bretton Woods Institutions, and to theirimmediate capture by the US government. It isboth the post-war construction of the “globalfinancial architecture” by these institutions, andthe subsequent (1970s–90s) shift of capitalflows into financial markets, that together mustbe addressed.

In 1944, the Bretton Woods resort in NewHampshire hosted a conference of delegates co-chaired by Harry Dexter White representing theUS Treasury, and John Maynard Keynes repre-senting Britain (but more broadly, the interestsof the vast majority of countries then in debt).The overarching problem was, simply, therestoration of Western economic superiority ata time when the Western capitalist classes wereprofoundly discredited (partly thanks to associ-ations with Nazism) or were otherwise in politi-cal-economic retreat, and when socialismappeared a dangerous specter (not only becauseof the Soviet Union’s durability but becausecommunist and labour movements were resur-gent in Europe).

Self-interestedly, White established the dollaras the world’s primary currency and construct-ed the IMF and World Bank so they could becontrolled from the White House and Treasurynot only through deployment of leading offi-cials but by exercising less than 20% of votingrights when required to veto lending activitiescontrary to US interests. Keynes lost manyimportant battles over these arrangements. Foralthough the Fund initially encouraged nation-state exchange controls so as to limit capitalflight, the two institutions founded at BrettonWoods would soon reverse the formula sug-gested by Keynes in the opening quote, by pro-moting the “globalisation of capital” (as manynow call it) over the “globalisation of people”(the objective of many of us on the opposing

29

Bond

side). The IMF was meant to balance theaccounts of payments between countries(through money exchanged in trade and finan-cial transactions), while the World Bank wouldmake injections of project finance starting inwar-ravaged Western Europe, and later in theSouth. A few years later, the WTO’s seedswere sewn in the founding conference of theGeneral Agreement on Tariffs and Trade(GATT) in Havana.

But it was only in the late 1970s that the fullsignificance of the Fund, Bank and GATTbecame evident, as financial and commercialcircuits of capital grew vibrant and ultraprof-itable, in relation to waning productive circuits,stagnating wage compensation, intensifyingenvironmental degradation, and the crash of theliving standards and cultures of South commu-nities more generally. The financial/commer-cial dynamism can only partially be attributedto innovations in information technology, com-munications and transportation, and more prop-erly should be understood as a logical responseto national capitals’ efforts to break loose fromlocal markets once domestic recessions set in.

The dollar-gold fix underpinning internation-al financial arrangements lasted just over aquarter century (1944–71), until US transna-tional corporate investments and the VietnamWar caused sufficient currency outflow thatRichard Nixon felt compelled to dishonour theUS commitment to pay an ounce of Fort Knoxgold to anyone abroad offering $35 in cash (thisdefault was the largest ever recorded, at some$80 billion). The dollar fell against major cur-rencies through the 1970s (and once delinked,the gold price soared); Western GDP growthand corporate profit rates declined; inflationemerged as a dilemma especially for bankers(for whom this presented an unacceptabledevaluation of money, their stock-in-trade); andlevels of consumer, corporate and state debtrose to unprecedented heights. Until 1979,inflation-adjusted interest rates were negative,and Third World leaders also suffering high oilbills, declining commodity prices and stagnantexport markets saw only the short-term benefitsof debt, not the danger that Paul Volcker’sFederal Reserve would raise their repaymentburdens to impossible levels by the early 1980s.

At the root of the crisis was what some schol-ars argue is a general tendency to capital “over-accumulation”.3 It refers to the inexorable rise

in capital intensity in production, that in turngenerates vast amounts more production thancan be profitably consumed. This condition isusually a precursor of massive debt buildup andspeculation – and subsequent depression – andhas recurred periodically (1825–45, 1872–92,1929–48, and 1973–present).4 Consequent withgrowing gluts in local and then global markets,the supply side of capital responds to fallingprofit rates by seeking higher returns in increas-ingly speculative financial outlets. On thedemand side, ever-amplifying “uneven devel-opment” (systematic inequality) assures that thegrowing crisis can be “displaced” (movedaround, across space and through time), permit-ting flows of funding to switch from one toanother circuit of capital, sector of investment,geographical location and even scale of activity(from local to global and back). Financial mar-kets are central to this process for they facilitatenear-instantaneous movement of capital acrossthe world, and they convert an obligation to payin cash now for consumption into a future lia-bility, so that gluts of overproduced commodi-ties can be (at least temporarily) whittled awayby credit.5

This understanding of the roots of the crisis isincreasingly adopted by critics of the worldeconomy based in the “semi-periphery,” includ-ing those in the Jubilee 2000 movement. Toillustrate: here in South Africa, a brief resur-gence in official progressive discourse emergedin October 1998, as leading intellectuals of theAfrican National Congress, South AfricanCommunist Party and Congress of SouthAfrican Trade Unions announced in an officialdiscussion document:

“The present crisis is, in fact, a global capi-talist crisis, rooted in a classical crisis ofoveraccumulation and declining profitabili-ty. Declining profitability has been a gener-al feature of the most developed economiesover the last 25 years. It is precisely declin-ing profitability in the most advancedeconomies that has spurred the last quarterof a century of intensified globalisation.These trends have resulted in the greatlyincreased dominance (and exponentialgrowth in the sheer quantity) of speculativefinance capital, ranging uncontrolled overthe globe in pursuit of higher returns.”6

Likewise, in a March 1999 paper delivered inBangkok, the leader of the Korean Confedera-

30

Bond

tion of Trade Unions, Koh Young-joo, insisted:“The intensification of the fantastic andimperialistic neoliberal offensive and theeconomic crisis is the dual expression ofone entity: the overaccumulation of capitalsince the 1970s. The global economy ischaracterised by overproduction and adecline in the rate of profit. Efforts of capi-tal are concentrated on increasing the rate ofprofit, leading to greater monopolisation.And the global monopolies and theirmetropoles are intent on driving out stateintervention in the process of reproduction.This is what is undertaken under the nameof ’deregulation’. Furthermore, the declinein the rate of profit due to overproductionhas meant that capital can no longer findsufficiently profitable areas for investmentin production or distribution. This hasforced capital to turn to speculation. Thebirth of mammoth speculative capital, fos-tered by the changes in global financialpractices, has transformed the system into a’casino capitalism’.”7

In short, world financial markets have providedone secret to elite “management” of the globaleconomic crisis, and have amplified the enor-mous shifts in asset-inequality across the globeover the past two decades.

In very real ways, displacement meant thatwhen bubbles burst – the Third World debt cri-sis (early 1980s), energy finance shocks (mid-1980s), crashes of international stock (1987)and property (1991– 93) markets, and the long,terribly deep crash (from 1973–99) of non-petroleum commodity prices, not to mention aspate of bank failures8 – it was feasible to shiftthe costs on to those less powerful. Hence thecollapse of several decades’ worth of ordinarypeople’s living standards across the South sincethe late 1970s, in Eastern Europe since the late1980s, and in emerging markets since the mid-1990s – as felt particularly by workers, peas-ants, women, children, the elderly, indigenousgroup and disabled people, as well as environ-ments.

But it is to the original architecture of globalfinance that we must return to get a better senseof how weak the foundations now appear. Insum, we are left considering how an “embryon-ic” global state emerged from the BrettonWoods Institutions, yet how instead of effec-tively regulating the structural economic crisis

that began during the 1970s, these institutionsmerely served as crisis managers.

2. THE IMF AND WORLD BANK AS CRISIS MANAGERSThe IMF and World Bank likewise acquired aqualitatively new role during the 1980s–90s:coordination of power over both economic poli-cy making and financial/aid flows in subordi-nate countries (though still through the overallpermission of the US Treasury Department andconsistent with the State Department’s agenda).Fund and Bank coordination has meant notmerely the certification of countries’ policymakers as sufficiently pro-market (i.e., espe-cially welcoming of currency devaluation, stateshrinkage, loss of national economic sovereign-ty, and inflowing financial, trade and foreigndirect investments, partly to capture privatisedassets at healthy discounts and partly just tospeculate).

From the early 1980s, the Fund and Bankalso played a crucial debt-policing role, firmingup the weakened balance sheets of thoseNorthern commercial banks and investmentfunds which stood exposed due to the demise ofunpopular client-dictators during the 1980s, andthen late 1990s “emerging market” stocks,bonds and property.

Fund/Bank bailouts were arranged so thatNew York, London, Frankfurt, Zurich andTokyo banks could recover (and indeed pros-per) from 1980s-era Third World debt (whichremained on the liability side of borrowers’ bal-ance sheets), as well as from the devastation ofcurrencies associated with speculative runs onMexico (early 1995), South Africa (early 1996and mid-1998), Southeast Asia (1997-98),South Korea (early 1998), Russia (periodic butespecially mid-1998) and Brazil and Ecuador(early 1999).9

Professional and intellectual justification wasrequired, so Keynes’ national economic man-agerialism was simultaneously replaced withlaissez faire “neoliberal” philosophy beginningin the late l970s (consistent with the liberalisinginterests of international financial/commercialcapitals, as against protectionist and inward-ori-ented interests of many domestic productivecapitals). The “Washington Consensus” – aworldview imposed by the US Treasury, USFederal Reserve, Fund, Bank and associatedthink-tanks – insisted that the alleged merits

31

Bond

(future growth and prosperity) of free market“structural adjustment” outweighed the enor-mous short-term economic, social, gender, gen-erational, public health and environmentalcosts.

The point should be clear: the Fund and Bankare central to crisis displacement (never resolu-tion). They carry out their mandate in a waythat entails both universal suffering by subordi-nate classes and the environment, and – in thewake of the April 16–17 protests in Washing-ton – prospects for a somewhat more generalis-able resistance strategy. For even if the Fund/Bank represent merely institutional vehiclesthrough which crisis displacement and unevencapitalist development are coordinated, they areexceptionally important targets, at least untilmore serious challenges are generated byshopfloor, community, feminist and environ-mentalist protest to local and global manifesta-tions of the mode of production itself. Indeed,as I will conclude, campaigning to abolish theBretton Woods Institutions and the intereststhey serve, offers an exceptionally good focusfor global social progress.

Yet there are those who would reform andstrengthen the Fund and Bank, rather thanlobby to shut them down. Some in Jubilee 2000North chapters (US, United Kingdom [UK],Germany and Japan, although exceptions existin Canada and Scandinavia), for example, haveviewed the current upsurge in protest as anopportunity to lobby for a greater, not lesser,role for the Fund, Bank and their discreditedHighly Indebted Poor Countries (HIPC) debtrelief initiative. In contrast, the Jubilee Southinitiative dawned in 1999, uniting the best debtmovements across the Third World, and explic-itly rejected HIPC (see the link at www.aidc.org.za).

Jubilee South finds itself spending an unfor-tunately excessive amount of energy and timearguing against the highly-conditional, half-hearted reforms of world financial marketssought by some Jubilee Northerners, who relyfor political direction less upon voices from theSouth, and instead, excessively upon discredit-ed economists like Jeffrey Sachs – whose shocktactics have had such a devastating impact uponthe South and East, and who continues to pro-mote sweatshop labour conditions as consistentwith sound international economics.

One danger that is often raised, especially in

Europe, is that the Far Right is also againstreform of the Bretton Woods Institutions. Asidefrom predictable hard-right rabble-rousers,even high-profile establishment conservativesbegan calling for the Bretton WoodsInstitutions’ closure in the wake of hapless EastAsian crisis management.10 Subsequently, theRepublican-dominated Meltzer Commissionreported to the US Congress in March that theFund and Bank are so badly warped that theymust shrivel, quite dramatically, before beingstraightened out. On such terrain, it is notunusual to find tactical intersections whereRight meets Left. These are certainly worthworrying about, although a key Left navigator –Nader advisor Rob Weissman of MultinationalMonitor magazine – insisted recently:

“For now, we’re so relatively powerlesscompared to [the Fund and Bank], our pri-mary mission is to restrain their power. Soit’s less important to focus on the day whenwe run global institutions than on limitingthe harm that they do.”11

If running part of a world state remains out ofthe question, progressive strategists are facedwith the crude choice captured in the US slo-gans “fix-it” versus “nix it.” Fixers correctlyargue that the Fund and Bank have been pres-sured to adopt reforms over the past 15 or soyears. Nixers rebut that these must be measuredagainst the worsening scale of eco-socio-eco-nomic damage done over the same period ofcrisis displacement.

In five areas – environmental protection, gen-der awareness, transparency, community partic-ipation and post-Washington Consensus eco-nomics – reformers can claim limited victories.But those very wins have provided the Bankand Fund a coat of whitewash, barely disguis-ing their thoroughgoing dedication to hardcoreneoliberalism with talk of sustainability, in theprocess dividing unsophisticated opponents.Empowered by the Bank’s plagiarism of non-governmental organisation (NGO) rhetoric,some inside-Beltway policy wonks (e.g., in theoften admirable international advocacy officeof Friends of the Earth) are even suggesting adramatic switch in Bank lending towards sec-tors like basic education. The slogan thusinvoked – “Public funds for public good” – isfundamentally misguided, we must concludebelow.

How far can such reforms go? Reflecting the

32

Bond

realpolitik of institutional constipation, it isnow widely acknowledged that late last year,maverick Bank chief economist Joe Stiglitz –who during his 1997–99 term was roundlydespised by IMF and US Treasury bigwigs –was indeed pushed overboard. (Stiglitz diplo-matically claimed to have jumped ship, in orderto have more freedom to launch his critiques.including a scathing New Republic attack onincompetent Fund economists during the April16–17 protests.) According to a reliable Bankinsider quoted in the February 2000 LeftBusiness Observer: “Summers made it clearthat if Wolfensohn wanted a second term asWorld Bank president – to start on June 1, 2000– Stiglitz had to go.”

In sum, thanks to the combination of deeplyunsatisfying reforms won to date, the sour-grapes Stiglitz departure, and a letter by 22“Interaction” development NGOs distancingcoopted NGOs from the April 16–17 protests,organisers in the Mobilisation for GlobalJustice have sought out and achieved a rareclarity of strategic purpose. Likewise, the ThirdWorld guru of international economics, WaldenBello (director of Focus on the Global South inBangkok), has recently explained his shift to apro-abolition position:

“Seventy per cent of the Bank’s non-aidlending is concentrated in 11 countries,while the Bank’s 145 other member coun-tries are left to divide the remaining 30%.Moreover, 80% of World Bank resourceshave gone, not to poor countries with poorcredit ratings and investment ratings, but tocountries that could have raised the moneyin international private capital marketsowing to their having investment grade orhigh yield ratings. In terms of achieving apositive development impact, the Bank’sown evaluation of its projects shows an out-standing 55-60% failure rate.

The failure rate is particularly high in thepoorest countries, where it ranges from 65%to 70%. And these are the very countriesthat are supposed to be the main targets ofthe Bank’s anti-poverty approach ... Ratherthan expect the highly paid World Banktechnocrats who live in the affluent suburbsof Northern Virginia to do the impossible –designing anti-poverty programmes forfolks from another planet: poor people inthe Sahel – it would be more effective to

abolish an institution that has made a bigbusiness out of ’ending poverty’, and com-pletely devolve the work to local, nationaland regional institutions better equipped toattack the causes of poverty.”12

3. GETTING FROM HERE TO THEREIf the IMF and World Bank do not offer hopefor regaining control of capital markets, can weexpect more from nation-states, guided by masspopular movements? This question can be con-sidered with selected examples from the Northand the South.

By no means a mass movement, the GermanPDS offers a visionary – perhaps unrealistic –argument for intervention at the nation-statescale (using the G-8 as a basis for coordina-tion), in a manner that could help regain con-trol, nationally, over global financial markets.In a motion tabled in the German Bundestag inMay 1999, the PDS called upon the govern-ment to take measures including the following:• Within the G8 framework, to take steps to

curb short-term speculation on the financialmarkets, inter alia, through a combination ofthe following measures by:

– introducing a currency exchange transac-tions tax (Tobin Tax). All transactionswhich result in an immediate exchange ofcurrency must be taxed at a standard pro-portional rate of 0.25% on the full volumeof their monetary value.– introducing special compulsory minimumreserves for non–project-specific bank cred-its, i.e. for bank loans which are not ear-marked for specific purposes (e.g. the pur-chase of consumer goods, investments,trade finance, etc.). As speculation is gener-ally undertaken with borrowed rather thanown funds, it may be assumed that thesecredits – especially to hedge and investmentfunds – are used primarily for short-termfinancial speculation. The banks will passon the costs of holding the reserves to bor-rowers, thereby pushing up the price of thefinancial commitment and reducing theinvestment.– imposing a charge on non–interest-bear-ing or low-interest cash deposits whenimporting or exporting capital, thus addingmore to the cost of such transactions thanthe percentage levied by a Tobin Tax. Asliding scale of charges may be imposed in

33

Bond

line with the type and/or the term of capitalflows: high rates would apply to short-term,high-risk accounts, while low rates wouldbe charged on long-term, lower-risk invest-ments.

• With the objective of improving bankingsupervision, to take initiatives to:

– enhance transparency by ensuring thatoff-balance sheet transactions (especiallywith derivatives) are identified and includedin risk calculations.– tighten the own capital regulations forbanks and extend them to all types of finan-cial institutions. The assessment and calcu-lation of credit risks must no longer be leftto these institutions – as has hitherto beenthe case – as this reduces the own capitalsecurity of the credit operation. The owncapital regulations for credit institutionsmust be applied more rigorously to deriva-tives transactions, and risk-weighted mini-mum reserves must be introduced for trans-actions by investment funds– introduce compulsory insurance for inter-national loans, so that private risks areinsured on a private basis and losses are nolonger passed on to the tax payer, as is thecurrent practice– abolish offshore finance centres, or topenalise banks and financial institutions thatdo business with these offshore centres.13

These are laudable objectives, which should (inmy view) be pursued by movements in theNorth which are trying to help limit the destruc-tiveness of financial markets. However, it isalways important to observe the principle thatinternational problems – like developmentfinance – must be addressed with and throughthe democratic social movements of the South.Unfortunately, this is not easy, for aside fromJubilee South and visionary NGO networkssuch as Third World Network, Focus and a fewothers, insufficient thought has been given tohow the existing mass-popular resistance toglobal financial turbulence – mainly one-off“IMF Riots” that are rarely coordinated to chal-lenge state power and neoliberalism more gen-erally14 – can evolve into more durable, democ-ratic movements combining progressive cri-tiques and indigenous organising processes.

Can the states of the South serve as reliableallies? At times, Third World nationalism hassounded resurgent (as in Venezuela under

Chavez) but this tradition just as quickly fizzlesout once Fund/Bank screws are tightened, orworse, turns inward to repress the Left (as inMahathir’s Malaysia and Mugabe’s Zimbab-we). Again and again, what appeared to beleaders and political parties of Second andThird World societies who at one point (at leastmomentarily) carried the aspirations of a mass-popular electorate, rapidly reversed allegiance,imposing ineffectual and terribly unpopularstructural programmes.15

More hopeful signs include the emergence ofZapatismo in 1994, Korean workers’ fight backagainst IMF restructuring, periodic mobilisa-tions by the Brazilian Movement of theLandless, the graduation of India’s NationalAlliance of People’s Movements from world-class protests against dams and genetic engi-neering to campaigns against neoliberalismmore generally (including Bill Clinton’s recentvisit), this January’s uprising of EcuadoranIndians against neoliberalism, February’s emer-gence of Thailand’s Forum of the Poor at amajor UN Bangkok meeting, and the dramaticApril revolt of Bolivians against water privati-sation.

Though none generated conclusive victories(due invariably to an unfavourable national bal-ance of forces), they provide important ifincomplete lessons for other protest trajectories,alongside recent North-led campaigns to haltthe Multilateral Agreement on Investment, banland mines, halt toxic waste dumping, and pre-vent the WTO from launching its Seattle round.

This forces us back to the problem of thescale at which we can realistically expect toreconstruct a more sane system of developmentfinance. As one famous German radical, KarlMarx once asserted, prior to constructing worldsocialism, each working class must first dealwith its own national bourgeoisie. That positionincorporated a fairly advanced critique of earlycolonial-globalisation, which may have rele-vance today. Global deconstruction and nation-al reconstruction may be a useful formula withwhich to begin to conclude. For implicit in theargument sketched out above is that the nation-state requires space out from under the boot ofglobal financial capitalism, especially thespiked heel represented by Fund/Bank missionsthat so decisively squeeze and shift power rela-tions at the domestic scale.

And there are no shortage of national-scale

34

Bond

class and political struggles. During the latel990s, mass strikes by national workers’ move-ments shook Nigeria, Indonesia, Paraguay,Taiwan (1994); Bolivia, Canada, France(1995); Argentina, Brazil, Canada, Greece,Italy, South Korea, Spain, Venezuela (1996);Belgium, Colombia, Ecuador, Haiti, SouthKorea (1997); and many other important sitesof East Asian, East European, African andLatin American proletarian suffering whenneoliberal economic disaster intensified in1998–99.

In sum, while every national setting providesits own particular challenges, the broad logic ofprogressive national movements aiming toredress problems of neoliberalism, invariablyleads to Washington. Unity and overlapsbetween these movements are increasing, and, Iwant to conclude, can best be advanced bybuilding international solidarity to delegitimise,defund and decommission the Fund and Bank –which will, in the process, raise questions aboutthe politics of scale associated with a more lib-eratory form of development finance than couldever conceivably be on offer from the Fund andBank. To consider this argument even brieflyentails a review of post-apartheid SouthAfrica’s experience.

Three universal reasons have emerged herefor nixing the Fund/Bank (there are also rea-sons drawn from specific project and policyexperiences too numerous to explore here):• Virtually all possible core value reforms in

key areas of Fund/Bank eco-socio-economicadvocacy have been explored, and the pro-found limitations unveiled.

• There is a greater urgency to restore nation-state sovereignty (and hence mere bourgeoisdemocracy, which has also ebbed), mainlythrough lifting Fund/Bank pressure, thanthere is time to convince several tens of thou-sands of hardened Washington economists toreverse the policy advice that has definedtheir worldview since grad school.

• The hard-currency component of Fund andBank lending should not be required onceappropriate conditions are achieved.

This latter argument deserves justification, forif local, national and regional developmentfinance is appropriate, then the technical (notpolitical, moral, environmental) reasons to havea Fund and Bank evaporate. Such was theviewpoint of the African National Congress

(ANC) in its 1994 Reconstruction and Deve-lopment Programme (RDP), in a sentence wononly after much left-wing lobbying:

“The RDP must use foreign debt financingonly for those elements of the programmethat can potentially increase our capacity forearning foreign exchange.”

(The ANC broke more than one such promise,but it is the principle here that is worth carefulreflection.)

The motivation for rejecting hard-currencyloans for “development” was the ANC Left’sfear of the rising cost of repayment on foreigndebt, once the currency declines, and the use ofhard currency to pay not for initiating a basiceducation project but instead for:• repaying illegitimate apartheid debt• importing luxury goods for the rich,• replacing local workers with inappropriate

job-killing, dependency-inducing technologyfrom abroad.

In sum, why take a US dollar loan for buildingand staffing a small rural school that has virtu-ally no foreign input costs?

If real development comes from localresources (only a tiny fraction of basic-needinputs in most developing countries require for-eign loans), and if the hard currency needed toimport petroleum or other vital inputs can usu-ally be readily supplied by export credit agen-cies (competing against each other, in contrastto centralised financial power and coordinationin Washington), the basic rationale for theWorld Bank falls away. And instead of relyingupon the Fund to maintain a positive balance ofpayments when fickle international financialinflows dry up or run frightened away, ThirdWorld countries that climb out (in future) fromunder the heel of the Fund and Bank could real-istically impose Malaysian-style exchange con-trols and tax unnecessary imports. (They wouldalso have more freedom to default on illegiti-mate debt.)

In short, the South ultimately should not needa dollar-denominated Fund and Bank for devel-opment. Indeed, it is probable that only whenWashington’s institutional power fades thatlocal-level, national and perhaps regionaldevelopment finance officials can reacquire theability they once enjoyed, a few decades ago, totame their own financial markets. (Such “finan-cial repression” entailed state interest rate sub-sidies, directed credit, prescribed asset require-

35

Bond

ments on institutional investors, communityreinvestment mandates and other means ofsocialising financial capital.)

The one remaining point to make is the easi-est, most practical answer in this article: isdefunding actually feasible? The same questionwas asked of anti-apartheid financial sanctionsadvocates, and answered in the affirmative in1985, just a few years after campaigningbecame serious. In addition to defunding theFund through popular pressure on national par-liaments (mainly in Europe, the US and Japan)to deny further resources, activists returningfrom the April 16 protests began taking advan-tage of the Bank’s extreme reliance upon inter-national bond markets.

Nearly 80% of Bank funds for onlendingcome from bonds, making it the most com-pelling pressure point and local handle for themedium-term struggle. Hence, a “World BankBond Boycott” initiated by Haitian, SouthAfrican, Brazilian and many other activists anddebt campaigners across the world, waslaunched on April 10 (www.worldbankboy-cott.org/). Berkeley City Council offered theinitial commitment that its municipal fund man-agers would not buy Bank bonds (they werealso the first municipality to record anti-apartheid divestment). All investors of con-science – churches, pension funds, universityendowments, individuals – are being asked notto profit from poverty and ecological destruc-tion through increasing their portfolio’s WorldBank bond holdings. In particular, theRainforest Action Network combined with theboycott campaign to target Citibank for itsBank bond marketing.

In coming months and years, activists willprove the power of international coordination,as they did using the financial sanctions thatdemonstrably helped sink the Botha and DeKlerk regimes in Pretoria. Defunding the Fundand breaking the Bank can dramatically

improve global and local power balances, opentip radical development finance alternatives,and contribute to an internationalist solidarityunfettered by controversy over reform of theBretton Woods Institutions. April 16 gave thou-sands of activists an initial opportunity to runon the Bank and Fund. The follow up challengeis to keep the institutions running, until theydrop of exhaustion.

CONCLUSIONFor the Southern African Catholic Bishop’sConference (SACBC) and allies, in my view,the challenge is to not only understand theglobal financial markets from a critical perspec-tive, but to contemplate the full set of contra-dictions associated with reform. This requiresconsidering what has worked (if anything),what hasn’t worked, and – maybe most impor-tantly of all – what people affected in the Southare saying about debt relief, a new financialarchitecture, social clauses in trade, etc.

I am honoured – as a mere academic – tohave been asked to provide a paper that helps tocontextualise the struggle for democratic, local-ly controlled development finance, which Ihope I have demonstrated is central to thebroader struggle for an end to neoliberalism,and in the process for an end to socio-economicinequality.

Given its history and its current positionamidst society’s poor and oppressed, theSACBC is well situated to take leadership onthese matters. Even if the style of church-basedcampaigning may not coincide with that ex-pressed a month ago on the streets of Washing-ton and in the main plaza of Cochabamba,Bolivia, nevertheless the spirit you enter thisconference with, will surely be in solidarity andharmony with those who have had enough ofglobal financial markets, and who now – likeKeynes in 1933 – want to give democratic,domestic development finance a chance.

36

Bond

1) J. M. Keynes, National self-sufficiency,Yale Review, 22, 4, p.769.

2) Versions of the paper were presented at aKairos Europa conference, RegainingControl of Capital Markets, Bad Muensteram Stein, German. Several Washington,DC seminars in April. A version will beprinted in Monthly Review, New York,June 2000.

3) In addition to Robert Brenner's more recentstatement of the evidence (see Turbulencein the World Economy, London: Verso,forthcoming), earlier discussions about the1 970s–80s economic crisis, such as SimonClarke, Keynesianism, Monetarism and theCrisis of the State (Alders and Elgar, 1988,pp.279-360); David Harvey, The Conditionof Postmodernity (Oxford: Basil Blackwell,1989, pp.180-197); Ernest Man. Theoriesof Crisis: An Explanation of the 1974–82Cycle, in M. Gottdiener and N. Komninos(Eds), Capitalist Development and CrisisAccumulation, Regulation and SpatialRestructuring (London: Macmillan, 1989,pp.30-58); Keith Armstrong, Andrew Glynand John Harrison Capitalism Since 1945(Oxford: Basil Blackwell, 1991, pp.169-260).

4) See, e.g., Christian Suter, Debt Cycles inthe World Economy (Boulder: WestviewPress, 1992).

5) The theory is developed in David Harvey,Limits to Capital (London: Verso, 1999),and applied in at least one national settingin my Zimbabwe: 4 Study of Finance,Development and Underdevelopment(Trenton: Africa World Press, 1998).

6) NC Alliance, The global economic crisisand its implications for South Africa, Dis-cussion Document, Alliance Summit,Johannesburg, Oct; 998, p.4, reprinted in theAfrican Communist, Third Quarter 1998.

7) Soh Young-joo, Alternatives to the‘Corporate State'? Paper presented toConference on Economic Sovereignty in aGlobalising World, Bangladesh: 24, 1999.

8) Sometimes devaluation of financial assetsbacklashed, however. Late-1990s examplesof gambles gone very sour in derivativesspeculation, exchange market positions,currency trading, and bad bets on commod-

ity futures and interest rate futures includeLong-Term Capital Management Q (1998),Sumitomo/London Metal Exchange 1.6 bil-lion) (1996), I.G.Metallgessellschaft ($2.2billion) (1994), Kashima Oil ($1billion)(1994), Orange County, California ($1.5billion) (1994), Barings Bank ($900 mil-lion) (1995), the Belgian government ($1billion) (1997). Bank of Switzerland ($690million) (1998).

9) As expressed in the 1998 Annual Report ofStandard Chartered Bank, recent forexprofits generated “outstanding” results:“We have a world-class team and theirability to continue trading, during periodsof high volatility in the foreign exchangemarkets, resulted in exceptional dealer sta-bility.” (Standard Chartered Bank, AnnualReport 1998, London, 1999, p7.)

10) Cato Institute,www.cato.org/researchlglob-st.html; HenryKissinger, IMF no longer able to Deal withEconomic Crises, Los Angeles Times Oct4. 1998; George Shultz, William Simonand Walter Wriston, Who needs the IMF?Wall Street Journal, February 3, 1998.

11) http://www. intellectualcapital.com/issues/issue3 64/item9O48 .asp

12) Walden Bello, Meltzer Report on BrettonWoods twins builds case for abolition buthesitates, Focus on Trade, 48. April 2000.

13) PDS Parliamentary Group, A social anddemocratic world economic system in placeof neo-liberal globalisation, Printed paper14/954, Bundestag, Bonn, 4 May 1999.

14) John Walton and David Seddon, FreeMarkets and Food Riots (Oxford: BasilBlackwell, 1994).

15) Very different circumstances prevailed,amidst very different ideologies, but thisfate befell, among others, Aquino(Philippines), Arafat (Palestine), Aristide(Haiti), Bhutto (Pakistan), Chavez(Venezuela), Chiluba (Zambia), De Jung(South Korea), Havel(Czech Republic),Mandela (South Africa), Harley (Jamaica),Megabat (Indonesia), Musoveni (Uganda),Mugabe (Zimbabwe), Nujoma (Namibia),Ortega (Nicaragua), Perez (Venezuela)Rawlings (Ghana), Walensa (Poland) andYeltsin (Russia).

ENDNOTES

INTRODUCTIONOur concern to develop meaningful and sus-tainable interventions, requires of us to developan understanding of the impact of globalisationin South Africa and our neighbouring coun-tries.

It is my hope that the information gained atthis conference will challenge and remind usafresh of the daunting task we face, as peopleconcerned about the needs of the poor. In termsof doing justice to the topic, this paper aims toaddress briefly and encourage debate about thefollowing: • Highlight the problems in defining globalisa-

tion and propose a workable definition.• Sketch background for the current situation –

the role of the Bretton Woods Institutions. • World perspectives on providing alternatives

to narrow the income gap – the work of theSocial Watch Initiative.

• Developing objective criteria for monitoringequity.

• The unique challenges, contradictions andproblems of South Africa’s Reconstructionand Development Programme (RDP) andGrowth, Employment and Redistribution(Gear) strategy.

• The role of the nation-state. • The challenge for community participation in

addressing the challenges.

1. A WORKABLE DEFINITIONIn understanding the term “globalisation”, it isimportant to examine how various people viewit. Today, it is a term that is widely used. Whenpeople see foreign tourists in South Africanhotels, CNN news on our television, or

Hyundai motorcars on our roads, they may saythat this is “globalisation”. When soccer fanshear that our best players are joining clubsoverseas, they may complain about globalisa-tion. When one finds in one’s inbox 25 newemail messages from around the world, onemay praise the wonders of globalisation. Whenworkers hear that new machinery is arrivingand there may be retrenchments, they mayblame globalisation.

Let’s look at how some people/institutions –some in support of and some opposed to it –view globalisation. The examples are exten-sive, but demonstrate clearly the dilemmas andperspectives.

“An activist in Cape Town told how hewoke up one morning and found the bodyof a dead man in his front garden.Apparently the man had been murderedduring the night. The murder took place onthe same day that Princess Diana was killedin a car crash in Paris, France. For manydays thereafter, every time he switched onthe television or radio, he heard every detailabout the life, death and family of PrincessDiana. During this same period, he keptgoing to the police, to neighbours, to manypeople in his community, trying to find outthe details of the man who had been mur-dered in his front garden. It was two weeksbefore he was able to find out the name ofthe man. He never found out why the manwas killed. This, he said, is what globalisa-tion is doing to our lives, making it easier tofind out what is happening to famous peo-ple far away than to ordinary people on ourown doorsteps.”

37

Globalisation: Facts, Problems, Prospects

Elroy Paulus

38

Paulus

“Globalisation is a positive development forthe world ... To begin with, globalisation isthe continuation of the trend of growingopenness and integration among economiesthat has brought the world a half century ofunparalleled prosperity.” – MichelCamdessus, previous Managing Director ofthe International Monetary Fund (IMF)

“Anyone who believes that globalisationcan be stopped has to tell us how he wouldenvisage stopping economic and technolog-ical progress; this is tantamount to trying tostop the rotation of the earth.” – RenatoRuggiero, Director General, World TradeOrganisation (WTO)

“Globalisation has been marked by a con-certed strategy by capitalists, in particulartransnational corporations, to safeguardtheir interests and destroy any possibility ofsocialism ... ”

“In the name of globalisation and interna-tional competitiveness there is a new ideo-logical attack on worker rights, tradeunions, and labour standards. Increasinglyinvestment is being shifted to countrieswhere no unions are allowed.”

“Cosatu must counter the free market sys-tem and deepen the crisis of imperialism bydeveloping an alternative humanistic projectwith a socialist perspective.” – Congress ofSouth African Trade Unions (Cosatu) 6thCongress Resolutions, September 1997

“When the market goes too far in dominat-ing social and political outcomes, theopportunities and rewards of globalisationspread unequally and inequitably, concen-trating power and wealth in a select groupof people, nations and corporations, margin-alising the others. When the profit motivesof market players get out of hand, they chal-lenge people’s ethics – and sacrificesrespect for justice and human rights ... ” – 1999 United Nations DevelopmentProgramme (UNDP) Human DevelopmentReport

“In today’s world, no country is untouchedby the forces of globalisation. The chal-

lenge is to seize the opportunities opened upby globalisation while minimising its risks.On the positive side, globalisation is creat-ing unprecedented opportunities for wealthcreation and for the betterment of thehuman condition. Reduced barriers to tradeand enhanced capital flows are fuelling eco-nomic growth. The revolution in communi-cations technologies is shrinking the dis-tance between nations, providing newopportunities for the transfer of knowledgeand the development of skills-based indus-tries. Technological advances offer greatpotential for the eradication of povertythroughout the world.

But the benefits of globalisation are notshared equitably. Prosperity remains thepreserve of the few. Despite the progress ofthe past 50 years, half the world’s popula-tion lives on less than US$2 per day. Manymillions live in conditions of extreme depri-vation. The poor are being marginalised.Expanded capital flows have also broughtwith them the risk of greater financial insta-bility, undermining the hope that a commit-ment to open markets can lift the develop-ing world, especially the least developedcountries, out of poverty and debt. The per-sistence of poverty and human deprivationdiminishes us all. It also makes global peaceand security fragile, limits the growth ofmarkets, and forces millions to migrate insearch of a better life. It constitutes a deepand fundamental structural flaw in theworld economy.

The greatest challenge therefore facing ustoday is how to channel the forces of glob-alisation for the elimination of poverty andthe empowerment of human beings to leadfulfilling lives.

The solution does not lie in abandoning acommitment to market principles or inwishing away the powerful forces of tech-nological change. Globalisation is a realityand can only increase its impact. But if thebenefits of globalisation are to be sharedmore widely, there must be greater equityfor countries in global markets.”– The Fancourt Commonwealth Decla-ration on Globalisation and People-CentredDevelopment, November 1999

Clearly definitions are varied and opposing. For

39

Paulus

the purposes of this presentation, I have usedthe following workable definition:

Globalisation is a process of restructuringthe world economy. This restructuringprocess is a response to the crisis in the cap-italist economic system which began in theearly 1970s. The main purpose of thisrestructuring is to find new ways for busi-ness to maximise profits. Regardless of theadvances in technology and telecommunica-tions, the impact of globalisation on thewell-being of most of the people living inThird World countries, has been negative.

There would no doubt be challenges to this def-inition by many proponents of globalisation,particularly those who have been unaware orindifferent to the plight of the poor. I wouldargue that the above statement be verified byfacts which I will outline shortly.

2. THE CURRENT STATUS: THE ROLE OF THEBRETTON WOODS INSTITUTIONSThe 1999 UNDP Human Development Reportgives specific figures to illustrate what is actu-ally happening with regard to what it refers toas rewards that are spread “unequally andinequitably”:

“By the late 1990s a fifth of the world’speople living in the highest income coun-tries had:– 86% of world gross domestic product(GDP)– 82% of the world’s export markets; thebottom fifth had just 1%– 68% of foreign direct investment; the bot-tom fifth had just 1%– 74% of world telephone lines, today’sbasic means of communication; the bottomfifth had just 1.5%.”

These startling, indeed frightening, statisticstell their own story.

Important roleplayers that have contributed tothe adoption of a neoliberal approach (commit-ted to a minimal state, one limited to the tasksof internal order and external defence and dis-tinguishing between private and public realms)in world economics include the Bretton WoodsInstitutions (BWIs), namely, the World Bank,the International Monetary Fund (IMF) and theWorld Trade Organisation (WTO).

“Towards the end of World War II, interna-tional institutions were established in aneffort to avoid repeating the horrors of the

Great Depression and the mistakes of thepunitive Versailles Treaty that concludedWorld War I. At the conference at BrettonWoods, New Hampshire in 1944, the Alliesset up the IMF to ensure a stable interna-tional currency regime that would facilitateinternational trade. The World Bank wouldrecycle money from wealthy countries, firstto war-torn Europe and Japan and then topoorer nations. As a result of the Cold War,the World Bank and IMF became instru-ments of the West. The WTO recentlybecame part of the BWIs.

As a result of the influences of the BWIs,several of their global interventions hadpositive, but largely negative repercussions.The World Bank, for example, will notoperate without a country’s prior adoptionof a structural adjustment programme(SAP).

This involves rigorous cuts in publicspending with the consequent effect ofincreased unemployment and all the otherharsh medicines required to cure economicailments. It has been shown that these pro-grammes cannot be implemented withoutresorting to authoritarian regimes that arehardly likely to countenance people’s par-ticipation or people-centred development”

– Griesgraber & Gunter, 1996: xiii.The UNDP described the impact of these SAPs:

“What emerges is an arresting picture ofunprecedented human progress andunspeakable human misery, of humanity’sadvance on several fronts mixed withhumanity’s retreat on several others, of abreathtaking globalisation of prosperity sideby side with a depressing globalisation ofpoverty. As is so common in human affairs,nothing is simple and nothing is settled for-ever” UNDP: 1994.

There has arguably been some progress inchanging indicators used by the BWIs to lendmoney to countries and aid in “development”,at a great cost. The interest of social scientistsand environmentalists in overhauling the GDP-based system of national accounts (SNA)emerged at least 40 years ago. New indicatorsused include the Human Development Index(HDI) of the UNDP which ranks countries by ameasurement that combines life expectancy,educational attainment and basic purchasingpower. The indicators have exposed the current

40

Paulus

hypocrisy of the BWIs, and have opened themlogically and morally to demands of democra-cy, accountability and restructuring.

Many new indices are proposed and are atvarious levels of acceptance. A few include theEDP (environmentally adjusted net domesticproduct – which takes into consideration thedepletion and degradation of natural resources),and the ISEW (index of sustainable economicwelfare).

Suffice it to say there are many indices indi-cating that which is valued. The final say in theadoption of indices, however, is linked to howstrong the lobbying for it is. The role of organ-ised civil society becomes extremely importanthere.

In trying to make sense of the dilemmas, con-tradictions and ironies in the South Africancontext, it is easy to rationalise or “adopt” anideology without giving it great and oftenpainful scrutiny. It is easy to buy into an ideolo-gy because it “sounds right” or “was the mantraall the years, why compromise now?”.

It is crucial to find creative and innovativemeasures to address the problems we face.

A warning from Ngugi wa Thiongo should beheeded. He states:

“The real aim of colonialism was to controlthe people’s wealth ... (but) economic andpolitical control can never be complete oreffective without mental control. To controla people’s culture is to control their tools ofself-definition in relationship to others. Forcolonialism, this involved two aspects ofthe same process: the destruction or thedeliberate undervaluing of a people’s cul-ture, their art, dances, religions, history,geography, education, orature and literature,and the conscious elevation of the languageof the coloniser.

The domination of a people’s language bythe languages of the colonising nations wascrucial to the domination of the mental uni-verse of the colonised” – The Language ofAfrican literature.

I would argue that economic colonialism is areal danger, particularly when a governmentsees no alternative.

When one model is offered as the only solu-tion, how does one then develop alternatives?

How will government be held accountable? What objective tools of analysis and mea-

surement of social indicators does one use?

3. TOWARDS DEVELOPING OBJECTIVE CRITERIAFOR MONITORING EQUITYI found the work of the Social Watch Initiative

(SWI) to be valuable in attempting to movebeyond ideological debate and helping us tobegin discussing factors and criteria for evalu-ating the impact of government policy initia-tives as well as the efficacy of community-based organisation (CBO) and non-governmen-tal organisation (NGO) programmes on thelives of the poor.

The SWI is a coalition of civil society organi-sations from around the world. These organisa-tions are monitoring the implementation bytheir governments of promises made at theWorld Summit for Social Development(WSSD) in Copenhagen and the Fourth WorldConference on Women (WCW) in Beijing in1995.

They used a graph known as the equity dia-mond for expressing the present state of theregion (e.g. sub-Saharan Africa, Mexico-Central America and Panama). It graphicallyillustrates the situation based on four indicators:the infant mortality rate for children under five;the literacy rate; the Gini index; and theRelative Gender Development Index of theUNDP.

On each axis, if the value of the country isfurther from the centre than the value of theregion or group, this indicates a better thanaverage situation. If it is closer, the opposite isindicated. In short, the bigger the country’s dia-mond, the better its average situation, measuredby these four indicators, compared with theregion.

The SWI also monitored progress and set-backs toward achievement of goals committedto by governments at the WSSD and at theFourth WCW. They chose to identify certainmeasurable goals/targets and used indicators asa reference point. These are enumerated below:

3.1 Progress and setbacks in the fulfillmentof the Copenhagen goalsTarget 1a: To achieve completion of primaryeducation of at least 80% of school age childrenby 2000. Target 1b: To provide universal access to basiceducation for all school age children by 2000.Target 2: To achieve a life expectancy of over60 years by 2000. Target 3a: To reduce infant mortality rates by a

41

Paulus

third of the 1990 rate or to 50 per 1000 livebirths by 2000 if this figure is lower.Target 3b: To reduce under 5 mortality rates bya third of the 1990 rate or to 70 per 1000 livebirths by 2000 if this figure is lower.Target 4: To reduce maternal mortality to halfthe 1990 level by 2000.Target5: To achieve food security. (To ensurecaloric supply according to the FAO suggestedlevels.)Target 6: To reduce severe and moderate mal-nutrition for children under 5 to half of the1990 rate by 2000.Target 7: To provide access to health care ser-vices for all by 2000. Target 8a: To provide access to reproductivehealth care services to all persons. (Pregnanciesattended per every 1000 live births.)Target 8b: To provide access to reproductivehealth care services to all persons. (Percentagesof births attended.)Target 9: To reduce mortality and morbiditydue to malaria by at least 20% of 1995 levels in75% of countries affected.Target 10: To eradicate, eliminate or controlthe main diseases constituting sanitary prob-lems at a world level by 2000.Target 11: To reduce the adult illiteracy rate toat least half the 1990 level.Target 12a: To provide access to safe drinkingwater and adequate sanitation for all.

4. THE ROLE OF THE NATION-STATEStan Burke, in People First defines socialdevelopment as referring to:

“Those investments and services carried outor provided by a community for the mutualbenefit of the people of that communitywhether as a village, a district or a nation.These might include health services andfacilities, education, water supplies, energy,transport systems and communications.Such services and investments could, ofcourse, be provided by private individualsor companies, in which case questions ofequity and regulation arise. Most societieshave therefore chosen what for them is asuitable degree of public involvement ininvestment, operation and regulation.The relationship between social, economicand political development can be illustratedas two columns representing economic andpolitical development and a girder repre-

senting social development where the girderis dependent upon the support of the twocolumns which in turn rest upon a founda-tion of personal (human) development.

Social Development

Economic PoliticalDevelopment Development

Personal (Human) Development

Unfortunately, too many governments andaid agencies either forget or ignore thisbasic relationship.”

What then is the role of the state? Today, underthe rubric of governance, there appears to besome acknowledgement that the anti-stateemphasis of the structural adjustment era mayhave gone too far, and the call is for the moreeffective bureaucracies to be accountable. Thedanger in many poor countries, however, is thatthe real and relative salaries, the morale andethics of bureaucracy, and public trust inbureaucracy, have plummeted so far, that itmay be too late to turn these trends around. Thedaunting challenge today is how to break out ofthis “box” of bureaucratic decline.

Hirschmann D. (Development and Change,1999) believes that this rests on the four cor-ners, formed and connected by lack ofresources, incentives, public service and legiti-macy.

In an address at the Privatisation Africa 2000conference held in Sandton, Johannesburg on16 May 2000 and entitled “Restructuring fordevelopment: ensuring benefits for the people”,Minister of Public Enterprises Jeff Radebe stat-ed the following (I quote him at length todemonstrate his Ministry or government’sunderstanding of the role of the state in thiscontext):

“... our objectives for the restructuring pro-gramme can be identified by their relation-ship to micro, macro and social impacts. Atthe micro-economic level, restructuringinvolves enhancing the efficiency and effec-tiveness of state enterprises, sorting outtheir business systems and ensuring propercorporate governance, accessing globallycompetitive technologies, helping to createeffective market structures that encouragegreater competition in sectors currently

42

Paulus

dominated by state-owned enterprises(SOEs) as well as mobilising private sectorcapital, expertise and participation at theenterprise level.

At the macro-economic level, restructur-ing aims to achieve a reduction in the publicsector borrowing requirement, to attract for-eign direct investment, and to financegrowth and provide for greater industrialcompetitiveness. Taken together these twosets of aims at different levels wouldachieve a great deal; however, given ourconditions of inherited inequality and injus-tice, they would be insufficient on their ownto provide an adequate response to thepressing issues of the day.

Hence, we believe that it is imperative toemphasise that at the social level there areparticular results we wish to see. Theseinclude wider participation in the SouthAfrican economy through active participa-tion and skills development of formerly dis-advantaged groups and individuals, as wellas to mitigate against any possible negativesocial impacts that may arise from restruc-turing efforts, such as marginal job losses,erratic price increases, or even the with-drawal or cancellation of services to certainareas.

It is commonly understood that the funda-mentals upon which the South Africaneconomy now stand are essentially sound.In general terms, the direction and contentof the policies implemented by governmenthave produced the confidence in our econo-my that is both pleasing as it is necessary.

It is therefore no accident of history thatthe major SOEs in our country are locatedin four critical sectors of our economy:transport, telecommunications, energy andthe high technology defence industrial sec-tor. Transnet, Telkom, Eskom and Denelare common names in our country, andincreasingly are becoming household namesin other parts of Africa. As we know bynow, together they contribute 86% ofturnover, 94% of net income, employ some77% of the total workforce, and account for91% of the total assets of the top 30 SOEs.Together they dominate, if not overwhelm,the sectors in which they participate.Government’s decision to focus its restruc-turing attention on these Big Four has the

agreement of political parties across theboard.

We want to make sure the transitiontowards world class, competent and respon-sible SOEs is as smooth as possible. To thisend, we have adopted Protocols on Corpor-ate Governance with SOEs’ managementand their boards of directors and will signoff shareholder compacts as well. Further-more, the final touches to a sound socialplan to cushion the effects, for example, ofpossible retrenchments are being put inplace. We have engaged at various timeswith management, boards and labourthroughout the SOE sector in an endeavourto hear all voices, to identify possibleglitches and to attempt to draw commonconclusions. By its very nature this is adynamic process and one that requires con-stant work. I am committed to presentingthe country with a legitimate, workable pro-gramme that will be sustainable and willbenefit our people long after we in thisroom are no longer here.

We are well aware of the more favourableeconomic climate that has emerged over thepast two years or so. Most recently, Stand-ard and Poor commented positively on ourgeneral economic direction and became thelatest analyst to increase our investmentconfidence rating. We have noted anincrease in new investment from companiesthat had not ventured here before. This initself is encouraging. The United States hasalso adopted a more open policy towardsAfrica, and we have seen a successfulthough tough conclusion to the EuropeanUnion negotiations. Together, these ele-ments open new opportunities for investorsfrom abroad and also for the developmentof joint ventures here. Government looksforward to the expanded participation of theprivate sector in our restructuring efforts.We look forward to foreign investors, largeand small, coming to our shores.”

Civil society needs to be asking governmentsome critical questions, e.g.: what scientificimpact assessments have been done to deter-mine the consequences of restructuring? How(quantifiably) can government be held account-able for these initiatives? The NGO/CBOmovement has had some recent successes. Theblockage of the Multilateral Agreement on

43

Paulus

Investment (MAI) is one example. This wasmade possible by one of the very tools of glob-alisation, namely the Internet and email.

5. THE SOUTH AFRICAN CONTEXT: UNIQUE CHALLENGES AND PROBLEMS – RDP/GEARCONTRADICTIONSThe book An RDP Policy Audit, edited byPatrick Bond and Meshack Khosa (HSRC,1999) is possibly one of the first attempts toformally ask the question: has the RDP pro-gramme been honoured in a quantifiable way?Readers are encouraged to draw their own con-clusions about how various departments in the1994 to 1999 government succeeded in turninga broad electoral mandate into concrete policiesand laws.

Below are listed some accomplishments andshortcomings of GEAR in terms of job cre-ation. Many will say that this replaced the RDP,whilst government will insist that GEAR is themeans to implement the RDP.

6. THE CHALLENGE FOR COMMUNITY PARTICIPATION We can still make a difference! One can oftenbe overwhelmed by the size and complexity ofglobalisation. Like with the SWI, however, our

strategies for intervention should be seriouslyconsidered to be just that.

We can interact directly with local govern-ment. Much of the legislation has allowed usunprecedented access up to the decision-mak-ing level within, for example, local govern-ment.

But there is, unfortunately, much anti-povertyand advocacy work to be done. Many of thegaps between policy and practice will increasein government. Below are some of the contra-dictions and dilemmas in terms of the gapbetween policy and outcomes: • Effect of privatisation (e.g. FWWP Project in

Paarl).• Lack of pensions being paid out by the

Department of Welfare in the Eastern Cape.• Grootboom legal precedents.• Impact of demarcation in terms of financial

viability and access to democratic and servicestructures.

• Effect of uniform property tax bill on tradi-tional land.

• Effect on language policy (see examplebelow).

It is held by some proponents of monolingual-ism, that those who cannot express themselvesin English are not heard. I would like to quote a

GEAR Policies on job creation Reality check: Year 2000

Increasing exports from South Africa Although exports increased to other African countries, on the whole, exports declined from 1.6% in 1995 to 0.25% of GDP in 1999.

Increase foreign investment Fixed capital investment by private businesses declined in 1999 by in Southern Africa 3.8%.

Create 833 000 new jobs by 2000 500 000 jobs have been lost since 1995. Unemployment in the Eastern Cape is 51.4% and in the Northern Cape 47.8%.

Economic growth between 3–6% Real growth for 1999 was 1%.

Land reform The programme has had an increase of R114 million and a new policy that aims to transfer 30% of farms to 200 000 black commercial farmers in the next 20 years.

Greater labour market flexibility The International Labour Organisation (ILO) describes the South African labour market as already very flexible, with many layers of job categories.

Reduce the size of the public service The government is planning to cut the public service byand develop more efficient management 300 000 jobs.structures for better service delivery

Institute a levy system to fund training A tax of 0.5% of pay roll will be used for education and training. This tax will be deductible, resulting in a reduction in company taxes (R1.4 billion in 2000).

44

Paulus

recent example where the issue of language andthe effect of efficiency and globalisation can bedemonstrated.

In a noteworthy Land Claims Court ruling of27 January 2000, Judge R Gildenhuys ruledagainst the applicant (plaintiff) who had themunicipality of Ladybrand evict Mr and MrsMpetsane from his farm. In the case of H RRohde v M P Mpetsane and another LCC5R/00, the magistrate of Ladybrand granted aneviction order against the two respondents. Thematter was referred to the Land Claims Courtfor review in terms of the Extension of Securityof Tenure Act, No 62 of 1997. The judge ruledthat this eviction was illegal since, among otherreasons:

“I could also find no indication that therequirements of regulation 9(2) of the regu-lations published on 18 December 1998under R1632 were met. Briefly, these regu-lations require that the appropriate notifica-tion be given to the respondents in the offi-cial language that they best understand, thatcertain sections of the notice be read aloudto them and that a further written copy ofthe notification, in another official languagebe handed to them” (Land Claim CourtLCC5R/00:2000) [translation, emphasisadded].

My point is simple, modernisation (globalisa-tion) per se – in this case, downloading thiscase file from the Internet – was in no way nec-essarily pragmatic and a means of effectivecommunication. Poor people have recourse to

justice because of the constitutionally enshrinedofficial status of all 11 languages. HavingEnglish as the sole official language removesthis legal requirement. Other languages losetheir power and become optional and a privi-lege. This hegemony of one language is anindirect consequence of a mindset that does notappreciate or treasure the richness of other lan-guages.

CONCLUSIONI quote from the Southern African CatholicBishops’ Conference Economic Justice in SouthAfrica – A Pastoral Statement (May 1999).

“We challenge in turn all those who beareconomic responsibility always to judgetheir policies and practices from the per-spective of fundamental values. Workingtogether, challenging and being challenged,we will truly be doing God’s will, and beworthy of God’s reward:

Is not this the sort of fast that pleases me– it is the Lord Yahweh who speaks to break unjust fettersand undo the thongs of the yoke, to let the oppressed go free,and break every yoke, to share your

bread with the hungry,and shelter the homeless poor,

to clothe the one you see to be naked and not turn from your own kin?Then will your light shine like the dawn And your wound be quickly healed over.

(Isaiah 58:6-8)”

45

Paulus

BURKEY, STAN, 1993. People First. Zed Books.Development and Change. 1999. Vol 30

Number 2 April 1999, Blackwell Publishers.DEVETAK R AND HIGGOT R. 1999. Justice

Unbound? – Globalisation, States and theTransformation of the Social Bond. Centrefor Globalisation and Regionalisation,University of Warwick, United Kingdom.

GRIESGABER J.M. AND GUNTER B.G. (ed). 1996.Development – New Paradigms andPrinciples for the Twenty-First Century –(Rethinking Bretton Woods Series). Center ofConcern, Washington DC, Pluto Press.

ILRIG. 1999. An Alternative View of EconomicCrisis. ILRIG Globalisation Series No 2.ILRIG, Cape Town.

ILRIG. 1999. An Alternative View ofPrivatisation. ILRIG Globalisation Series No4. ILRIG, Cape Town.

ILRIG. 2000. An Alternative View of theSouthern African Development Community.ILRIG Globalisation Series No 5.ILRIG,Cape Town.

MINISTRY OF FOREIGN AFFAIRS. 1996.Globalisation and Norwegian Identity.Norwegian Government, November 1996.

PUBLIC MANAGEMENT SERVICE. 1995.Globalisation: What Challenges andOpportunities for Governments? OECD,France.

Social Watch No 4 2000, Instituto del TercerMundo, Uruguay.

SOUTHERN AFRICAN CATHOLIC BISHOPS’CONFERENCE. 2000. Economic Justice –Pastoral Statement. (draft)

Various newspaper clippings (Business Day,Sunday Independent, Mail and Guardian)

REFERENCES

INTRODUCTIONLet me start with reference to my native coun-try and its recent history. World War Two sawthe defeat of Germany, its industry destroyed,its economic structure ruined. I was about 15years old at that time and remember this well.Even in the early 1950s when I attended uni-versity, the situation was still bad. For instance,we could not enter Munich University throughthe main entrance because there was still ahuge bomb crater which had not yet beenfilled. During winter, each student had to bringa bundle of wood every week to heat the stovesof the lecture halls.

Within 15 to 20 years, however, Germany’spost-war reconstruction of its economy wassuccessful. At the same time, and equallyastonishing, is that the country’s social level isquite high – some criticise it for being too high.Compared with other industrialised countries,its social structure is surprisingly stable.

Germany certainly had to face, and stillfaces, many economic problems, particularly inrecent years. Take for instance the problemscaused by unification. Since 1990, aboutDM150 billion (R450 billion) has been and isannually transferred to the former communistGerman Democratic Republic to reconstruct itsruined economy. Then there are problemscaused by the reversed population pyramid.The same number of people in the workforcemust bear the costs for an increasingly olderpopulation. But despite this and a number ofother problems, economic and social standardsare remarkably high, and the so-called “socialnet” is tense and tight – again some criticise:too tight.

Many factors contributed positively to thiseconomic and social reconstruction. An exam-ple is aid from the United States (US) via theMarshall Plan during the first post-war years.

One of the most important factors, however,was the general policy of market economywithin a basic framework. It is a key part of theso-called Social Market Economy and aims at asound economic order which is both effectiveand social.

In this paper, I will briefly describe the ten-sion-laden relationship between market econo-my and morality. I will then present the thesisof economic ethics, that the framework is thebasis for a sound economic order and the mainplace where morality is to be situated. Lastly, Ishall explain this thesis in eight steps, givingreasons for the importance of the framework.

1. CONTRADICTION BETWEEN MARKET ECONOMY AND MORALITY (AND ITS SOLUTION)In academic discussions and even more in thefields of economic policy and every day eco-nomic life, two contrasting positions frequentlycome into conflict. Some make the autonomyof economic market forces, of “market laws”and the economy as such, absolute and are con-vinced that introduction of and subordination tomoral laws would create bad economic results.Market economy is based on the freedom ofdecision by the individual economic partici-pants. Compliance with moral laws – even ifwell meant but coming from outside the eco-nomic field and, consequently, alien to theeconomy – would restrict this freedom, wouldprevent the economy from operating efficientlyand would create negative results.

47

The Importance of a Basic Framework for a Sound – Effective and Social –

Economic Order

Franz Josef Stegmann

48

Stegmann

Others claim the absolute priority of ethicsover the economy. Economy and market are notan end in themselves. They must be at the ser-vice of human beings and their needs and val-ues. Economy and market, therefore, have to besubordinated to morality and must give ethicsabsolute priority. People holding these convic-tions sometimes make moralising appeals toeconomic participants, without taking intoaccount the particular nature and requirementsof the economy; therefore, business people justas often do not listen to those appeals and rejectthem.

The basis of both contrasting views is the factthat, as a rule, additional efforts for social tar-gets – or for humane or moral purposes as such– are connected with costs. In a market econo-my, additional efforts seem to be well-nighimpossible because they can (and will) beexploited by fellow competitors, who do nothave to bear those additional costs. Wheneveran enterprise has to bear expenses whichexceed the expenses of its competitors, theenterprise will become bankrupt and will beeliminated by the market. Competition andmorality are consequently thought to excludeeach other. From this fact two famous figures –Karl Marx and Friedrich August von Hayek,who received the 1974 Nobel Prize for eco-nomics – drew contrasting conclusions. Marxdemanded for the sake of social justice andmorality the elimination of economic competi-tion as fully as possible. By contrast, vonHayek (who lectured in economics in the USfor many years) considered the concept ofSocial Market Economy to be a contradiction initself, a “wooden iron”, and rejected its socialdimension in favour of market efficiency. Hetherefore gave the second volume of his mainwork Legislation and Liberty the title “The illu-sion of social justice”.1 Thus, market economyand morality – competition and social justice –seem to exclude each other.

Do they do so? Must they do so? Or can thedilemma be solved? Modern economic ethicsclaims that this conflict can be solved – at leastto a great extend.

When I was studying at Munich University, Ienjoyed mountain climbing. When you are on ahike and your friends realise they left theirlunch behind, you will surely share your foodwith them. But when this happens for a third orfourth time, you will probably check their back-

packs before starting off. This face-to-face rela-tionship makes it easy to detect and changedeviant behaviour.

But when the breakfast jam I buy from thestore becomes less tasty, I cannot exercise con-trol in the same way. Instead I switch brands. Ifmany consumers do the same, the jam producerwill look for the cause of the drop in sales andremove it.

What does this tell us? In modern mass soci-ety without one-on-one relationships, controlsoperate in a different way from those in smallgroups. This experience leads to the thesis: theframework is the basis for a sound economicorder and is the main place – not the only, butthe main place – of morality in a modern mar-ket economy. I will unfold this thesis and givereasons for it.

2. DISTINCTION BETWEEN INDIVIDUAL MOTIVESAND NATIONAL ECONOMIC RESULTSThe starting point is the distinction betweenindividual motives for economic activities andnational economic results. Individual economicparticipants, individual enterprises, rightfullytry to make a profit. As a rule, self-interest –which is not the same as selfishness – is the dri-ving force and incentive to their economicactivities. People work and are busy in order tomeet their needs and to realise their aims. Thus,to a great extent, economic activities are moti-vated by individual economic interests. In addi-tion, whenever market participants are not ableto make a profit but, for a longer time, sufferlosses and go into the red, they will be eliminat-ed by the market and do not survive.

With regard to what we call the nationaleconomy, the situation is completely different.The task of the national economy is to ensurethe best possible provision for all people; inother words, “the ’social aim and object’ ofmarket and competition is the welfare of every-one”,2 (a part of) what Christian SocialTeaching calls the “common good”. This dis-tinction between the level of individual eco-nomic participants and their motives on the onehand, and the level of the national economy andits task on the other, is decisive and must not beoverlooked. The distinction already forms thebasis of Adam Smith’s (the founder of classicaleconomics) statement:

“It is not from the benevolence of the butch-er, the brewer, or the baker, that we expect

49

Stegmann

what we need to eat but from their regard totheir own interest.”3

3. DISTINCTION BETWEEN FRAMEWORK FOR ACTIVITIES AND ACTIVITIES WITHIN THEFRAMEWORKThe activities of individual economic partici-pants – motivated by self-interest – do not,however, automatically realise the best possiblesupply to all people. (This was and is one of themain faults of capitalism and its “pure market”ideology.) They put it into effect only within acommensurate order, within “a clear frameworkand strong legal regulations”,4 as AlfredMüller-Armack – one of the “fathers” of theconcept of Social Market Economy and a high-profile economist – emphasises.

We must therefore draw a distinctionbetween the framework for activities, whichincludes the constitution, economic laws, thelegal order of competition, etc., and activitieswithin the framework, for example investmentpolicies of enterprises, schemes of buying andselling, price policies, etc.

One must distinguish – to use the metaphorof a football match – between rules of thegame, which all players have to observe, andmoves in the game, which depend on the effortsand skills of the individual players. Politics –more precisely, the legislator – must establish alegal framework, a set of rules of the game, thatmakes individual economic participants in theirown interest act in business life as is demandedby the well-being of everyone. Each economicplayer, all individual market participants, haveto observe the rules of this framework set totheir activities; and the state authority has toensure that these rules are observed. As a result,“the framework is the main place – not theonly, but the main place – of morality in mod-ern market economy”.5 Within the framework,in the field of moves, there is competition. The“moves in the economic game” are not com-pletely morality-free, as we will see later, butthey are what I call paradigmatically morality-free. Within the framework, the ability, imagi-nation, efforts and skills of the market partici-pants are stimulated and challenged. In thisway, at the same time, competition and morali-ty – at different levels – come into and remainin effect. The framework has to ensure thatself-interested action does not degenerate intoselfish action. The pastoral statement “The

Common Good”, published by the CatholicBishops of England in 1996, takes up the samethought: “The good functioning of the marketrequires ... a regulated and legal framework.”6

The key role of the framework as the basis for asound economic order is therefore most impor-tant and must not be overlooked.

4. MORAL QUALITY OF THE MARKETMarket and competition of achievements areimperative because they are able to utilise thelimited economic resources in a better way thanany other economic system we experienced andknow to date. I refer to the late Jesuit Oswaldvon Nell-Breuning, a foremost social scientistand doyen of Christian Social Teaching, whoworked out the draft of the EncyclicalQuadragesimo Anno of 1931. His whole life afriend of the labour movement, he could not besuspected of sympathy with any kind of capital-ism or pure market ideology. In order to recon-struct Germany’s ruined economy after WorldWar Two, he demanded in 1948: “First get themarket economy going as much as possible”7

and eliminate the centrally planned and con-trolled economic system.

The main reasons for von Nell-Breuning’sassertion were – and are – as follows: materialresources, when compared with material needsof humankind, are in short supply. The com-mandment of solidarity therefore demands thatsufficient material goods essential for life aremade available to as many people as possible.Market and competition – more than any othereconomic system known to date – are able toutilise the scarce economic potential in the bestpossible way and thus, on the whole, to stimu-late more productive activity.

“No other system has so far shown itselfsuperior ... in advancing the prosperity of thecommunity”, the already mentioned pastoralstatement of the English Bishops emphasises.“Centrally commanded economies have beenseen to be inefficient, wasteful, and unrespon-sive to human needs”.8

Economic inefficiency and the squanderingof resources in the types of socialism whichexisted in Russia, Eastern Europe, EastGermany and elsewhere, and which has brokendown in our time, are a concrete and obviousproof. The more the volume of goods that arenecessary for life can be increased, and at thesame time, the more the consumption of

50

Stegmann

resources to produce these goods can bedecreased (for example, the consumption ofscarce energy and the demands made on thenatural environment to produce these goods),the less the living conditions of future genera-tions will be burdened. Uneconomic utilisationof limited economic resources and the squan-dering of the scarce economic potential violateshuman solidarity, or – in Christian words –breaks the commandment to love one’s neigh-bour. The moral quality of a competitive econo-my therefore lies primarily in its ability to uselimited economic resources as well as possible.

On the other hand, the state ought only toexert as much authority and pressure as isabsolutely necessary, and ought to give asmuch freedom as possible to individuals.Christian Social Teaching – more precisely: thecommandment of subsidiarity, which is one ofits basic principles – demands that individualsthemselves be active agents and subjects in theeconomic field. The subsidiarity principleclaims “that one should not withdraw fromindividuals and commit to the community whatthey can accomplish by their own enterpriseand industry”. This would be “an injustice andgrave evil”,9 stresses the Encyclical Quadra-gesimo Anno of 1931, which formulated theprinciple for the first time. Subsidiarity there-fore holds that those things which can be doneor decided by individuals or at a lower level ofsociety, should not be taken over by a higherlevel. It demands (I repeat) that individualsthemselves be active agents in the economicfield – that is to say, that they have the opportu-nity to take the economic initiative. This is alsoChristian Social Teaching’s answer to the ques-tion: market economy or centrally planned andcontrolled economy?

5. MAIN PROBLEMS OF A CENTRALLY PLANNEDAND CONTROLLED ECONOMYI have alluded to the socialism that existed inEastern Europe and elsewhere, but deliberatelyavoided the expression “socialist economy”,since I would first have to explain what this is.This would not be easy because people under-stand it differently. The term “centrally plannedand controlled economy” was first used byFriedrich Engels, a friend of Karl Marx. WalterEucken, a high-profile economist and one ofthe founders of Social Market Economy, intro-duced the term into the literature of economics.

It describes an economic system in which acentral state authority plans and controls thewhole national economic process as well as theactivities of the individual economic partici-pants. This is its main characteristic. Theeconomies of the former Eastern bloc states orthe German economy during the Second WorldWar are illustrative examples of a centrallyplanned and controlled economy. Such a sys-tem not only “limits people’s freedom of choicein economic matters”,10 as the pastoral state-ment “Economic Justice in South Africa” of theSouthern African Bishops’ Conference says; itis by its nature also unable to meet the needs ofthe people. Because of lack of time, I makeonly a few remarks.11

A main reason for its inability is the fact thatthe self-interest of economic participants is nottaken into account. In general, economic activi-ties are motivated by individual benefit objec-tives. Self-interest is the incentive to economicachievement. Self-interest is not the same asselfishness and should not be confused with it,even if, of course, it can degenerate into selfish-ness. Self-interest is basically a natural humanattitude. Just recall the words of Christ: “Loveyour neighbour as you love yourself” (Mt19,19; Mk 12,31). The commandment to over-come greed and selfishness does not mean toput aside our own desires and ambitions. Thiswould be an inhumane demand. Self-interest isthe motivating force behind our activities –economic activities included.

A centrally planned and controlled economyis an obstacle to that and excludes, more orless, this economic and generally human func-tion of personal advantage as a driving force foreconomic activities. Income and prices deter-mine the degree to which needs and wishes ofindividuals can be fulfilled – at least insofar asthis fulfilment depends on the amount of theirincome. The state and its central economicauthority respectively has already fixed thosedata in advance, without taking into account theindividuals’ real activities. This fact excludesthe principle of self-interest as the main incen-tive to economic achievement. The attempts of“commanded economies” to replace the“achievement principle” – through the backdoor, so to speak – by introducing bonus sys-tems and by fixing high targets that had to bemet, completely failed. According to my ownexperiences in the communist German

51

Stegmann

Democratic Republic, this fact was the mostimportant factor for the economic collapse ofthe former Eastern bloc states. By their nature,“centrally commanded economies”, as theEnglish Bishops call them, are unable to meetthe needs of the people. They are “inefficient,wasteful, and unresponsive to human needs”.12

The socialism that actually existed and that hasbroken down in our time, is concrete proof ofthe failure of a centrally planned and controlledeconomy. Not least for this reason, the slogangoing around East Germany during and afterthe 1989 peaceful revolution was: “If the DM(deutschmark) does not come to us, we shallmove to the DM.” The DM was the symbol ofSocial Market Economy.

6. ADVANTAGES AND BURDENS OF MARKET ANDCOMPETITIONWhy, however, are market and competition – inparticular in the moral-ethical view – often sofiercely disputed (and even attacked)? KarlHomann, a foremost social philosopher and dis-tinguished economist, sees the main reason forthis in the fact that market and competition“create a general increase in prosperity”, butthat these advantages “are scattered, spread,diffused, and in this sense ’imperceptible’” toindividuals. They create a general increase inprosperity. Competition and market are incen-tives for economic activities; each economicparticipant attempts to make a profit. At thesame time, market and competition put pressureon costs and prices; each producer makes everyeffort not to be eliminated by fellow competi-tors. The results are “a general increase in pros-perity”, and the community as a whole profitsfrom it.

In contrast to this, the burdens of market andcompetition “often affect and hit individualpeople, single groups, single branches”13 – forinstance farmers, miners, shipyard workers (ashappened in Europe during the past 30 or 40years). The best utilisation of limited resourcesrequires indeed that uneconomic productionand production for which there is no longer ademand, are stopped. If, in the longer term, allpeople will benefit, then changes in economicstructure are imperative. Subsidies that perma-nently preserve products no longer in demandand the permanent protection of outdatedbranches of industry are not only economically,but also morally, detrimental. Such permanent

subsidies and the permanent protection of out-dated branches burden the welfare of the com-munity, which has to bear those subsidies andpay them. They therefore damage the publicweal. Changes in structure – the “process ofcreative destruction”,14 as the (left-wing)Austro-American economist Joseph Schum-peter demanded – are the market economicprice for the common good.

7. NECESSITY OF THE FRAMEWORKBut now the question is: how does the commu-nity manage to cope with these costs relating tothe public well-being in a market economy?What kind of safeguard, what social net, whatframework is being established? Market andcompetition are only responsible and accept-able if those individuals who have to bear thechanges in structure and are hit by its burdens,are cushioned and carried by the community. Ithink, in particular, of the so-called “marketpassives”, who are not able to take care ofthemselves in a manner required by the market,because they are ill, weak, young, old, etc. Inother words, the framework must be shapedaccording to the well-being of all.

At this point, politics and state must start todo their job. This task includes not only tomake possible and safeguard the efficient oper-ating of market and competition, and after-wards – perhaps – to correct some sociallydetrimental results. To speak metaphorically: itis not good enough to pull the child out of thewater, after it has fallen in. It is crucial thatfrom the very outset, the social dimension isrecognised as essential and equal in weight toeconomic activities. To use the image oncemore: the child must be protected from fallinginto the water. State and politics therefore haveto provide such a framework and those presup-positions – as the above-mentioned Oswald vonNell-Breuning emphasised – which are needed“for a humane economic process and its posi-tive social results”.15 This task demands, forinstance, the involvement of the workforce ineconomic decision-making;16 it aims to providethe conditions for the creation of new and sus-tainable jobs by changing the economic struc-ture, before segments of industry and their jobsgo into decline; and it aims at a “fair and ade-quate income distribution” – to mention only afew examples. An abundance of wealth alone isnot a desirable aim, if this wealth is unjustly

52

Stegmann

shared. Or another way: the bread we need toeat must first be baked. For that we need anoven that works well; in other words, we needan economy that operates efficiently. And mar-ket and competition are able to utilise the limit-ed economic potential in the best possible way– more than all other economic systems cur-rently known. The bread, however, must not bebaked under inhumane working conditions, andeveryone must get a just share. For that weneed a framework shaped by the legislator inalignment with the well-being of all, with thecommon good, and carried through by statepolicy.

8. SOCIAL MARKET ECONOMY AND ITS FRAMEWORKThis insight is the starting point and basis of theconcept known as “Social Market Economy”.After World War Two, economists and politi-cians in Central Europe (and especiallyGermany), who had opposed the NationalSocialists and their “commanded economy”,developed the concept. It aims at combiningfreedom in the marketplace and social justice.17

The core of the concept is “competition basedon achievement”. Since proper competitiondoes not automatically result from the free playof market forces – as taught by history andmodern economics – the state policy has theresponsibility to enable, establish and promotecompetition, as well as to safeguard it fromrestrictions. According to the concept, the stateis not a simple night watchman; on the con-trary, legislators and government have to create“the legal framework for every economic activ-ity, business, trade and industry”18 to ensurecompetition.

Added to the competition, which guaranteeseconomic efficiency, equally important aresocial conditions and rules. They form the sec-ond pillar of Social Market Economy. Suchsocial elements are the alignment of the econo-my with the needs of consumers by the play ofsupply and demand and not with a central stateauthority (as existed in Germany during the warand post-war periods); income distribution tiedto individual performance and, in this sense, “ajust income distribution”;19 and social and eco-nomic interventions of the state to compensatefor and correct socially negative results, as wellas to lighten those changes in the economicstructure which are beyond the ability of the

individual people affected. Such changes –demands Alexander Rüstow – one of thefounders of Social Market Economy and ahigh-profile economist – “must not be allowedto regulate themselves in a capitalistic, palaeo-liberal manner”. People who are not, who arenot yet or who are no longer able to competebecause they are ill, weak, young, old, etc.,“cannot be abandoned to the market”; one“must do something for them if one wants to beresponsible and humane”.20

In Germany, this concept of Social MarketEconomy had to be put into effect against vehe-ment opposition from the business world. Butpolitics, the Parliament, put it through.

According to Christian Social Teaching, it iscrucial that this social dimension is integratedinto the economy from the very beginning andis considered as equal in weight to the econom-ic activities. Wilhelm Röpke, another father ofSocial Market Economy, described the essentialdifference to the pure free market as follows:according to this “concept, competition is a nat-ural plant” growing by itself; according to our“conviction, it is a cultivated plant”21 that mustbe tended, pruned and nursed.

For some years, admittedly, Social MarketEconomy has had to face a serious additionalproblem. In the context of the growing global“interdependence of national economies”,22 theworld economy lacks a global framework thatwould correspond to the domestic frameworkwithin a state. The much discussed globalisa-tion enables economic participants, and in par-ticular transnational companies, increasingly toact outside any framework. The framework,however, is essential for the concept of SocialMarket Economy. The “hot potato” of an inter-national economic order results from this lack.The existence of the United Nations and itsinstitutions are at best – if at all – first steps.Europe is presently attempting to shape aregional framework by founding the EuropeanUnion. In the long term, in my view, a globalframework is absolutely needed. This must notbe “a world state” which neither seems to bepossible nor, because of the danger of a globaldictatorship, desirable. But a “world federationof independent states”, as political scientistscorrectly suggest, their “institutionalised coop-eration”23 on a global level is imperative – inwhatever way it may be organised. HansTietmeyer, then president of the German

53

Stegmann

Federal Bank, demanded “a world-wide socialorder” which “ought to be established step bystep”.24 And the Frankfurter AllgemeineZeitung, one of the leading newspapers inEurope and not hostile to the economy, firmlystated that “in the long term a global competi-tion authority will be essential to prevent pri-vate monopolies of power”.25 In addition, sucha global institution is also imperative for thesake of other vital aims, for example globalpeace-keeping. I cannot see an alternative.

9. FRAMEWORK AND INDIVIDUAL MORAL COMMITMENTThe emphasis on the framework as the basis fora sound economic order and as the main placeof morality in a market economy does not makeindividual moral commitment superfluous, asthe framework is sometimes accused of doing.On the contrary, individual economic partici-pants have to observe the rules that have beenenacted to regulate economic activities – theirmoves in the economic game – and must in noway avoid or trick them. This might oftendemand great moral strength. On the otherhand, all citizens have the political and ethicalresponsibility to be involved in shaping thisframework and to contribute their political andmoral convictions – for instance, by the elec-tion of members to parliament. Democracy“means that the people themselves must takecharge of ethics”; and in a democratic societythe majority decides on the content of theframework and determines its details. There-fore, “as many as possible” should make their

“consciences heard” and their “voting powerfelt on matters of basic principle”.26 Finally, inspite of competition, within the framework theindividual economic participants can makeadditional efforts for social or – in generalterms – moral purposes.

As long as fellow competitors do not exploitsuch efforts, which are connected with costs,but take them on, higher moral standards willemerge.

If we consider human nature realistically, werecognise that moral appeals to the conscienceof single individuals, expect too much fromthese individuals and overtax them wheneverthey are economically punished for their socialor moral behaviour – by higher expenses orrenunciation of economic advantages.

CONCLUSIONIn conclusion, the thesis of the framework asthe main place of morality in the market econo-my emphasises that “the conscience of the indi-vidual person is not able to compensate for thefailure of the institution”.27

In the 19th century, Christian Social Teach-ing and the (German) Catholic Social Move-ment orientated themselves – maybe uncon-sciously – to this fact when they demandedboth a “reform of the way of thinking” as wellas a “reform of conditions” to solve the socialquestions of the time.28 The key role of theframework as the basis for a sound economicorder, which is both effective and social,remains most important and must not be over-looked.

54

Stegmann

1) See Friedrich August von Hayek,Gesetzgebung und Freiheit. Eine neueDarstellung der liberalen Prinzipen derGerechtigkeit und der politischenÖkonomie. 3 Vols, Landsberg am Lech1980-1983; 2nd Volume: Die Illusion dersozialen Gerechtigkeit.

2) Karl Homann, Wettbewerb und Moral, in:Jahrbuch für Christliche Sozialwissenschaften 31 (1990) 34-56, 39.

3) Adam Smith, An Inquiry into the Natureand Causes of the Wealth of Nations,London 1776 (Der Wohlstand derNationen. Eine Untersuchung seiner Naturund seiner Ursachen, ed. Horst ClausRecktenwald, München 1990, 17).

4) Alfred Müller-Armack, SozialeMarktwirtschaft, in: Handwörterbuch derSozialwissenschaften, Vol. 9, Stuttgart1956, 390-392, 390.

5) Karl Homann, Wirtschaftsethik, in:Lexikon der Wirtschaftsethik. Ed. byGeorges Enderle a.o., Freiburg 1993, 1286-1296, 1290.

6) The Common Good and the CatholicChurch’s Social Teaching. A statement bythe Catholic Bishops’ Conference ofEngland and Wales, London 1996, No.78.

7) Oswald von Nell-Breuning, Address at the1st meeting of the Advisory Council ofEconomic Administration 1948, in: ibid,Wirtschaft und Gesellschaft heute, Vol. I,Freiburg 1956, 156-158 158.

8) The Common Good (1996), No. 78 (seenote 6).

9) Pius XI, After Forty Years - QuadragesimoAnno (1931), No. 79.

10) Economic Justice in South Africa. APastoral Statement. Published by theSouthern African Catholic Bishops’Conference, Pretoria 1999, 6.

11) For details see Franz Josef Stegmann,Economic Competition and Social Justice,in: Franz Josef Stegmann, Social MarketEconomy and Morality – Contradictory orComplementary? Johannesburg November1999, 31-41, 35-36 (Occasional Papers,published by the Konrad-Adenauer-Stiftung).

12) The Common Good (1996), No. 78 (seenote 6).

13) Homann, Wettbewerb und Moral, 40 (seenote 2).

14) Joseph A. Schumpeter, Capitalism,Socialism and Democracy, London 51976(Kapitalismus, Sozialismus undDemokratie, München 31980, 134).

15) Oswald von Nell-Breuning, Wie “sozial”ist die “Soziale Marktwirtschaft?” in: DenKapitalismus umbiegen. Schriften zuKirche, Wirtschaft und Gesellschaft, ed. byFriedhelm Hengsbach, Düsseldorf 1990,222-238, 236.

16) See Franz Josef Stegmann, “WorkerParticipation” in Decision-Making, in:Praxis. Journal for Christian BusinessManagement, Vol. 5 (No. 3 / Sept. 1997)11-14.

17) See Franz Josef Stegmann, Social MarketEconomy and Christian Social Teaching,in: Franz Josef Stegmann, Social MarketEconomy and Morality – Contradictory orComplementary? 19-29 (see note 11).

18) Was ist Soziale Marktwirtschaft? Aktions-programm der AktionsgemeinschaftSoziale Marktwirtschaft, in: Das christlicheGewissen und die Soziale Marktwirtschaft,Offprint from Junge Wirtschaft, No. 2 /February 1960, 7.

19) Ludwig Erhard, Das Problem der freienMarktwirtschaft, in: Vierteljahreshefte zurWirtschaftsordnung, 1949, 71-87, 78.

20) Alexander Rüstow, Paläoliberalismus,Kommunismus, Neoliberalismus, in: Daschistliche Gewissen und die SozialeMarktwirtschaft, Offprint from JungeWirtschaft, No. 2 / February 1960, 3-7,5f.

21) Quoted according to Oswald von Nell-Breuning, Trennendes und Gemeinsamesin den Hautrichtungen der Wirtschaftswissenschaft und Wirtschaftspolitik, in:Grundfragen der Wirtschaftsordnung,Berlin 1954, 215-231, 218.

22) John XXIII, Pacem in Terris: Peace onEarth (1963), No. 130.

23) Bernhard Sutor, Die Bedeutung der kirch-lichen Friedensethik in der gegenwärtigenpolitischen Situation, in: Stimmen der Zeit122 (1997) 507-518, 517.

24) Christ in der Gegenwart, No. 26 / 28thJune 1998, 220.

ENDNOTES

55

Stegmann

25) Jürgen Jeske, Grösse allein ist nicht vonÜbel, in: Frankfurter Allgemeine Zeitung,No. 154 / 7th July1998, B 1.

26) Martin Prozesky, Morality of the people,by the people and for the people, in:Sunday Times, 11 July 1999.

27) Hermann Krings, Norm und Praxis. ZumProblem der Vermittlung moralischer

Gebote, in: Herder-Korrespondenz 45(1991) 228-233, 230.

28) See Franz Josef Stegmann, SozialerKatholizismus und kirchliches Lehramt:Von der Sozialreform zur Gesellschaftspolitik, in: Theologia et Jus Canonicum,ed. by Heinrich J.F. Reinhardt, Essen 1996,581-598.

INTRODUCTIONOur approach as Church is to analyse policiesand practices from the perspective of our valuebase which is the Gospel and Catholic SocialTeaching, and also from the impact and effectsuch policies and practices have on the life ofpeople, especially the most vulnerable in soci-ety. We also believe that we must not be afraidto critique policies and, if necessary, to criticisewhatever has a negative or adverse effect onpeople and their quality of life.

In analysing economic policy and pro-grammes in view of attaining a more just econ-omy, the major roleplayers are government andbusiness, and to a lesser extent labour and civilsociety.

This paper makes suggestions and recom-mendations concerning all four, and thenfocuses on what is fundamental to achievingmeaningful change, namely, a real change ofattitude on the part of everyone, including gov-ernment, business, labour and all sectors ofcivil society.

1. RECOMMENDATIONS TO GOVERNMENT• The responsibility of government is to ensure

the welfare of its citizens and to meet theneeds of all, especially the poor and vulnera-ble.

• We have identified three major problemsrequiring action: namely, poverty, growingunemployment, and the unequal distributionof wealth.

• We criticise the macroeconomic strategy,GEAR (Growth, Employment and redistribu-tion), from the point of view of failing tomeet its targets in terms of economic growth

and job creation, both of which are vital forthe alleviation of poverty and, therefore, foreconomic justice. For example, GEAR fellshort of its job creation targets by 197 000 in1996 and by 394 000 in 1997 (Stats. 1998).

1.1 Trickle-down effect• We question the assumption that if wealth

and prosperity are created at the top end ofthe economy, this will trickle down to thoseat the lower end.

• This assumption calls for strict fiscal disci-plines, deficit reduction, removal ofexchange controls, and reductions in compa-ny taxation – all of which are demanded bybusiness as the way to expand the economyand to create more jobs.

• We believe that there is little evidence thatthe “trickle-down” effect is likely to happen.In fact, the contrary happened, even beforethe economic crisis of mid-1998.

1.2 Budget deficit• We also question the assumption that it is

necessary to reduce the budget deficit to thelow levels demanded by GEAR.

• Government should from time to time bor-row money in order to invest in its humancapital, its people. For example, public worksprogrammes providing infrastructure andtraining and skills to people, would be aninvestment in the long-term by government.The Working for Water project was a goodexample of this.

1.3 Alternative fiscal measures• We call for a more flexible approach to bud-

57

Recommendations from the SACBCPastoral Statement “Economic

Justice in South Africa”

Kevin Dowling

58

Dowling

get deficits rather than rigid adherence to pre-set targets.

• Fiscal measures could be taken to encouragejob creation, e.g., reduction in company taxa-tion for companies that have increased theirworkforce, or which adopt labour rather thancapital-intensive methods of production, andwhich invest in the training and developmentof their workforce.

1.4 Personal taxation• The tax burden on lower- and middle-income

earners should be further reduced.• This should be balanced by an increase in

estate duties and in the top marginal rateapplicable to the wealthiest sectors of society.We believe the rich have a moral duty toassist in redressing the imbalances in oureconomy by willingly accepting higher levelsof taxation.

• This should be viewed as a “solidarity” taxand a commitment to economic justice,national reconciliation and the commongood.

1.5 Job creation by the state• Government can promote job creation direct-

ly by making this a central requirement fortenders for state contracts, even where theyare not the lowest.

1.6 Support for the unemployed• Government should widen its support for the

aged, the disabled, and those who have losttheir jobs by providing some form of supportfor all the unemployed, including those whohave never held a job.

1.7 Privatisation• The central issue in privatisation is concern

over resultant job losses.• We contend that jobs must never be lost or

put at risk simply for the sake of profit.• Account must be taken of the experience that

privatisation of essential services oftenresults in costs becoming unaffordable formany.

• In order to ensure affordability to the poor,we suggest that some form of subsidisationby the state is required for the provision ofbasic services.

• We call on government to conduct privatisa-tions in ways that empower as many people

as possible; that is, of course, if governmentchooses to follow the route of privatisation.

1.8 Economic redress• Gross inequality in wealth and income distri-

bution is due in great measure to the waysthat black people were dispossessed of theirland and other property, denied training, andexperienced other forms of discrimination.

• We believe that those who benefitted finan-cially under apartheid now have a responsi-bility to make economic redress, and call ongovernment to facilitate such redress throughlegislative and other measures.

1.9 Public debt• The public debt, being the single greatest

drain on the economy, has to be dealt with.We call on government to examine andimplement ways to reduce the debt burden.

2. RECOMMENDATIONS TO BUSINESS• Business has a responsibility to cooperate

with government to ensure job creation,wealth distribution and alleviation of poverty.

• What is needed in general is the developmentof a mindset that is against retrenchments,and that encourages investment in morelabour-intensive methods of production, aswell as investment in people.

2.1 Retrenchments• Retrenchments where the main objective is

profit maximisation are a structural sin, evenwhen explained by such things as rationalisa-tion, right-sizing and outsourcing.

• Where there is no other way to avoid re-trenchments, business should already havecontingency plans in place. There should beadequate warning of impending job cuts,assistance in finding other forms of employ-ment and adequate compensation.

2.2 Productivity• We challenge the assumption that the best

way of achieving greater productivity is toreduce employment levels.

• Every opportunity must be taken to increasethe size of the workforce, rather than regularovertime being worked by existing employees.

• If employees depend on overtime to makeends meet, it has to be questioned whetherthey are receiving a just wage.

59

Dowling

2.3 Technology• Investment in new technology and mechani-

sation has to be examined in light of whateffect it will have on people and the country.

• The unemployment problem is often com-pounded by such investment. A more holisticapproach is therefore required of businesswhen examining possible investment in tech-nology.

2.4 Training• By international standards, companies spend

relatively little on training and developing theworkforce.

• A voluntary increase in such expenditure,prior to legislation, would have indicated thebasic attitude and approach of businesstowards the issue of employment.

• Adequate training is an important require-ment for increased productivity.

• More emphasis on capital and managementproductivity is required, not just on labourproductivity.

• The basic objective should be: increased pro-ductivity together with increased employment.

2.5 Remuneration• Workplace differentials are among the high-

est in the world (100:1 between managingdirector and lowest paid worker: in Japan thisratio is 7:1).

• We call on business to redress seriously thescandalous rich–poor gap.

• Where huge wage differentials exist, execu-tive wages should be frozen or reduced untilthe wage gap has been substantially nar-rowed.

• Greater attention has to be paid to a moreequitable distribution of company profits,especially through increased wages to lower-paid employees.

2.6 Input costs• Business should move away from calls for

labour market flexibility – which means, ineffect, suppressing wages and benefits.

• Costs of other inputs, such as capital and rawmaterials, should not be presumed to remaininflexible.

• The financial sector must be willing to acceptlower, but still adequate, profit margins inorder to reduce business’s capital costs.

• Monopolies in primary and secondary indus-

tries will lead to unnecessarily high rawmaterial costs.

• It is unreasonable of business to expect work-ers to make sacrifices by accepting labourmarket flexibility, while banks and otherlarge primary producers remain inflexible.

2.7 Social responsibility• We commend and encourage some outstand-

ing examples of business philanthropy andsocial responsibility.

• Much more, however, can be done and busi-ness must respond with greater commitmentto the steps government has taken in themacroeconomic sphere.

• Business should promote a comprehensiveunderstanding in shareholders about what is areal investment in our future and what willbenefit the economy as a whole.

• This can be achieved by reducing profitthrough investing money in poverty relief,education and training, job creation schemes,etc.

3. RECOMMENDATIONS TO LABOUR• Labour has relatively little ability to influ-

ence policy in comparison to government andbusiness; labour is not an equal partner to theother two.

• But labour has a right to have a voice in eco-nomic decision making, and should con-tribute to the attainment of economic justice.

• The Church’s general position is as follows:just as everyone has the duty to work loyally,so also everyone has the right to work.

• Labour must safeguard the right to work andcombat job losses, and must also work foroverall economic well-being.

3.1 Interests of the poorest• Huge numbers of workers still earn very low

wages, and cannot meet the basic needs oftheir dependants.

• As unemployment grows, the number ofdependants which an employed worker has tosupport is rising.

• Such workers have a right to demand wageincreases beyond cost of living levels.

• It is absurd to expect the lowest paid andmost disadvantaged workers to exercise wagerestraint, especially when management doesnot do likewise.

• Organised labour must have a special con-

60

Dowling

cern for those who earn below the povertydatum line, and must promote their interests.

3.2 Productivity• Management and workforce share responsi-

bility for improving productivity levels.• A constructive approach from both groups is

required.• Increasing labour unit productivity by reduc-

ing the workforce, and then requiring theremaining employees to work longer andharder, is unacceptable – organised labourmust oppose this.

3.3 Representing exploited workers• There is a tendency among some employers

to reduce permanent staff, and to employinstead, temporary or casual labour.

• By not putting workers on permanent staff,even when they have worked for severalyears, employers can reduce their liability tocontribute to UIF and to pension and provi-dent funds, as well as costs involved in annu-al leave, sick and maternity leave.

• Labour legislation (written in 1998) is mov-ing towards protecting such workers, butthere seem to be ways to circumvent employ-ment regulations.

• Workers hired on a daily basis are open toexploitation. Appropriate protective legisla-tion should be considered.

3.4 The unemployed• The interests of the vast numbers of unem-

ployed must also be addressed. • It is unacceptable to create jobs with ridicu-

lously low wages and poor working condi-tions as a means to solve the unemploymentproblem.

• Labour can assist the unemployed by declin-ing to work regular overtime and calling forincreased employment instead.

• This could also secure for workers and theirfamilies adequate time for rest, recreation andspiritual development.

4. RECOMMENDATIONS TO CIVIL SOCIETY• Non-governmental organisations, churches

and other community-based organisationshave a role to play in the quest for economicjustice.

• They have expertise and experience in such

fields as development, education, capacitybuilding and human rights advocacy. Theseskills should be made available to all in viewof influencing economic policy.

• These organisations are often more in touchwith the needs and aspirations particularly ofthe poor and deprived sections of society andwith local communities, than the leadershipof government, business and labour.

• Such organisations must model the valuesand practices we have underlined here, e.g.,by promoting just employment practices intheir groups; by reviewing their investmentdecisions; and by using their limitedresources for the good of those most in need.

5. ATTITUDES• The most enlightened and well-considered

economic policies will not, on their own,guarantee economic justice.

• Human beings design and implement poli-cies; they can make choices.

• Attitudes, therefore, are crucial to determin-ing economic choices.

• The economic system will exert a stronginfluence on people’s ideas, but it must notbe presumed that the system can determinepeople’s attitudes and choices.

• Personal options will depend largely on thevalues we choose to live by.

• Unfortunately, transitory values seem to becentral to so many people – money, status,power, the spirit of competition, self-interest.

• Such values tend to favour narrow personalinterests, often at the expense of the needs ofothers.

• So, for example, money is invested in viewof achieving the greatest reward, rather thanwhere it will do the most good. This leads toeconomic injustice.

• It is at the level of attitudes that the greatesttransformation must be sought.

• The faith community has a special role toplay in promoting attitudinal change, but sodo government, business, labour and othersectors of civil society.

• To achieve economic justice, attitudestowards society and the needs of the country,and the willingness to find a balance betweenlegitimate personal wishes and the commongood of all, must be rooted in the kinds ofvalues emphasised throughout the document.

INTRODUCTIONThe point has to be stressed that “the Biblewithout justice does not hang together”.According to many biblical scholars, the“Jubilee” as described in the Old Testamentwas never really practiced, but that Jewishcommunities in the post-exile period have triedto implement it to some degree. For us today,the Jubilee is a symbol and challenge of justice.We need to exercise our minds by stretchingour imagination, since imagination is central toour conscience. Imagination is also essentialfor the rethinking of economic institutions.

1. KEY TEXTS(See, Leviticus 25; other texts Deuteronomy15: 1-3; Jeremiah 34: 8-16; Exodus: 21-23, 46:17; Nehemiah 5:1-13; 1 Maccabees 6:48-54.)

Deuteronomy 15 and Act 4 are examples ofpraxis of liberation. Exodus 21 is less patriar-chal than the other texts, while Nehemiahshows greater sensitivity to the poor and theweak. Key issues of understanding theKingdom of God are found in the gospel ofMatthew, e.g., Last Judgement Mt 25.

Prophets in the post-exile period rejectedpiousness and religiosity that come without jus-tice. Amos warns the rich to allow the poor toglean the fields. Isaiah calls for regular justice.Luke in his gospel picks up on this theme andportrays Jesus as the Jubilee announcer.

2. THE CHALLENGES AND DEMANDS OF THEJUBILEE LAWS ACCORDING TO THESE TEXTSThe Jubilee laws require a: • forgiveness of debt• return of land to the original owner(s)

• release of slaves and bonded labourers• rest for all, including the landBuilding on a theology of connectedness, plan-et earth and the land should be our focus today.

Accompanying liberatory texts show theglaring failure of leaders to fully understandthe liberatory power of these principles.The Three Jubilee themes with special refer-ences to debt and God's judgement are: • Sabbath rest – land rest every seven years; no

exclusive ownership of land; all could par-take of what grows wildly.

• Emancipation (see below). • Social renewal – thinking differently about

our resources:– build inclusive society– old way of looking at reality has to bechanged. In Luke we see Jesus fulfillingand showing his followers– when rethinking we need to look at theend of Leviticus 25 (end of the priestlycode).

Using our imagination we must not just ask forforgiveness of debt for the poorest. Rather, theJubilee should be used for restorative justice, toreturn things that were stolen, for the redistrib-ution of wealth.

The Catholic Parliamentary Liaison Officelooks critically at the public meaning of privatereligion. The theologian Balusariya of SriLanka said we must challenge the North andnot be dictated to by these countries. We needto ensure that the victims of apartheid receivereparation.

In terms of emancipation from debt, we mustthink wider than just the cancellation of debt.We need to look at the biblical way of using

61

The Biblical Jubilee Principle and theRelevance of Debt Cancellation

for Redistribution

Peter-John Pearson

62

Pearson

our imagination, and must not continue to allowour thinking to be dictated to. Debt and povertyare not inevitable. We are at the point of re-imagining what we want; the assumptions thatdominate economic discourse now are not theonly ones that are valid or relevant.

A fundamental biblical norm for social struc-tures is egalitarianism. We must retrieve thisand must critique the inequality of global econ-omy on these grounds.

The Jubilee text does not target kings andleaders but makes the community responsiblefor change. The Jubilee concept allows for theunderstanding of social debt – namely society's

debt to those from whom work, creativity, etc.,have been stolen. In terms of this, the Northowes restitution to the South.

Those who have been exploited should bepaid, and creditors must pledge to restore whathas been taken unjustly. The North must bechallenged to pay restitution (see Zaccheusstory in Luke 19).

CONCLUSIONFaith communities must embrace economicissues, and the Church is one of those rareorganisations that has both a local and a globalconstituency.

HARRIS, M. 1996. Proclaim Jubilee. WJKPress, Kentucky.

PONTIFICAL JUSTICE & PEACE COMMISSION.1986. At the Service of the HumanCommunity: An Ethical Approach to theInternational Debt Question. Vatican City.

TSELE. M. 1996. Economic Justice: A New

Challenge for the Church in South Africa.Esset Publications, October 1996.

COATES. K. 1998. Speaking to the World'sPoorest People. The Month June 1998, p219.

BULLETIN FOR CONTEXTUAL THEOLOGY INAFRICA, Jubilee 2000, Vol.6 (2) 1999.

REFERENCES

INTRODUCTION: THE PHILOSOPHY –DEVELOPMENT AND PARTICIPATIONThe alliance of uMfelanda Wonye (The SouthAfrican Homeless People’s Federation) andPeople’s Dialogue (its non-governmentalorganisation – NGO – partner) is a process bywhich the urban poor reclaim their power tochoose. By coming together and comparingtheir experiences, the poor are able to see thatthey have options, and that their collectiveresources can help them make better use ofthose options.

Through saving, they can bring their ownresources into the development process,strengthening their capacity and skills to helpthemselves. Through self-help and collectiveaction, savings scheme members are employed.Job creation is a priority for Federation mem-bers.

The South African Homeless People’sFederation believes that a critical shortcomingin the communities’ capacity to participate indevelopment has been a lack of representativeand accountable grassroots organisations thatare willing and able to enter into the develop-ment process as equals. Through savingsschemes and community exchanges, theFederation seeks to rebuild local organisations.Savings schemes develop trust among mem-

bers and there is a strong sense of ownershipfrom those who have savings invested in thefund. Exchange programmes between commu-nities develop new skills and capacities. Theyalso provide a forum in which communities canextend their understanding into new situationsand contexts. Savings schemes, strengthenedthrough exchange programmes, have been ableto innovate and implement programmes inhousing, land acquisition, infrastructure and,more recently, income generation and job creation.

uMfelanda Wonye is a national organisationset up in 1994 to create housing savingsschemes. The Federation focuses on securingland tenure and basic amenities for its con-stituents, and organises them in the cities andtowns where they reside. Through theFederation, women’s savings collectives areable to gain recognition in their settlements,and are empowered to play key leadershiproles. By March 2000, uMfelanda Wonyeclaimed an active membership of more than100 000 families. It is now active in 700 infor-mal settlements, 100 backyard shack areas ininformal neighbourhoods, three hostels and 150rural settlements. This means that about 530 000 very poor men, women and childrenhave direct links with uMfulanda Wonye.

63

Women, Micro Job Creation and Self-Employment: The Experience

of People’s Dialogue*

Iris Namo

*South Africa Homeless People's Federation and People's Dialogue on Land and Shelter

The growth of the housing savings schemes (South African Homeless People's Federation)

July 93 July 94 April 95 April 96 Jan 98 July 99 July 99Saving Schemes 58 137 198 316 1000 1100 2000Active Savers 2178 7002 9627 17 280 40 000 50 000 70 000Total Savings R34 000 R165 000 R272 000 R453 000 R2.5 mill R3 mill R3.5 mill

64

Namo

Women savers currently outnumber men by aratio of 9:1.

As mentioned, People’s Dialogue is the NGOcomponent of the two-organisation alliance.People’s Dialogue is a registered voluntaryorganisation established in 1991 as a vehicle toexplore ways for a non-racial South Africangovernment to work with poor communitiesthrough partnerships. Today, People’s Dialoguehas offices in Johannesburg, Cape Town,Durban and Queenstown.

1. SAVINGS AND LENDINGThe Federation is a network of autonomoushousing savings schemes. The benefits of sav-ings-based development interventions are mul-tiple:• Saving brings communities together. Savings

activities start long before housing develop-ment. By saving together, families learn totrust one another. This trust provides thebasis for effective collective action. Theinteraction through daily savings ensures thatmembers are in touch with one another,understanding each other’s needs, and sup-port each other through problems in theirlives, whatever these may be. A commonFederation saying is that “when we collectmoney, we collect people”.

• Saving and loans enable communities to meettheir further individual and collective needsfor finance. Savings schemes have a potentialto address the multiple needs of poor fami-lies. The skills and resources generated bysaving are used in activities related to hous-ing development, crisis loans and incomegeneration support.

• Saving and loans provide a practical educa-tion in household and community finance.Communities learn financial managementskills and individual families better under-stand how they can reduce their vulnerabilityand increase their development optionsthrough savings. Members begin to takeemergency loans and small loans for incomegeneration; in so doing they learn how toplan for repayment and how to manage debt.

• Saving provides the deposits needed forloans. Alongside regular saving, memberspreparing for house building or income gen-eration start saving for their deposit of fiveper cent of loan value.

• Saving provides the loan capital for income

generation loans needed to ensure integratedneighbourhoods. Savings scheme loan fundsand the regional Inqolobane provide the capi-tal needed to establish small enterprisesthereby supporting income generation andstrengthening the local economy.

• Loan funds provide a basis for the Federa-tion to manage subsidy funds and other statecontributions to local development. uTshaniFund is used as a conduit for state subsidyfunds. Monies are released directly to thelocal savings schemes for housing construc-tion.

The Federation is best known for its housingdevelopment schemes. However, from the timethe first housing savings schemes were estab-lished in the early 1990s, income generationand job creation have been added to its activi-ties.

2. EXPERIENCES WITH JOB CREATION ANDINCOME GENERATIONPrevious attempts to reduce poverty havefailed. A major reason for this failure is thatideas and resources have been controlled byprofessional groups and not by the poor them-selves. In income generation as elsewhere, thealliance believes that local members must directlocal strategies and processes. At the sametime, the alliance recognises the value of appro-priate external support in the development ofthe required skills and capacities to ensure thesuccess of the development intervention.

The most significant source of external sup-port for the South Africa Homeless People’sFederation has come from another grassrootsorganisation, Shack or Slum DwellersInternational. Shack Dwellers International is anetwork of international federations that workwith principles similar to the South AfricanHomeless People’s Federation. The unity ofprinciples means that ideas can flow quicklybetween groups, being adapted and modified asexperience develops. Both the Zimbabwean andIndian Federations have much experience withincome generation lending and both havestrong relationships with the South AfricanHomeless People’s Federation.

The Indian Slum Dwellers Federation cur-rently has a loan portfolio in income generationlending of Rps. 24 million. The ZimbabweanFederation has rapidly developed widespreadexpertise in small-scale lending for enterprise

65

Namo

development. In Harare, for example, over 50%of savings was being lent out for income-gener-ation purposes within a year of the launch ofthe Federation.

Income generation lending in South Africabegan with the initiation of housing savingsscheme in 1992. Between 1992 and 1995,major emphasis was on consolidating activitieswith the spread of housing savings schemes andthe introduction of housing construction. Forthe most part, housing savings scheme lendingwas slow and generally for emergencies andconsumption purposes. From 1995 onwards,housing investment took priority and by April2000, the Federation had given out 5000 loans.

In 1998, the Federation turned its attentiononce more to income generation. While hous-ing savings schemes continued to give loans, itwas agreed that something more was needed. Inthe first quarter of 1998, the South AfricanHomeless People’s Federation decided to estab-lish regional funds. These funds are calledInqolobane (the Granary) and savings schemesare encouraged to contribute a portfolio of theirsavings capital (generally in the region of50%). The purpose of Inqolobane is to enablelarger income generation loans to be given.Individual housing savings schemes have limit-ed funds and therefore they are reluctant to giveout loans for income generation that are largerthan R1000. The growing experience ofFederation members with income generationlending, has resulted in a demand for largerloans.

A further advantage of Inqolobane is thatexternal capital (either from foreign donors orthe government) can be blended with people’ssavings resulting in a high level of local owner-ship, a stronger management contribution fromthe beneficiaries and new innovations in howfinancial institutions can address local develop-ment needs. While the initial loans have beenfinanced through savings, the Inqolobane fundsare able to re-capitalise their monies throughborrowing from uTshani.

During 1998, loans funds were released forincome generation from uTshani during theestablishment and initiation of Iqolobane. Todate, funding through uTshani has been provid-ed to both the Western Cape and KwaZulu-Natal through small and limited resources(R150 000 and R250 000 cash). Individualloans of up to R3000 have been made for a

range of enterprise developments. At the sametime, uFunde Zufe members have sought toprovide support to borrowers through linkingup successful entrepreneurs to those who arestruggling to manage their businesses.

In 1999 and 2000, job creation and incomegeneration have taken a further step forward asgreenfield developments have enabled the plan-ning of both residential and commercial activi-ties. Several of the larger greenfield sites havehad areas designated for such developments,with a combination of formal and informal sec-tor activities. Factory houses (with space forworkshops and retail outlets) and informal mar-kets will aid Federation enterprise develop-ment. The informal markets will assist thoseliving in the residential development, but theywill also be open to other Federation memberslooking for a place to sell their goods.

To further support individual loans andgreenfield commercial developments, two pilotprogrammes for enterprise development withgovernment departments are now in place.Seven Federation housing savings schemeshave together received R4 million from theDepartment of Welfare to explore the role ofsavings and loans in poverty reduction. Thesavings schemes are using these funds in threemutually supportive activities:• Small-scale loans for micro-enterprise devel-

opment (a continuation of present Inqobolanelending of up to R3000).

• Large loans to groups of Federation mem-bers, specifically targeting those in need ofincome support and with ideas for largerscale commercial activities.

• Commercial areas with retail units and mar-ket areas to help create trading opportunitiesand to consolidate informal trading and pro-duction in one area with obvious benefits toproducers and consumers alike.

The group loans are targeted to the poorermembers, some of whom are too vulnerable torisk taking individual loans. The group compo-nent will enable direct skill within the groupand will reduce the likelihood of any particularfamily crises damaging the emerging business.The location in the commercial centre willfacilitate Federation support. Once a first roundof businesses have been established, thesegroups will provide the training grounds for theexpansion of the model through communityexchanges (as is common Federation practice.)

66

Namo

The commercial areas will enable the devel-opment of market areas in existing settlementsand will complement Federation developmentin greenfield areas. Local Federation groupswill manage the centres and the provision ofessential services to users of the centres.Employment opportunities will be used to sup-port those in need, providing job creationopportunities for some members without alter-native options. In so doing, the Federation willdraw on the experience of the National SlumDwellers Federation in India, where communitymanaged toilet blocks are staffed by womenwith no alternative source of income.

The second pilot programme is with theDepartment of Water Affairs. People’sDialogue and the Federation have been hired associal development advisers to the Depart-ment’s national Working for Water programme.The role of the Federation is to support thedevelopment of cooperative associations and tohelp develop a range of secondary industriesthat will emerge out of the programme.Workers are encouraged to save and join theFederation.

The following brief case studies deal withpeople in the Federation who have borrowedfunds for income generation. Several things arenoteworthy about these case studies.• None of these people are likely to have

received credit of this kind, for these purpos-es, from any other source. Most are womenpensioners. Some are not entrepreneurs in theconventional sense, rather they are survival-ists. They are not necessarily creating wealth,jobs or building a black middle-class, butthey are addressing poverty directly and in asustainable way.

• The loan terms, and the purposes for whichthey may be used, are set by the Federation,not by an external programme or businessplan. The loans are used for a variety ofincome generation schemes, for improve-ments to housing assets, as well as otherneeds as determined by the households andtheir savings schemes. Existing micro lend-ing programme such as KhulaStart or NtsikaEnterprises would not consider some of theusers, partly because they do not lend forconsumption or housing, but also becausesome of the income-generation activities arerather unorthodox. The saving schemes, how-ever, are based in the respective communities

and understand well the livelihood strategiesof their members. They are willing to workwith them on whatever they determine to bebest for the household, within the standardsof their own community.

• Loans are repaid on schedule; indeed, someare already fully repaid.

• Most of those involved have increased theirmonthly incomes to a level above or near thenational poverty datum line.

2.1 Piesang River, KwaZulu-NatalViera Madonda is a member of theSezesasebona Housing Savings Scheme. Sheborrowed R3000 on 26 June 1998. There is stillR853 remaining. Her loan was spent on a deepfreezer (R1700) and stock (R1300). She sellsabout R300 worth of stock each week making aprofit of between R50 and R100. She spendsR50 each month on electricity (lights, TV, iron,and freezer). She cooks with paraffin, as elec-tricity is too expensive. She spends a furtherR20 a month on petrol which she pays to afriend who drives her to town to collect meat.Viera has a stipend of R500 from the uFundeZufe. She suffers from high blood pressure andis diabetic. She is currently building a houseand hopes to finish it soon.

Antony Mabaso is a member of the PatrickHunsley Savings Scheme. He started a tuck-shop some years ago. In February 1999, he bor-rowed R3000 to increase his stock. He turnsover between R300–R350 each week day andR400–R600 at weekends. His shop is in a plas-tered room in a cement-block house. A smallroom adjacent to the shop provides a space formen to sit on wooden benches and drink beer.He makes between R1000–R1500 each month.He finished paying his loan in December andnow wants to take out another, as he needsmore stock.

Irena Khosa is a member of the VukuzaleHousing Savings Scheme. She applied for aloan from uTshani to start a tuckshop at theedge of her plot. A cement-block house standsin the middle of the plot. The loan was notavailable until July 1999, and by then, she hadalready borrowed money from a friend. Instead,she used the uTshani loan to buy an electriccooker for her kitchen. She has just finishedpaying back the loan. She now wants to borrowR6000 to extend the shop and provide a placefor telephones.

67

Namo

Esther Nzama borrowed R1500 in June 1999.She now makes R450 a week from the sale ofbeer, vodka and meat. Each week she buys 10cases of beer, one case of vodka plus a tray ofsausages and a box of chickens. She buys thecases of beer for R42.50 and sells each bottlefor R4.50. The case of vodka costs R108 andshe sells it in “nips”, for R10 a nip; each bottlecontaining 3.5 nips. The sausages are boughtfor R50 and sold for 50 cents a sausage, withabout 200 sausages per tray. The chicken isbought for R105 and sold at R120. Previously,Esther received a stipend of R500 a month –she now makes about R500 a week fromincome generation.

Vivian Khuzwayo is a member of theVukuzale Housing Savings Scheme. She bor-rowed R2000 from Inqobolane in August 1999and makes repayments of R150 a month. Shesells beer, cold drinks, cigarettes and groceries.Her daily income is about R160 on weekdaysand R240 at weekends. Her profit, which shefinds difficult to calculate, on cold drinks andcigarettes is 20% and 25% of the selling pricerespectively, which suggests an income ofR800. Her shop is, however, more sparselystocked than Mr Mabaso’s, and not as welllocated (it is up a hill, in a shack).

Gladys Nkabana is a pensioner member ofthe Patrick Hunsley Savings Scheme. She bor-rowed R3000 in April for a deep freezer(R2000) and stock. She repays R150 eachmonth. Gladys sells small plastic bags of frozenmilkshake to children, the innards of animalsand meat soup. She sells the goods from herkitchen and also finds it difficult to work outhow much profit she makes. “When my grand-children come they help themselves”, she tellsus. Each month she buys 8 packets of milk-shake mixture and makes 60 bags to sell fromeach packet. She buys the mixture for R13 apacket and sells each bag for 30 cents. Thesoup sells at R3 a bowl and she makes betweenR20 and R40 a day from these sales, dependingon how cold the weather is. She estimates thecost of a sausage to be about half of what shesells it for. Her meat sales are about R50 a day,with a cost price of R21. In total, Gladys makesabout R1200 a month excluding electricity usedfor cooking and the freezer.

Tozi Buthelezi is a member of the VukuzaleHousing Savings Scheme. She borrowed R3000in September 1999. She is selling beer, cold

drinks and ice-cream from her home. R1500was spent on cement to plaster her house andthe other R1500 was spent on stock. Shealready owned a deep freezer. She is a pension-er with five children; her husband is not work-ing. She repays R150 a month, but has onlymade two payments. Daily sales compriseabout R25 in ice-cream, R20 in beer and R30 incold drinks. Daily costs are R8, R16 and R25respectively, translating into a daily profit ofR26. Sales are higher at weekends. Tozi’smonthly income is between R750 and R1000.

2.2 Protea South GautengJane Masimula belongs to the SebanzaniHousing Savings Scheme. She borrowed R3000in March to purchase a container to expand herbusiness, selling cold drinks, beer and charcoal.The loan was spent on a container (R1700), afridge (R1400) and R600 worth of stock. Anadditional R100 was spent on a counter, whichsomeone in the settlement made for her. Theextra money came from her savings. The elec-tricity supply in the container is illegal andtherefore free. Her sister provides transport forsupplies and charges nothing – she also has ashop. In her new business, she sells frozenmeat, which she braais at no additional charge,and cold drinks. Her sales are R120 duringweekdays and R200+ at weekends. Indicativemargins on the meat are sausages, purchased atR120 and sold for R224. Cold drinks are pur-chased for R43 a case, and sold for R5 a can.Jane estimates she makes R800 a month.

Tilly Ngubeni received R3000 in March foradditional supplies to her tuckshop. She isrepaying the loan at R100 a month. The loanwas used for items such as cold drinks, frozenmeat, bread and beer. Her electricity is also freeand she spends R60 on petrol to collect suppliestwice a week. The loan almost doubled herstock. On weekdays, she takes in between R150and R180, and on Fridays, Saturdays andSundays she takes in R200–R300. Tilly doesnot know how much she makes. Her marginson bread are 12% and on meat, cold drinks andsnacks, 20%, 40%, and 49% respectively. It isdifficult to calculate income as the childrenhelp themselves to food but the profit marginssuggest it is likely to be between R1000 andR2000 a month.

Nhlala Machete and Tryna Raduba both bor-rowed R3000 in March to start a hairdresssing

68

Namo

business. They have been looking for a suitablelocation and are hoping to sign a purchaseagreement on a shack in a well-located street,with the Community Policing Forum validatingthe agreement. The shack will cost R1200.They will have some R2000 left for dryers,sinks and chairs, with the remainder of themoney having been spent on supplies. They arenot sure of their income yet. Mama Machete iscurrently making R300 a month from causalhairdressing for friends in her house. They willemploy a third person to assist with braids at awage of about R30 a day. Both women haveagreed to pay R100 a month in repayments butthey are hoping to repay the loan more quickly.

Paulina Mazazan is also a member of theSebanzani Housing Savings Scheme. She bor-rowed R3000 in January 2000 and is alsorepaying R100 a month. She already had asmall spaza shop, but used the loan finance toincrease her stock. R1500 was spent on addi-tional stock for the shop, while R450 was spenton a paraffin tank and a further R450 was spenton the first tankful of paraffin. Paulina isunsure of her profits. She saves R100 from theshop each week, and thinks of this as her profit.Her husband has a pension and this is enoughto live on and to pay school fees and transport.On weekdays, she takes in about R180 and atweekends, R400 a day. Her profit margins onparaffin, bread, candles, eggs, and mealie mealare 11%, 14%, 6%, 136% and 26% respective-ly. This suggests her income is over R1000 amonth.

2.3 OukasieSusan Mweti borrowed R3000 in January 2000to print savings books. Repayments are R150 amonth. The first 1000 books were printed inFebruary at a cost of R1200 and are now soldout. A second thousand were printed in Marchand 600 remain. The rest of the money is in thebank. Susan would like to sell other stationaryitems such as pens, paper, exercise pads andposters.

Anna Ramotsho borrowed R3000 in Decem-ber to sell coats, jackets, skirts and blouses. Shespent about R1000 on clothes. The skirts shebought for R70 and sold for R120. The blouseswere bought for R80 and sold for R120.Business was good but most of the items weresold on credit and it was difficult to collect themoney. She now hopes to work with her moth-

er-in-law who lives in the rural areas, buyingfor societies and receiving payment immediate-ly – groups such as funeral societies purchasesimilar clothes (blue skirts and red tops, forexample). When it became difficult to obtainthe monies owed, Anna branched into fruit andvegetables. Every Thursday she buys suppliesfor about R200 which she sells at the weekendfor R320–R350.

To date, more than 400 loans have beengiven out from Inqolobane for larger income-generation loans. These augment the hundredsof small loans that have been provided by sav-ings schemes directly to their members.

3. CHALLENGE FOR THE POORThe savings schemes bring together their mem-bers (the vast majority of whom are women)and provide them with a forum to address theirneeds. These needs are varied, and hence theactivities of the Federation include land tenure,housing construction and the provision of infra-structure and services. One of the clearly identi-fied needs of the Federation is that of increas-ing incomes.

The Federation is committed to meeting theneeds of all its members, including those whoare poorer and most vulnerable. It does not seekto replicate many of the conventional micro-financial programmes that support more likelyentrepreneurs, many of whom are among thebetter-off members of the community. Rather,it seeks to use savings and loans to support acollective process that builds trust and cohesionamong poor, often landless, women in informalsettlements.

The Federation has a diverse approach toincome generation in order to achieve its goalsof meeting the needs of its poorest members.As described above, there are three distinctcomponents to the programme:• Existing lending to individual members for

loans up to R3000.• Group loans targeted to the poorer members,

some of whom are too vulnerable to risk tak-ing individual loans.

• Employment in the commercial centres them-selves.

CONCLUSIONThe Federation and the People’s Dialogue havean open mind with respect to whether or notthese strategies will effectively involve their

69

Namo

poorest members and do so on a sufficientscale. Far too little attention has been paid tothe need for inclusive strategies for income-generation and economic development and,with a few notable exceptions, for the most partmicro-finance institutions for enterprise devel-

opment have given little attention to this prob-lem.

The Federation is determined to address thisissue in order to enable all its members, eventhe poorest, to secure the income they need forthemselves and their families.

INTRODUCTIONThe discussion of strategies to bridge the gapbetween rich and poor in South Africa – andwithin those strategies, the discussion of socialsecurity systems – may benefit from someempirical findings:• The ideological battle between market eco-

nomics and socialist economics led empiri-cally to a much faster economic growth ratefor market economies without bringing in aworse result for the lowest quintiles of thepopulation.

• A recent study published on the Internetshows that, for a sample of about 90 coun-tries, a one per cent increase in economicgrowth improves the situation of the poor byone per cent – at least in tendency and aver-age.

• Those countries that have introduced a policyof reform at the same time following a strate-gy of public-private sector cooperation andopenness to international trade, as well asconsequent human capital formation andunder stable political and macroeconomicconditions, have not only attained the besteconomic growth results, but have alsoshown the most significant reductions ofpoverty.

These findings, among others, are responsiblefor the worldwide tendency towards a bettermarket orientation of many economies, a betteracceptance of the results of the price mecha-nism, and – as a logical part of this – towardsmore open economies and globalisation.

1. DETERMINANTS OF POVERTYThe question, however, remains: which condi-

tions have to be met for a person (and interna-tionally, for a country) to become competitivein a market oriented environment? In the mar-ket, non-competitive actors will be unable toparticipate profitably. It is therefore importantto analyse the preconditions for market partici-pation, and to think about policies to improvethe situation for those who have not yetreached that competitiveness. And the processtowards that is a learning curve.

From the point of view of the poor, competi-tiveness can be found if they are able to earnenough money to buy goods required for basicneed satisfaction. This ability depends:• on their availability of resources that can be

used productively. In rural areas, land isimportant, while human capital is importantin both urban and rural areas. Empirically,human capital differences explain more thantwo-thirds of the existing income betweenpersons.

• on their chances to use their resources effi-ciently. This has to do with institutional con-ditions valid for the people, and it is oftendominated by employment opportunities.

This again, depends on the technology peoplehave access to, their knowledge, their access togoods and capital markets, the payments theyhave to make (to the state and private groups)and the price of necessity goods.

To summarise, the two most important deter-minants of poverty are (and this seems to betrue also in South Africa):• property rights (ownership or user rights) of

resources, mainly land and human capital• the whole institutional framework. Both determinants are the result of the social

71

The Effectiveness of Social SecuritySystems in Reducing Inequality

Hans Hemmer

72

Hemmer

system people live in – at the local, provincial,national and international levels. Poverty eradi-cation can only be reached if this social systemis changed in such a way that the poor get bet-ter opportunities.

Change of the social system means: moreempowerment, better participation, better infor-mation, more stability and reliability of the sys-tem, a new understanding of economic anddevelopmental needs, better access to alreadyestablished markets, etc.

The problem is: how can we create suchchanges? In terms of poverty eradication, this isour greatest challenge. The poor cannot createsuch change alone; they need the help of strongadvocates. Here I see an important role for thechurch and non-governmental organisations.

2. SOCIAL SECURITY SYSTEMSA social security system without politicalreforms may contribute to poverty alleviation,e.g. by transferring income to the poor. But toeradicate poverty, my above listed determinantsof poverty have to be changed, and this canonly be done by a social security system thatoffers financial transfer only.

On the other hand, efficient social securitysystems are possible without paying incometransfers if they improve the social system thatthe poor are locked in. This includes changes tolabour market regulations, e.g., laws againstchild labour are effective social security sys-tems without payments. Such reforms can con-tribute to poverty reduction without the transferof money.

Some bottlenecks exist in the context ofsocial security interventions: • If money is involved it has to be ensured that

the transfer system is reliable and stable. The

reliability of existing institutions is a prereq-uisite for sound economic development. Thisis valid for investment as well as for a socialsecurity system.

• Changes to the social security system are dif-ficult as the dominant elite often block suchchange. What is needed is a strong govern-ment willing to decide – if necessary –against the elites, but can we expect this?What are the real aims of political leaders?

• Changes only contribute to development ifthey are accepted by the majority of the peo-ple.

The international community carefully moni-tors any national changes to ensure they fulfilinternational acceptance norms. This is alsoapart of globalisation.

CONCLUSIONGlobalisation can improve the economic posi-tion of many people, while others lose out. Theinternal structural conditions of a particularcountry will influence whether it is possible tokeep the number of losers low. This, however,is not the problem of globalisation but of thesocieties affected by it.

Globalisation is just the last step in the chainof the widening of possibilities for the divisionof labour and labour specialisation – precondi-tions for improved standards of living.

Historically, we started with the division oflabour in families. This switched over to ethnicgroup, to villages, extended to the nationallevel and is now international.

Globalisation – like all others type of divi-sions of labour – opens up many possibilities. Itdepends on the individual whether this opportu-nity will be utilised. And that depends on theinstitutional framework of society as a whole.

INTRODUCTION It is gratifying for South Africans to realise thattheir country evokes a high level of admirationfor the manner in which it has moved awayfrom the horrors of apartheid into a new politi-cal dispensation that – in principle – upholdsthe rights of its citizens.

However, we remain painfully aware of themany social problems that beset our country:crime, corruption, lawlessness, a lack ofrespect for life, an incidence of HIV/AIDSinfection among the highest in the world, afrightening degree of poverty and a totallyunacceptable rate of unemployment.

As we prepare for our second democraticelection, the Southern African CatholicBishops’ Conference has decided to single outfor special attention the issue of the economyand its effect on people’s lives. We live in aworld in which a quarter of the earth’s popula-tion consumes 80% of its resources; and in acountry with one the highest differences inincome between rich and poor.

If these situations continue to exist dire con-sequences are inevitable. Indeed, many of thesocial problems we have just mentioned areeither the result of, or are exacerbated by, thesebasic economic injustices. It is no exaggerationto say that, both in South Africa and in theworld as a whole, we are sitting on an econom-ic time-bomb. Our present approach to the wayin which we produce and consume goods, andto the distribution of wealth, is not only deeplyinequitable, it is also unsustainable.

The poor who are with us today and the gen-erations of people yet to be born have a right todemand of us that we strive for a more just, a

more equitable and a more sustainable econom-ics.

It is our hope that this pastoral statement willcontribute towards this search. We contend thatthe key to achieving economic justice lies inhuman attitudes, for it is our attitudes thatunderlie our actions and inform our decisions.As individuals and as a nation we need todevelop a social conscience which recognisesthe injustice of poverty and unemployment andwhich leads us to take action against it.

Undoubtedly, the development of an effec-tive social conscience will not happen quickly.It will have to be striven for and the strivingwill have to be widespread, involving all sec-tors of society. We therefore invite govern-ment, business, labour, civil society and ordi-nary men and women to study this pastoralstatement, to respond to its ideas and sugges-tions, and to consider other ways in which wecan advance the cause of economic justice.

The goal of a just economy may seem far off,even unattainable. But let us remember whatwe have already achieved as a nation – the endof apartheid, the beginning of national recon-ciliation, and significant progress towardspeace and stability. As in the past, we shouldplace our faith in the grace of God and in thegoodwill of our sisters and brothers as weembark on this stage of our journey towardsfull social justice.

1. THE CHURCH’S PROPHETIC DUTYIt is a matter of record, and it is accepted evenby many of those who upheld it, that the sys-tem of apartheid was a great evil. It robbedpeople of their God-given human dignity, it

73

AnnexeEconomic Justice in South Africa:

A Pastoral Statement

Southern African Catholic Bishops’ Conference

74

Economic Justice in South Africa: A Pastoral Statement

caused untold suffering, it dehumanised both itsvictims and its perpetrators. Thank God,through the hard work and sacrifice of so manySouth Africans, we have achieved a new, justand democratic political life in our country. It isnot perfect, but it is incomparably better thanwhat went before.

It would be a grave mistake, however, tobelieve that this new political justice hasbrought with it an end to suffering and an endto oppression, and that full human dignity hasbeen restored to our people. It cannot yet besaid that all South Africans have an equitableshare of the opportunities and the material con-ditions which are necessary to ensure their fullhuman development. For this to be achieved asecond transformation is needed, a transforma-tion of our economic system from one whichnow, as in the past, tends to serve the interestsof a minority at the expense of the rights of themajority, to one which accommodates the right-ful and reasonable hopes and ambitions of allour people. It is the need for this transformationwhich is the focus of this letter.

We are aware that when we opposedapartheid and called for a just and democraticdispensation, people often asked why theChurch was “interfering” in politics. Similarvoices may now question why we are speakingout in the area of economics. In both cases theidea is put forward that matters of religion,faith and morality must be kept separate from“worldly affairs”; that the Church should focuson the “next world”, and leave politics to thepoliticians and economics to the economists.

The Church rejects this idea. We have asacred duty to preach the Good News and tospread the values of the Gospel. And it is thesevalues, of truth, justice and love, that compel usto speak out against injustice of whatever kindin whichever sphere of life it is found. We doso not only as a way of helping to lift the bur-den from the victims of injustice, but also inorder to bring those responsible for unjust sys-tems and practices to see the harm they arecausing.

The Church is deeply concerned about allaspects of human life and strives to promote notonly the spiritual, but also the social, cultural,political and economic development of all peo-ple. If the Church were to fix its gaze on heav-en, to the exclusion of those things which soprofoundly affect the day-to-day lives of the

people of God, we would be failing in our dutyof faithfulness to the Gospel of Jesus.

2. DISCERNING ECONOMIC JUSTICEWhen we speak of “the economy” or “an eco-nomic system” we are speaking of the policiesand plans which control the wealth andresources of a country, about how resources aredistributed between people, and about how themeans of production – such as land, factoriesand technology – are owned and controlled.

It is sometimes suggested that economiclaws, like the basic laws of nature, are beyondhuman control; that we can no more influencethem than we can defy gravity or stop themotion of the planets. Therefore, it is argued,the existence of poverty and unemployment,and the inequitable distribution of wealth, arethe result of inescapable economic laws, andmust be accepted as such. When suffering andeven death flow from these “inevitable facts ofeconomic life”, that is simply unfortunate, it issaid, just as it is unfortunate when suffering anddeath result from a natural disaster. Althoughwe sympathise with the victims of an earth-quake or a flood, we do not consider such nat-ural occurrences unjust or immoral. In the sameway, the argument continues, we should notregard an economic system as unjust orimmoral, though we regret the suffering thatmay be part of such a system. Some people willbe poor and some rich, inevitably and unavoid-ably, just as some will be the victims of earth-quakes and floods, and some will not.

This argument must be rejected. It fails totake into account the fact that economic conse-quences come about as a result of humanagency. At the heart of every economic systemlie human needs, human abilities and humandecisions, and it is the choices which we makein addressing those needs, sharing those abili-ties, and making those decisions, that determinethe justice or injustice of the economic system.(The more powerful our economic position, thegreater our freedom of choice, with the poorand the marginalised having very little effectivechoice in their economic decision-making.)There is thus a moral quality about an econo-my, a quality which has its roots in the morallycorrect or incorrect choices made by people;and it is the moral quality of the economy thatenables us to make judgements about whetheror not it is a just economy.

75

Economic Justice in South Africa: A Pastoral Statement

It must be clearly stated, however, that thesemoral judgements are not made simply on thebasis of the type of economic system underconsideration. Various economic systems exist,each with its own theoretical foundation and itsown practical application. For example, in afree-market economic system, people are large-ly free to make their own decisions about eco-nomic matters, with little or no intervention bythe state. Factors such as supply and demand,and profit and loss, guide the choices that peo-ple and businesses make – if a certain productor service is demanded, someone will supply it,as long as there is a profit to be made in theprocess.

In a centrally-planned economic system, togive another example, we find that the statedoes intervene. Supply and demand, or “marketforces” as they are sometimes called, are notregarded as capable of meeting the needs of thepeople. Consequently, the state exerts controlover the economy and limits people’s freedomof choice in economic matters.

The Church does not judge on economicgrounds between these various systems, partlybecause they are continually changing to meetnew circumstances and challenges, and partlybecause, in practice in most countries a mixtureof these systems prevails. In addition, and veryimportantly, understanding how the differenteconomic systems work tells us little or nothingabout which of them is more, or less, just thanthe other. To judge the morality of an economicsystem we must look to other factors, factorswhich may be present regardless of the under-lying economic system itself:• Poverty: It is often taken for granted that

poverty exists and that it is simply the fate ofsome people to be poor. Indeed, Jesus’ wordsthat “You have the poor with you always…”(Mt 26: 11) are often used to justify thisassumption. In the modern world, however, ithas long been the case that sufficient wealthand resources exist to wipe out poverty, ifonly they were properly distributed. Thesame is true for most individual countries,apart perhaps from the very poorest nationsin the world. The fact that so many people,even in rich countries, still struggle to survivefrom one day to the next – and that untoldthousands die every year from lack of food,lack of basic health-care and lack of shelter –is an indication of economic injustice in those

countries. In essence, the problem is not thatthese economies are unable to meet the basicneeds of all their people, but that they areorganised in such a way that they fail to doso.

• Unemployment: Most people rely on work inorder to earn a living. It may be formalemployment, earning a wage in exchange forgiving labour, or it may be through someform of self-employment such as small-scalefarming. Either way, there are very few peo-ple who do not have to work for a living. Oneof the main tasks of an economy, therefore, isto ensure that there are enough jobs, or op-portunities to work, to meet people’s need toearn a living. Where there is high unemploy-ment we have an indication of an unjusteconomy.

• Rich and poor: In many economies there is asmall number of very rich people and a largenumber of very poor. Even if no-one is livingin absolute poverty, the existence of this gapindicates that the interests of one group arefavoured in relation to the interests of the restof the population. This denies to the majoritytheir rightful share in the available wealthand resources, and an economy which per-mits or encourages such a situation is unjust.

• Discrimination against women: All too oftenwomen are denied equal economic opportuni-ty. Certain jobs or professions are closed tothem, they are paid less than men for thesame work, or employment practices do notaccommodate women as mothers. An econo-my which treats women in this way is unjustin that it denies the inherent dignity andworth of half the population.

• Materialism: A materialist approach is onewhich elevates the importance of materialthings such as money, possessions and status,above that of people and of people-centredvalues such as love of neighbour, the well-being of the whole community, and concernfor the poor. When material considerationsenjoy priority such values will be under-mined, and a materialist economy willinevitably be an unjust one.

• Greed: The desire of individuals for ever-greater wealth, well beyond what they willever require to live a comfortable and securelife, can only be satisfied at the expense ofother human beings and of the planet. In alleconomies, even those with high rates of

76

Economic Justice in South Africa: A Pastoral Statement

growth, there is only a limited amount ofwealth available for distribution. Greed andselfishness on a large scale result in somepeople monopolising a disproportionate shareof this wealth, causing others to go short ofthe necessities of a decent standard of livingand destroying the environment. The planetcannot sustain an economy based on a princi-ple of unlimited growth.

• Threats to family life: The family is the basicsocial unit; anything which harms family lifewill inevitably harm society as a whole aswell as its constituent individual members.An economic system which encouragesmigratory labour, mandatory overtime workand Sunday labour, and which fails to pro-vide wages which are sufficient for the needsof a family, is unjust.

• Environmental degradation: An economicsystem that damages the environment – air,water, and the earth itself – causes harm notonly in the present, but in the future. Theunnecessary production of pollution and haz-ardous waste; the destruction of indigenouseco-systems; the extinction of species; theunsustainable use of natural resources – allthese are examples of economic injusticewhich will have an even greater effect oncoming generations than on those currentlyalive.

These, then, are some of the characteristics ofan unjust economy. But what do we mean whenwe talk of an unjust economy? In reality, aneconomy has no autonomous existence of itsown; it is a product of human activity.Therefore, when we say that an economy isunjust, we are really judging the human actions,decisions and behaviour that manifest them-selves in what we call “the economy”. We arepassing judgement as to the rights and wrongsof the choices already referred to. Clearly, then,all of us – since we are all active in the econo-my in one way or another – bear a moralresponsibility for the economic choices wemake; and, through them, for the general well-being of society.

However, the moral responsibility of peoplewhen they make economic choices is oftenobscured by the existence of a complex seriesof relationships, rules, practices, ways of doingthings, and patterns of behaviour. This complexseries, which also occurs in other spheres oflife, such as the family and politics, needs to be

understood before we can move on to a morepractical analysis of our own economy.

3. ECONOMIC STRUCTUREAn economy is created by millions of peopleplaying various roles at various times. Mostpeople operating within an economy can becompared to the bricks in a building – eachplays a role, but an insignificant one, and eachcan be replaced without changing the look ofthe building. In the same way, most of our indi-vidual economic activities can be changedwithout affecting the overall economy; but ifenough of us change our economic behaviour,the economy as a whole will change.

There are some whose economic decisionshave a much greater impact – bankers,financiers, politicians, chief executives, econo-mists and so on. They are like the lintels, thereinforcing, the beams of a building – even asmall change in their behaviour can have amajor effect on the whole edifice. Thus, suchpeople have a much greater influence on theeconomy, and the consequences of their eco-nomic choices are more profoundly felt.

There are others who are pushed to the mar-gins of the economy, who have little or no roleto play. They may have been useful at somepoint, but they have been denied a permanentplace in the economy. These people are like therubble, the broken bricks and the excess sandand stone which, once the building is function-al, are taken away and dumped.

Then there is the type of economy, be it capi-talist, communist, socialist or perhaps somecombination of these. Each brick and eachstructural piece of a building comes togetheraccording to a plan or a blueprint. It is this planwhich determines what kind of building it is,how well it fulfils its purpose, and how itimpacts on those who use it. Similarly, we con-duct our economic lives in the context of anoverall plan or set of policies. We may live in asystem where the means of production are pri-vately owned – capitalism – or in one wherethey are owned by the state – communism. Justas the plan of a building provides the basicstructure into which the bricks and other com-ponents must fit, so the policies according towhich our economy is operated provide theeconomic structure in terms of which we liveour economic lives.

Of course, it is much easier to think of a

77

Economic Justice in South Africa: A Pastoral Statement

building as a building, rather than trying toimagine all the different bricks and other partsindividually. Similarly, we tend to think of theeconomy as a whole; it would be impossible toimagine each and every economic action ordecision individually. However, the fact thatthe economy is so complex can lead to certainproblems in the area of our moral responsibilityfor our economic choices:• We can very easily start to believe that we

are insignificant as individuals; that the econ-omy is so complicated and so huge that ourindividual actions and decisions are of noconsequence. As a result, we lose a sense ofresponsibility for those actions and decisions,thinking that whatever we choose to do isonly a “drop in the bucket” and therefore notreally important. Thinking in this way cansoon result in our choosing the convenient orthe selfish option, regardless of its “rippleeffect” on others and on the economy as awhole.

• We can come to believe that things are sim-ply “the way they are”, and that the negativeaspects of the economy, such as poverty andunemployment, are inevitable. We accept thatthese “economic realities” are somehow pre-ordained, rather than the result of humanagency. This lessens the responsibility weshould all feel, especially when our economicchoices may be adding to those negative con-sequences.

• The idea of bringing about a change in theeconomic system, or an adjustment in theway it is run, or simply of dealing with itsnegative consequences, begins to seemimpossible. We resign ourselves to the factthat such a large and complicated structurecannot be modified or altered to becomemore just. And if change is impossible thenwe can absolve ourselves of any responsibili-ty for things remaining as they are.

• Finally, we transfer our responsibilities tocertain abstract concepts, and we pretend thatit is these concepts, rather than ourselves, thatare accountable for the way the economyworks. For example, we are told that “capitalis leaving the country” when what is reallyhappening is that people with money aredeciding to invest it overseas; we hear that“the market is worried” about interest rateswhen it is actually people who have money toinvest, or who need to borrow money, who

are worried; we talk of “market forces” beingresponsible for the success or failure of abusiness, when in fact it is we who decidewhether or not to buy what that business hasto offer. Behind these various concepts liehuman actions and decisions, real economicchoices made by all of us. Of course, there isnothing wrong with using these concepts as asort of “shorthand”, a way of talking abouteconomics. The problem arises when we usethem, intentionally or not, to diminish orexclude our own responsibility. We imputehuman qualities, as it were, to these conceptsand make them answerable for the conse-quences of our actions and decisions.

In the face of so large and so complicated astructure as the economy, it is all too easy forus to neglect our moral responsibilities. Each ofus, even the most influential, is but a small partof the whole; economic trends are largelyunpredictable and bringing about significantand worthwhile change is extremely difficult.Any number of well-intentioned interventionscan be seen, with hindsight, to have done moreharm than good. Given all this, and the simplefact that by far the majority of us are not confi-dent of our grasp of economic issues and dis-course, it is perhaps understandable if we prefersimply to get on with our lives, avoiding thedifficult choices and the complex arguments.For the Christian, however, and for all peopleof goodwill, this is not an acceptable option.We cannot abandon our moral responsibilities,even when it is difficult to fulfil them.

When the Church considers the morality ofan economic structure or of an economic deci-sion, it is primarily interested in the impact ofthat structure or decision on people. When anindividual economic decision has an unneces-sarily negative impact on people it is easyenough to say that it is sinful. Decisions moti-vated by greed, for example, can be judged thisway. But we can also judge economic struc-tures. An economic structure based on racismor which perpetuates Third World debt is itselfsinful; those who benefit from such structuresare tainted by that sin, and bear a responsibilityfor the suffering that inevitably flows from sin.

In answer to the moral problems that arisefrom ever-changing economic systems, theChurch has over a long period of time formulat-ed a coherent body of social teaching on thissubject. This teaching establishes certain basic

78

Economic Justice in South Africa: A Pastoral Statement

principles which can be applied to any econom-ic system or phenomenon. Thus, while muchsocial teaching, especially in this century, was aresponse to the conflict between Western capi-talism and Soviet communism, the central prin-ciples can equally well be applied, for example,to the contemporary trend known as globalisa-tion. By using these principles – which we willexplore in the next section – as guidelines forour economic lives, we can be confident ofmaking the correct choices and of developingappropriate structures.

4. CHRISTIAN ECONOMIC VALUESAt the heart of the Christian Gospel is Christ’scommandment: “You must love your neighbouras yourself” (Mk12: 30). If everything we didwas measured in terms of this instruction wecould be sure of acting justly in all matters. Butit is sometimes difficult to apply such a broadstatement to our everyday activities, especiallywhen we are dealing, as we have seen above,with the complex and highly structured area ofeconomics. It is often hard to know what exact-ly the consequences of our economic choiceswill be. Let us consider, therefore, some of theconcrete measures of “love of neighbour”developed by the Church, which we can use toguide our economic actions and decisions.• The common good: Throughout history peo-

ple have been bound together in communitywith one another. As it is sometimes said,human beings are “social animals”; wedepend upon each other for our well-beingand development, and it is impossible for anyof us to live fully human lives as isolatedindividuals. From this it is clear that we haveduties and responsibilities towards eachother, and that we should order our lives insuch a way that we advance not only our owninterests, but the interests of the whole com-munity. Indeed, the only way in which wecan truly advance our own interests is byrecognising and promoting the community’sinterests, or in other words, the commongood. In the field of economics, therefore, weshould avoid those choices which, while theymay appear to be to our individual advantage,are not favourable to the good of the commu-nity as a whole, the common good. This doesnot mean that there is no room for personaladvancement, or that we have to put aside ourown desires and ambitions and concern our-

selves exclusively with the good of the rest ofthe community. It means, rather, that wemust find our own interests within the frame-work laid down by the common good. Wemust recognise that what is good for the com-munity is good for us, and what is bad for thecommunity is bad for us. Because we arebound together and dependent on each other,it is an illusion to think that a choice whichharms the community can, in the long run, beanything but harmful to us as individuals.

• Solidarity: Our awareness of the importanceof the common good leads us to order ourlives and adapt our behaviour accordingly.We adopt an attitude of solidarity towardsothers and towards the whole community; webecome aware of the needs and concerns ofothers, and “make them our own”. Solidarityis not simply a question of feeling sorry forothers, a vague notion of wanting to con-tribute to their well-being, but a joining withothers in a deep commitment to the commongood. As such, it acts as a clear and powerfulmotivation, a guideline for the way we liveour lives.

A very important aspect of solidarity –when we are discussing the economy – is acommitment to regional cooperation.Economic justice cannot be confined to one’sown country. All too often prosperouseconomies, which largely succeed in provid-ing for their own people, exploit their neigh-bours, whether by undermining the latter’sindustries or by trapping them into unfavour-able trade relations. Thus, solidarity cannotbe limited to a purely domestic virtue; it mustreach across national borders as well, espe-cially to the poor of the nations with whichwe trade.

• The option for the poor: Since, in practice,the common good is not sufficiently highlycherished, and since too many people fail tolive in solidarity with the community, it isinevitable that there are those who suffer as aresult of these failures. These are the poor,the oppressed, those living on the margins ofthe community, those whose interests havebeen neglected or ignored. As such, they areespecially entitled to solidarity, to the specialcommitment of the rest of the community toremedy the situation in which they find them-selves. It is this special commitment whichthe Church calls the “preferential option for

79

Economic Justice in South Africa: A Pastoral Statement

the poor”. In practical terms it means that oureconomic actions and decisions must notonly avoid harming the interests of the poor,but must actually contribute to their uplift-ment. For this reason economic efficiency isnot the primary consideration; the poor mustbe given privileged treatment, even at thecost of some measure of technical inefficien-cy.

The option for the poor can be exercisednot only in favour of the materially poor,about whom we are mainly concerned here,but also towards those who have been mar-ginalised because of race, gender, disability,religion, or for whatever reason; indeed, suchclasses of people often tend to be materiallypoor as well, as a direct result of being mar-ginalised. Also, it must be understood that thepoor are not passive recipients of this option,but active participants in its exercise – theymust demand what the common goodrequires for them, and they must exercise thesame solidarity among each other as the com-munity as a whole must show to them.

Of course, the option for the poor is not anoption against the rich – as we have said, weare bound together and what serves the inter-ests of the common good also serves ourinterests as individuals. Therefore, the optionfor the poor is a call to the rich to participatein the upliftment of the poor, to the benefit ofthe whole of society.

• Subsidiarity: The principle of subsidiarityprotects the rights and dignity of individualsand groups in the face of the powerful, espe-cially the state. It holds that those thingswhich can be done or decided at a lower levelof society should not be taken over by a high-er level. As such, it reaffirms our right andour capacity to decide for ourselves how toorganise our relationships and how to enterinto agreements with others. In the modernworld the increasing concentration of eco-nomic power in the hands of a minority, andthe growing power of large corporations, tendto deprive individuals and groups of suchrights and capacities. Economic policies andchoices can reinforce this effect and lead toever greater power accruing at higher levelsof the economy. We can and should takesteps to encourage decision-making at lowerlevels of the economy, and to empower thegreatest number of people to participate as

fully as possible in economic life. On theother hand, there will always be a role for thestate and the large corporation, especially incoming to the assistance of individuals orgroups which are incapable of acting alone.Indeed, even at the level of global economicsthere are states which need this assistance;here the United Nations and other interna-tional institutions have an important role toplay.

• The common destiny of goods: The Churchhas always upheld the right to private proper-ty, seeing it as an essential aspect of humanfreedom. However, this is by no means anabsolute right – it is subject to the overridingconsideration that all created goods areintended for the good of humanity as awhole. Thus, the way owners of property usetheir goods – be they land, money, technolo-gy, natural resources or manufactured things– must take into account the fact that theybelong in the first instance to the communityas a whole, and that we, as individuals, havea right of use over them for the commongood. We abuse this right when we use goodsin a selfish manner, when we deprive othersof their right to those goods and to the bene-fits which flow from them. This can occurthrough wasteful or extravagant use of ourproperty, or through attempts by the few togain greater and greater wealth at the expenseof the majority. Such behaviour harms thecommon good of the community, and is adenial of God’s purpose in providing us withthe created world and its resources.

• The integrity of creation: While it is true thatwe have been given the created world in allits richness and diversity, creation is not oursto do with as we choose. We show ourrespect for the Creator by the way in whichwe relate to all that God has created, thethings of which the book of Genesis says:“God saw that they were good”(cf Gen 1).We are called to a stewardship which wehave to exercise with due reverence andresponsibility. Our economic activity mustrespect the inherent goodness, indeed, theholiness, of the created world. Activitieswhich result in ecological destruction orwhich unduly deplete natural resources arenot only an abuse of what has been given tous, but a denial of that gift to others, especial-ly to future generations.

80

Economic Justice in South Africa: A Pastoral Statement

• People-centredness: Economic decisionsmust always take into account the interests ofthe people who will be affected by thosedecisions. These, rather than the maximisa-tion of profit or the achievement of financialtargets or the fulfillment of theoretical or ide-ological goals, must be prioritised. Anotherway of thinking about this is to consider themanner in which we talk about people in theeconomy. People are often described as“human resources”, an economic ingredientalong with various material resources such ascapital, land, technology and so on. The dan-ger here is that we place these differentresources on a par, and value them equally,when in fact “human resources”, preciselybecause they are human, must be treated dif-ferently. People are both the cause and thepurpose of economic activity, whereas otherresources are only the instruments, the meanswe employ in the economy to reach its trueend – the well-being of all, the commongood. The economy exists for people, notpeople for the economy; for this reason theChurch teaches that labour – meaning work-ers and management – must enjoy priorityover capital.

These values – the common good, solidarity,the option for the poor, and so on – operate asbeacons to guide us on our economic journey.Whether we are speaking of the profound andfar-reaching economic policy decisions madeby governments, or of the role of business, orof the day-to-day economic choices made byindividuals and groups, such as where to investmoney, how to spend it, or how to use our tal-ents and abilities, we need to refer constantly tothese values. If we allow these values to guideus in our economic actions and decisions wecan be sure that we are promoting just econom-ics; and the resulting economy will be a justone, in which poverty, greed, materialism andunemployment will have no place.

We turn now to an examination of the SouthAfrican economy, analysing it in the light ofwhat we have said concerning those thingswhich indicate economic injustice, and bearingin mind the Christian economic values whichwe have just considered.

5. THE SOUTH AFRICAN ECONOMYIt is impossible for any South African to beunaware of the large numbers of our people

who still lack the basic necessities of a decentlife. Poverty, homelessness, unemployment,lack of access to proper health-care and educa-tion – all these are apparent to anyone witheyes to see. At the same time the government iscutting back on expenditure in many areas.Welfare grants have been reduced, teachershave been retrenched, there appears to be nomoney to employ more police and court offi-cials, and so on. It is tempting, in the face of allthis, to think that South Africa is a poor coun-try, with the same lack of wealth and resourcesas many other African countries, and that oureconomy is simply unable to provide for theneeds of our population. According to thisview, the millions of poor South Africans havelittle to look forward to, and relief from theirpoverty is but a vague dream.

Such an attitude would be mistaken, andwould contribute nothing to the much-neededsolution to our economic problems. SouthAfrica is in fact not a poor country, but a rela-tively rich one, incomparably better off thanour neighbours. As an indication of this, weneed only glance at the respective average year-ly incomes of individuals in some other Africancountries, as compared with South Africa. InUS dollars the average income in Senegal is570, in Ghana 390, in Mozambique 85, and inSouth Africa 3160. Further afield, in Sri Lankait is 690, in India 340, and even in Poland, anindustrialised European country, averageincome is 2270. These figures explain why,rather than being seen as a poor country, SouthAfrica is classified by the World Bank as anupper middle income country.1

All this raises the question as to how it isthat, given such relatively favourable figures,up to half of our population lives in poverty.The answer, of course, is to be found in thedefining characteristic of our economy, the vastdisparity in income between rich and poor.While a small minority of our people enjoys anextremely high level of income, many millionsfind themselves with Lazarus, surviving on thecrumbs from the rich man’s table. Our analysisof the South African economy must start withan investigation of this phenomenon.

5.1 Rich and poorAs we have said, even where no-one lives inabsolute poverty, the existence of a glaring dis-parity in income levels indicates an intolerable

81

Economic Justice in South Africa: A Pastoral Statement

imbalance in the way wealth and resources aredistributed. How much more so, then, is this thecase in our country, where up to 53% of ourpeople are indeed living in poverty.2 The situa-tion is even worse when we consider the aver-age income figures given above – clearly, thesimultaneous existence of such high levels ofpoverty and such relatively high levels of aver-age income can only mean that a very smallnumber of people hold a shockingly dispropor-tionate share of the wealth. This is borne out bythe shameful fact that South Africa has one ofthe highest Gini coefficients in the world, 0.58,as compared to an average of 0.46 for develop-ing countries and 0.34 for developed countries.3

It may be argued, of course, that those whoenjoy the highest levels of income haveachieved this through hard work and that theydeserve the benefits of their efforts, regardlessof the poverty afflicting others. There are manyreasons for rejecting this argument. Firstly, it issinful to keep for oneself an overabundance ofwealth when one’s brothers and sisters are suf-fering and even dying for want of simple neces-sities. In such a situation it is of no conse-quence how and why some people come to beexcessively wealthy while others starve;Christian justice demands that sufficient shar-ing takes place to ensure that the basic needs ofall are met.

Secondly, in the context of South Africa itcannot be denied that our painful history hasresulted in a state of affairs in which a smallminority was, and to a large extent still is, ableto appropriate to itself the lion’s share of thecountry’s wealth and resources; in fact, bothcolonialism and apartheid were intended to produce just this result. Whether throughinequalities of opportunity such as lack ofdecent education and health-care, or throughdirect coercion such as the practical enforce-ment of migratory labour on the mines and theuse of virtual slave labour in agriculture, orthrough statutory measures such as the lawswhich deprived people of their land, successivepolitical dispensations in South Africa con-spired to produce an economy which advan-taged a minority by disadvantaging the majori-ty.

In South Africa more than in most countries,the rich are rich because the poor are poor.Uncomfortable as it may be, those who todayenjoy a luxurious standard of living cannot dis-

tance themselves from the past, and from themoral debt which they have inherited.

Thirdly, even if the demands of charity arerejected, and even if it were possible to arguethat those enjoying excessive wealth are fullyjustified in doing so, common sense dictatesthat our society cannot prosper under these con-ditions. As we have seen, the good of each ofus in the long term is secured and promoted bythe common good of all. Self-interest requires,therefore, that those who have in abundancemust share with those who have nothing.Failure to do so can only precipitate socialinstability and threaten the well-being of all,rich and poor. History abounds with instanceswhere the rich and powerful have broughtabout their own downfall by refusing to recog-nise in good time the legitimate demands of thepoor.

In conclusion, in the matter of rich and poor,it must be said that this is by no means a simplequestion of race. Changing the racial composi-tion of the two groups provides no solution.The increasing number of black South Africansassuming positions in the economic elite of oursociety will not, of itself, close the gap betweenrich and poor. And as long as this gap remainsat its current scandalous levels, the future ofour country is at risk.

If the gap between rich and poor is unaccept-able, then so too is the actual degree of povertyin our society. It is not necessary for us to pro-vide a detailed breakdown of the indicationsand symptoms of poverty in South Africa; no-one with any awareness of their surroundingscan fail to notice it. A few indications will suf-fice: we have already seen that half our peoplelive in poverty; in addition, we have high ratesof malnutrition and infant mortality;4 one in sixSouth Africans live in shacks; over half ourpeople have no running water in their homes;5and hundreds of thousands of elderly peoplehave no income other than the monthly R520old-age pension, which they often have to sharewith unemployed dependents.

5.2 PovertyIt is important for us to have some grasp of theextent of poverty, to understand its causes andits consequences, and even to discern what thesolutions to the problem may be; but it is all tooeasy for this to become a mechanistic exercise,a matter of rands and cents, in which we lose

82

Economic Justice in South Africa: A Pastoral Statement

sight of the true significance of poverty. In aneconomy such as ours which, as we have seen,is more than capable of providing the necessi-ties of life for all its people, the existence ofpoverty is a denial of what we have termedChristian economic values – the common good,solidarity and people-centredness. It is a signthat the economy has strayed from its true pur-pose, the equitable and fair distribution ofwealth and resources, and has instead become atool of sectional interests. Avaricious economiccompetition, with inevitable winners and losers,has replaced economic cooperation in which allare assured of, but none are limited to, thenecessities of life.

By tolerating such high levels of poverty, theSouth African economy undermines the com-mon good and fails to demonstrate the solidari-ty that our shared human dignity demands.Profits continue to be put before people, and ina general sense, the economically empoweredtend to pursue their own enrichment whileneglecting the basic needs of the economicallydisempowered. And it comes as no surprise tofind that it is the great majority of the same sec-tion of our population that until recently suf-fered under political tyranny that continues tosuffer under an oppressive economy. Regard-less, once again, of considerations of justiceand Christian charity, common sense surelydictates that such a situation cannot prevail forlong without resulting in serious social instabil-ity, to the detriment of all, rich and poor.

One of the main reasons for our high rates ofpoverty is the failure of the economy to providesufficient jobs. While it is true that no economyis able to assure sustained full employment,joblessness in South Africa is not just a matterof a few per cent; it is an extremely seriousproblem.

5.3 UnemploymentIn order to derive benefit from an economy,people must be able to participate in it; and formost people, the primary means of economicparticipation is through work. Indeed, through-out human history it has been a basic norm thatall are expected to work, and thereby to con-tribute to the economy. Those who refuse to doso, for no good reason, have generally beenexcluded from the benefits of the economy.However, if society expects all its members towork and to contribute, then it should make it

possible for them to do so. In this regard a pro-found responsibility rests on both the politicalauthorities and those who hold powerful posi-tions in the economy. Everything possibleneeds to be done to maximise job opportunities,and where the choice is between greater profitsand greater employment, the latter must be chosen.

In South Africa this is a matter of the greatesturgency. Approximately one out of every threeeconomically active people is without work.6As long as this remains the case there can be nohope of achieving a secure and prosperousfuture for our people. In some parts of thecountry unemployment is at nearly 50%,7meaning that each worker has to support notonly his or her own dependents, but anotherworker and his or her dependents as well. Thus,unemployment affects not only those without ajob, but also those who have work. In conse-quence, the poverty and the rich–poor gapwhich we have already mentioned can only beexacerbated. Furthermore, such a scale ofunemployment acts as a huge drain on thestate’s resources, further reducing its ability toprovide much-needed social services.

The harm caused by unemployment is by nomeans limited to material matters; there is alsoan enormous social cost. While simplisticdeductions must be avoided, there can be nodoubt that a connection exists between highrates of unemployment and the distressinglyhigh incidences of crime, family breakdown,domestic violence, gangsterism, and drug andalcohol abuse which beset our society. Many ofthese social problems in turn impact negativelyon the economy, resulting in a vicious circlewhich will only be broken by the provision ofjobs.

But there is more to the question of unem-ployment than just its economic and socialcosts, severe as they are in our country at pre-sent. Even if unemployment did not impactnegatively on the economy, and even if it wasnot a cause of the social problems we havenoted, it would still be a denial of an essentialelement of human dignity. Through work wecooperate with the Creator in bringing to fulfill-ment the created world; we exercise our God-given abilities and talents as co-workers withGod in the great task of transforming the mater-ial world. Work is not simply an onerous neces-sity, coincidental with our physical existence, a

83

Economic Justice in South Africa: A Pastoral Statement

burden which we should try to escape. It is avital part of our humanity, the manifestation ofour creativity, an opportunity for our growthand fulfillment. Indeed, work is nothing lessthan a constituent dimension of the purpose forwhich the world was created and for which weourselves were brought into being.

Of course, it is not always easy to discernthese noble ideals in all the different kinds ofwork which we experience. Many people, per-haps even the majority, find themselves work-ing in exploitative or demeaning situationswhich are as much of an affront to their dignityas unemployment would be. What is needed,therefore, is not just work, but humane and dig-nified work. Nevertheless, we are concerned forpresent purposes with the need for work itselfto be available to all our people, work which,however humble or exalted it may be, satisfiesour innate desire and responsibility to reach ful-fillment. That so many of our people are deniedthis opportunity is a shameful injustice, espe-cially since it is so often the result of the exces-sive pursuit of profit or of economic policieswhich fail to take adequate account of theinherent value and dignity of the human person.Work is indeed a right, a right which, as anation, we fail to respect at our peril.

In this regard it is disturbing to note the cur-rent tendency to lay the blame for unemploy-ment at the door of workers themselves andtheir organisations. The oft-repeated charge isthat organised workers constitute an elitewhich, through demands for higher wages with-out commensurate increases in productivity, isresponsible for the inability of the economy tocreate more employment. In recent years, how-ever, labour productivity improvements haveoutstripped unit labour costs.8 Furthermore,there is no evidence to show that, in theabsence of demands for higher wages, employ-ers take on more staff.

While these three factors – the gap betweenrich and poor, poverty and unemployment – areclearly the greatest obstacles in our quest for ajust economy, the other characteristics of anunjust economy which we alluded to above arealso present in our situation.

5.4 MaterialismIt is good and proper that those who work hard,who develop their abilities and who take onresponsibility should be rewarded for their

efforts. And it is fitting that incentives shouldbe provided to encourage people to do thesethings. However, a balance must be achieved inwhich material values such as wealth, statusand power do not become the dominant or solemotivation. If this happens, more important val-ues such as the common good and solidaritytend to be neglected or altogether ignored.

There are numerous examples of this in ourcountry. Much has been said about the “gravytrain” in the public sector, in which oftenexcessive salaries and benefits are provided toholders of public office. These are justified asbeing necessary either to attract qualified peo-ple or to lessen the temptation presented by cor-ruption. Both of these justifications indicatethat the value of service to the community isperceived as secondary to the material value ofwealth. Again, status symbols such as expen-sive cars are routinely provided, and in manycases, demanded as somehow enhancing thedignity and worth of the recipient. Such tenden-cies not only act as a drain on the resources ofthe state, limiting its ability to finance impor-tant social needs; they also set an example forthe community at large. The message is thatpublic life is an opportunity for self-enrich-ment, rather than an opportunity to serve oth-ers.

Materialism in public life stems, in large part,from the overtly materialist nature of the pri-vate sector. Here, success is measured largelyin terms of a person’s wealth or influence, ofthe number of possessions they have accumu-lated, of what they earn and own. People areencouraged to aspire to ever greater materialwealth, to “get ahead” of others, to compete,sometimes ruthlessly, for a bigger share of whatis available. It is disturbing to note that so manypeople are prepared to receive their educationand training in South Africa, often at vastexpense, through the state, to the community asa whole, and then leave the country simply inorder to maximise their earnings. There is littlesense of the duty which we all have to con-tribute, to put back into society what we havereceived from it.

It must also be pointed out that materialism isnot confined to the rich. Even the relativelypoor can allow materialist values to dominatetheir lives. Where this happens, whether forrich or for poor, the economy becomes nothingmore than an arena of competition, where the

84

Economic Justice in South Africa: A Pastoral Statement

best-equipped, the luckiest or the toughest pros-per. In the absence of the truly human values,the weak, the ill-equipped or the unlucky fallby the wayside.

Once again, it is a question of balance. It isentirely legitimate to strive to increase one’swealth, and to enjoy the fruits of one’s labour,but this must happen in harmony with one’ssocial responsibilities. Material values shouldbe accorded their proper place in relation tosocial, spiritual and moral values. Where thisbalance is disturbed, as it is in our economy,injustice is the inevitable result.

5.5 GreedEven when the trap of materialism is avoided,and human values are recognised and main-tained, the temptation to excessive consumptionis always present. Each of us must discern forourselves what our real needs are, how much ofthis world’s goods we really require in order tolive a fulfilling and dignified life. As long aswe can meet our needs we should be content,given that there are almost always others whoseneeds are not being met. This is not to say,however, that we should reject all comforts, allthe pleasures that can be derived from whatGod has given us on earth; but simply that wemust always bear in mind the needs of others,especially where, as in South Africa, millionsof our brothers and sisters lack the barest neces-sities.

Unfortunately, the dominant ethic in largesections of our society appears to be one ofconsumerism, a preoccupation with the acquisi-tion of money and goods even to the pointwhere it becomes impossible actually to usethem, and satisfaction is derived merely fromhaving them. This is nothing less than a form ofidolatry. It is all the more harmful in that itoccurs at the expense of others. Since there is alimited amount of wealth available, the greed ofone is directly linked to the deprivation ofanother.

5.6 Lack of dignityWe have already mentioned that many peoplefind themselves working in demeaning andoppressive circumstances. In a wider sense oureconomy as a whole tends to place a large pro-portion of our population in a situation of life-long drudgery, struggling merely to survivefrom one day to the next. Huge numbers of

people are reliant on various forms of charity oron welfare grants as a result of there beingseemingly no place for them in the economy. Insome of the biggest employment sectors in theeconomy, such as mining and agriculture, con-ditions of employment and remuneration areoften extremely poor, and fail to meet the nec-essary standards of human dignity. Indeed, inagriculture it is no exaggeration to say that con-ditions of virtual slavery prevail in someinstances.

While human dignity is not directly depen-dent upon material considerations, it is never-theless the case that the growth and develop-ment of our social and moral capacities requirethat our physical needs be met. Where theseneeds are neglected or ignored it becomesextremely difficult, sometimes almost impossi-ble, for social and moral standards to be upheld.Hopelessness and frustration set in, leading, inmany cases, to crime, domestic violence, drugdependency and the like. An economy in whicha significant proportion of the employed havelittle prospect of anything but a lifetime ofunstimulating, low-paid, mundane work, mere-ly in order to survive, invites the social prob-lems which we are currently experiencing.Respect for human dignity demands that work-ers be treated as more than just another “input”along with capital, machinery and technology.

5.7 WomenIn recent years many legal obstacles to theemployment and advancement of women in theeconomy have been removed. Laws have beenintroduced which prohibit unfair discriminationagainst women in the workplace, and whichencourage special measures to ensure thatwomen are represented in greater numbers atall levels. Nevertheless, it is still the case thatwomen face a range of cultural, social and tra-ditional barriers to their economic advance-ment. As a social category, women are far morelikely than men to be unemployed, to live inpoverty (often with the added burden of havingto support children), and to lack marketableskills. They are also poorly represented in thetop levels of the economy. To this can be addedthe fact that many women also face other barri-ers, such as race and background. Black ruralwomen in particular are at an enormous eco-nomic disadvantage in comparison to virtuallyany other group in our society.9

85

Economic Justice in South Africa: A Pastoral Statement

5.8 Family lifeA healthy family life is essential for a society todevelop and prosper. Therefore, an economywhich stresses and pressurises family life mustbe avoided. In this regard it is deplorable thatthe system of migratory labour is still prevalentin our country, forcing tens of thousands offamilies to live apart. We are also seeing a ten-dency towards routine overtime work, whichdeprives parents of adequate time with theirchildren and other dependents. Sunday tradingis becoming the norm, even in the most non-essential fields. Apartheid’s imprint on ourcities means that vast numbers of workers haveto spend hours travelling from their homes totheir places of work, effectively lengthening theworking day to the point where there is insuffi-cient time for family interests and recreation.

These circumstances are already responsiblefor much social dislocation in our society. Thisoccurs not only at the level of the individualfamily, but also in the wider social units of thevillage and the local community which are socharacteristic of and beneficial to our society.Unless those aspects of our economy whichhave such a negative impact on family andcommunity life are addressed, the situation canonly deteriorate further.

We end this brief analysis of the injustices inthe South African economy by consideringthree further factors which, though not peculiarto South Africa, are undoubtedly obstacles toeconomic justice in our country.

5.9 LandIt is no coincidence that both colonialism andapartheid set out systematically to deprive themajority of our people of their land. People’sties and access to the land had to be eliminatedin order, among other reasons, to force them toparticipate in the formal economy by sellingtheir labour. An abundance of cheap labour was– and to a large extent still is – central to thedevelopment of our economy, and where it wasnot freely available, it was coerced by forcingpeople off the land. To this day an overwhelm-ing proportion of the productive land in SouthAfrica remains in the hands of the minoritywhich obtained it historically by unjust means.Landlessness continues to disadvantage mil-lions of our people; it deprives them, to a con-siderable extent, of an important source of eco-nomic security; and it forces them, on unequal

terms, to provide the cheap labour which resultsin increased profit for those who benefit mostfrom the economy.

Despite commendable efforts by the govern-ment, land restitution and redistribution pro-grammes have only scratched the surface of theproblem, and much more needs to be done toaddress this historical, and continuing, injus-tice. To date relatively few land claims havebeen settled, and most of these – as well as themajority of claims still outstanding – concernland in urban areas.10 At the same time, thereare regular reports in the media of farm workersbeing evicted from farms in spite of the enact-ment of new legislation intended to providethem with greater security of tenure. Takentogether, these facts highlight the pauperisedexistence of the country’s rural black popula-tion. A concerted approach to a new land own-ership and land-use policy is needed to addressthis problem.

5.10 DebtApart from any considerations of justice, theapartheid system was an extremely expensiveone from a financial point of view. It gave riseto a proliferation of costly and wasteful bureau-cracies, it required vast spending on “defence”,including the occupation of Namibia, andtowards its end it caused sanctions and boycottsto be applied, forcing the previous governmentto finance its expenses by borrowing from itsown people.

This is not the place to attempt a detailedanalysis of our debt problem. The salient pointsare that roughly 95% of our central governmentdebt is owed to institutions within South Africa,and that the greatest part of this debt was accu-mulated by the apartheid state. The need to ser-vice this debt now acts as a drain on the newadministration, and profoundly limits its capac-ity for much-needed social spending. Interestpayments on the debt – which account for 22%of total government spending – accrue verylargely, though by no means exclusively, tothose who benefited most under apartheid;while those who endured most continue to suf-fer inasmuch as the need to service the debt isgiven priority over their legitimate demands forsocial services.

In addition, a substantial amount of publicsector foreign debt was accumulated underapartheid, most of which is not reflected in

86

Economic Justice in South Africa: A Pastoral Statement

government’s budget, but the servicing ofwhich continues to drain our foreign exchangereserves.

This is clearly an intolerable situation. Justas, in the global arena, poor countries subsidiserich countries through the iniquities of interna-tional debt, so in our country, the poor continueto subsidise the rich by virtue of an internaldebt which was not acquired on their behalf.The debt is thus a drain on the economy in gen-eral, and a particular burden on those who havebeen, and continue to be, especially disadvan-taged economically.

5.11 CorruptionWhile it is notoriously difficult to arrive ataccurate figures to show the economic damagedone by corruption, there can be no doubt thatit is a serious problem in South Africa. In theprivate sector there is widespread tax evasion,double invoicing and other forms of dishonestywhich deprive the state – and thereby the com-munity – of much needed resources; not tomention those types of corrupt behaviour,harmful business practices, insider trading andso on which disadvantage others in the privatesector.

Similarly, in the public sector examples ofcorruption abound, ranging from nepotism tobribery and downright theft of state property. Inother cases officials fail to follow the correctprocedures, resulting in losses of substantialamounts of public funds. And, even though it isnot strictly speaking a question of corruption,there is the matter of a civil service whichappears, in some areas at least, to be poorlymanaged and overstaffed. Such a civil servicebecomes wasteful of resources and a drain onthe economy, rather than an economic asset.

Although various others came to mind, theseare some of the main problems and injusticesbesetting our economy. However, they areinternal problems; we must also consider exter-nal factors. In the next section we take a brieflook at some of the most important features ofthe world economy, as they relate to SouthAfrica.

6. THE WORLD ECONOMYMany of the challenges and injustices which wehave identified in our own economy are to befound at an international level as well. While itis not our task here to survey in any detail the

world economic scene, we must make referenceat least briefly to some of the most importantfactors, especially where they have an impacton our own economy.

6.1 GlobalisationWith each passing year methods of communi-cation and transport become faster and moresophisticated. Decisions made in one countryare implemented almost immediately on theother side of the world. Multinational compa-nies operate in numerous countries around theworld, and many of them are vastly more pow-erful, from an economic point of view, thanmany developing nations. Barriers to trade andrestrictions on the flow of money from onecountry to another are constantly being elimi-nated.

Taken together, these changes in the interna-tional economic order are known as globalisa-tion; and in many ways this is a positive andpotentially beneficial trend. However, there isalso much about globalisation that is negative,and which threatens the well-being and devel-opment of the poorer nations. Profits derived bymultinational companies from the resourcesand labour of poor countries are too easilytransferred to shareholders in the rich countries.Increased access to imported goods often leaveslocal industries unable to compete with thecheap products of underpaid labour in otherparts of the world, resulting in downward pres-sure on wages.

In too many instances, globalisation takesadvantage of, and exacerbates, the inequalitiesbetween the nations. Poor countries find them-selves unable to compete on an equal footingwith the rich, and are consequently exploited.The amoral ethos of survival of the fittest, longpresent in national economies, has now beentranslated onto the international stage. And as aresult, we are seeing the creation of an “under-class” of nations.

Just as it is the duty of the state at domesticlevel to intervene on behalf of those whoseinterests are neglected by the national econo-my, so it is the task of the international commu-nity to do so in the name of the poor andexcluded nations. Unfortunately, the advancetowards a global economy has not been accom-panied by sufficient progress in global respon-sibility and a sense of global solidarity.

Globalisation is having its effect on South

87

Economic Justice in South Africa: A Pastoral Statement

Africa. We are seeing some of our industriesfailing to compete, at least partly due to theiniquitous working conditions in some of ourcompetitor economies; currency speculationand the free movement of capital have harmedour economy of late; and the introduction ofnew technologies and mechanised productionmethods from abroad has led to significant joblosses here while sustaining overseas industries.

There can be no doubt that globalisation is agrowing trend. While many of its effects arebeyond the control of any one country, itremains the duty of states to mitigate its nega-tive effects on their populations. Regionalcooperation and solidarity is of the greatestimportance in this respect; the advancement ofpoor countries will be much better served ifthey stand together than if each pursues its ownnarrow interests.

6.2 International structures and institutions Various bodies exist in order to foster interna-tional economic development, foremost amongwhich are the World Bank and the InternationalMonetary Fund. Since their inception thesebodies have no doubt achieved much that isgood. However, especially in recent decades,the prescriptive – some would say arrogant –approach of these organisations has broughtwidespread suffering to the poor populations ofdeveloping countries. An inflexible adherenceto free market fundamentalism, as it is some-times called, has been insisted upon by thesebodies as a condition for their assistance. Thishas had disastrous consequences for the poor:social expenditure has been reduced, affectingalready low standards in health and education;food subsidies, which often stand between thepoor and starvation, have been cut; and the cul-tivation of cash crops, rather than food, hasbeen encouraged in order to promote exports.

While these have been the experiences ofmany developing countries, especially inAfrica, it is perhaps one of the few positiveconsequences of apartheid that South Africawas isolated from these bodies. As a result, weare not indebted to them to any significantextent, and we have not had these fundamental-ist policies – usually known as EconomicStructural Adjustment Programmes or ESAPs –imposed on us. It is also encouraging to notethat there is an increasing recognition that thesesupposed remedies often do more harm than

good, and that the international bodies them-selves are reassessing the appropriateness ofsome of their standpoints.

Nevertheless, no developing country canafford to disregard the risks associated withfree market fundamentalism of this nature. AsSouth Africa becomes ever more integrated intothe world economy we need to assert the cen-trality of our own economic values, especiallythose that favour the poor and the disadvan-taged. And we must be on our guard against theimposition of false values and ideological solu-tions by international organisations which – inthe eyes of many – serve the interests of therich and powerful nations.

6.3 International tradeThe relationship between rich and poor nationsalso comes to the fore in the question of inter-national trade. The exchange of goods and ser-vices, and more importantly, the skills andknowledge that creates them, is a positivehuman activity. What starts out as commercialtrade has the potential to develop into a socialand cultural interchange, bringing people ofdifferent races, religions and languages closertogether. Where economic advancement isachieved at the same time, all parties benefit.

As we have seen, though, economic relation-ships are characterised more often than not byinequality. International trade agreements canexacerbate this situation. Developing countries,desperate for foreign currency, conclude “freetrade” deals with rich nations or groupings suchas the European Union, which generally favourthe latter. While the fragile markets of the poorcountries are opened to foreign competition, itis generally the case that the rich countriesmaintain a level of protection of their ownindustries.

It is instructive that much of the rhetoric con-cerning a trade agreement between SouthAfrica and Europe – which European leaderspromised as a “reward” for our transition todemocracy – evaporated once the actual negoti-ations started. Instead, the negotiations pro-ceeded on the basis of narrow self-interest withno indication that the richer, more powerfulparty was prepared to make the type of gener-ous and open-hearted concessions that itsrhetoric had promised. This is precisely thekind of trade agreement that typifies a worldeconomy in which the rich countries do only

88

Economic Justice in South Africa: A Pastoral Statement

what is necessary to entrench their position.What they “give” to the developing world isgenerally only as much as they have to in orderto gain access to new markets, to cheap labourand to raw materials. Instead of solidarity, com-petition is the motivating factor.

Of course, to speak of rich and poor countriesis to speak in relative terms: South Africa isitself a rich country in comparison to many ofits neighbours. Just as we must speak outagainst the injustices of international tradewhen South Africa is the victim, so must weobject when our country disadvantages another.Certainly, we must be sensitive to the fact thatsome African countries have objected to someof our trade practices.

6.4 The myth of unlimited economic growthIt is understandable that many developingcountries seek to reach the level of materialwealth achieved by the developed world. And itcannot be denied that we should all strive for asituation in which everyone has access to ade-quate food, clothing, shelter, education andhealth-care.

However, at some point it must be realisedthat the resources of the earth are finite, andthat we are already using up some of them in anunsustainable way. Because of this, it is simplyimpossible for the whole world to reach thematerial standard of living currently enjoyed bycitizens of the richest nations. It is beyond theability of the earth to supply enough raw mate-rials, energy and probably even food to makethat possible.

To put it another way, the high levels ofmaterial consumption by the developed worldof fuel, of electricity and of other naturalresources have already led to vast environmen-tal degradation. It is probably not even possiblefor these levels to be maintained in the long-term; it is certainly impossible for the other80% of humanity to reach them. Unfortunately,much international economic activity is basedon the assumption that such levels of consump-tion are possible for everyone, if only certainplans or programmes are followed. Unlimitedeconomic growth, it is said, will flow from awillingness to “follow the rules of the game”,as the rich countries have done.

The reality is different. To a considerableextent, the wealth of the rich countries has beenbuilt upon the cheap labour, raw materials and

export markets offered by the poor countries.The very inequalities of international trade andthe indebtedness of the developing world com-bine to keep the rich countries rich and the poorones poor. The developing world does not needthe empty promise of unlimited economicgrowth leading at some vague point to materialwell-being. Instead, what it needs is a willing-ness on the part of rich countries to scale downtheir levels of consumption, and to accept stan-dards of living that are sustainable and whichdo not continue to cause environmental degra-dation. This, in turn, would make possible abetter balance of wealth between rich and poor,and the elimination of poverty would become areality.

These features of the international economywill have their effect on our efforts towardsgreater economic justice domestically. For onething, the freedom of our economic decision-makers in government is severely constrainedby globalisation. They have to take into accountthe possible reactions around the world to anybold moves they may wish to make. And theyhave to deal on our behalf with the powerfulinstitutions and trading blocs which we havejust looked at. Nevertheless, each sovereignnation retains its autonomy to a very consider-able extent, and it is no excuse to claim thatinternational factors preclude efforts to bringabout justice at home. There is much that canbe done, some of which we will describe in thenext section.

7. WHAT CAN BE DONE?The Church is reluctant to prescribe specificeconomic policy (or to prescribe exactly how tosolve all the problems listed above). Neverthe-less, it has a responsibility and a duty to go fur-ther than simply setting out just economic prin-ciples, as we have done earlier in this letter.Where particular economic policies or practiceshave an adverse effect on people, the Church isobliged to criticise them, and where possible, tosuggest alternatives.

In doing so we first address the major role-players in setting economic policy – govern-ment and business – and suggest practical stepswhich can be taken by them in order to achievea more just economy. We then go on to addressother role-players, namely labour and civilsociety, and we end with the question of peo-ple’s attitudes, calling for the type of attitudinal

89

Economic Justice in South Africa: A Pastoral Statement

change which is necessary for the promotion ofeconomic justice.

7.1 Practical interventionsWe have argued elsewhere in this letter that allour economic decisions – how we spend ourmoney, where we invest it, how much we bor-row or save – have an impact on the overalleconomy. However, for practical purposes,there are two major role-players in setting eco-nomic policy – the government and the busi-ness community. In addition, organised labourand civil society also have significant roles. Wewill deal with each of these in turn.

7.2 The role of governmentGovernments everywhere have a responsibilityto ensure the welfare of their citizens. Oneimportant way in which they do so is by formu-lating policies and strategies which willenhance the economy and enable it to meet theneeds of the people, and especially the needs ofthe poor and the vulnerable. The extent towhich a government should intervene in aneconomy, and the details of that intervention,will depend on particular circumstances; butwhere a country’s economy, left to its owndevices, fails to provide an acceptable level ofmaterial well-being for all its citizens, interven-tion by the government – or more broadly, thestate – will be necessary.

In our country, as we have seen, poverty,growing unemployment and the unequal distri-bution of wealth are major problems. It is there-fore our task to judge the government’s eco-nomic programme primarily by the effect it hashad on these problems.

In 1996 the South African government adopt-ed the Growth, Employment and Redistribution(GEAR) programme as its macro-economicstrategy. Simply put, GEAR is a set of guide-lines and targets in terms of which the govern-ment makes and carries out its economic plansand activities.

In two major respects GEAR has failed so farto meet its targets – in economic growth and injob creation. Both of these are vital for the alle-viation of poverty and, thus, for economic jus-tice. GEAR projected economic growth of2.9% for 1997, whereas actual growth amount-ed to only 1.7%.11 Its prediction of 3.8 % for1998 also turned out to be far too optimistic,with actual growth reaching a mere 0.1%.

Regarding employment, GEAR predicted that126 000 new jobs would be created in 1996,and 252 000 in 1997. In fact, some 71 000 werelost in 1996, and 142 000 in 1997. Thus, GEARfell short of its job creation targets by 197 000in 1996 and by 394 000 in 1997. No target wasset for the redistribution of wealth, even thoughthis is given prominence in the title of the pro-gramme.

All this means that the present economicstrategy is not providing the required levels ofeconomic and employment growth. (The fig-ures mentioned above mostly pre-date the eco-nomic crisis which enveloped much of theworld in mid-1998; this crisis clearly worsenedGEAR’s failure to meet its targets, but it wasnot the cause of this failure.) Other initiativesmust therefore be considered, and some ofGEAR’s basic assumptions must be questioned.

7.2.1 Trickle-down effectOne such assumption is that if wealth and pros-perity are created at the top end of the econo-my, they will “trickle-down” to those at thelower end. Following this assumption, it is nec-essary to accede to the demands of the businesscommunity for strict fiscal disciplines, deficitreduction, removal of exchange controls, andreductions in company taxation. The implicitunderstanding is that, given these conditions,the business community will be able to expandthe economy; it will create more jobs andimprove existing jobs, ensuring that wealth andprosperity is passed on to those at the lowerlevels of the economy. Unfortunately, there islittle evidence that this is happening, or is likelyto happen. Indeed, the evidence is to the con-trary. Government has by and large met thedemands of the business sector, but economicgrowth has been minimal and jobs have contin-ued to be lost at an alarming rate. The “trickle-down” assumption has failed to deliverincreased employment and wider distribution ofwealth, and government must therefore beencouraged to reconsider this assumption.

7.2.2 Budget deficitThe particular assumption that it is necessary toreduce the budget deficit as rapidly, and to suchlow levels, as GEAR demands, is also open toquestion. While it is certainly the case that it isunwise for a country continually to spend morethan it receives in income, it is also the case

90

Economic Justice in South Africa: A Pastoral Statement

that money sometimes has to be borrowed forinvestment purposes. In the private sector it iscommonplace for large sums to be borrowed inorder to finance a new factory or other capitalexpenditure. Correctly applied, such borrow-ings are an investment, and result in increasedprofit in the future. There is no reason why astate should not act in a similar way, borrowingmoney in order to invest it in what is some-times called its human capital, its people. Forexample, public works programmes providingmuch needed infrastructure, and at the sametime giving people training and skills, could bea worthwhile investment in the long-term. Suchsmall-scale efforts as the “Working for Water”project of the Department of Water Affairs andForestry are good examples of this.

7.2.3 Alternative fiscal measuresA more flexible approach to budget deficits,rather than rigid adherence to pre-set targets,would assist in financing such programmes.But borrowing money is not the only option;certain fiscal measures could be taken toencourage job creation and to punish jobdestruction, with the emphasis on the former.Such measures should be based on a flexibleapproach to company taxation, in terms ofwhich reductions in company taxation would beoffered to companies which have increasedtheir workforce; to companies which adoptlabour- rather than capital-intensive methods ofproduction; and to those which go beyond theminimum requirements for training and devel-opment of the workforce. Whatever loss to thefiscus would ensue from these measures wouldbe more than offset, we believe, by the expan-sion of the tax base and the savings in variouswelfare payments; apart from which, significantjob creation – accompanied by skills develop-ment – will have profound long-term benefitsfor the economy.

7.2.4 Personal taxationRegarding personal taxation, we propose thatthe tax burden on lower- and middle-incomeearners be further reduced, and balanced by anincrease in estate duties and an increase in thetop marginal rate applicable to the wealthiestsectors of the population. Those South Africansfortunate enough to enjoy a high standard ofliving, and whose material needs are assured,must be encouraged to consider their wealth in

the context of widespread poverty. The fact thata relatively small number of taxpayers con-tribute a high percentage of income tax revenueis not an indictment of the tax system. On thecontrary, it is an illustration of the imbalancesin our economy, since it shows that the greatmajority of wage earners earn too little to haveto pay significant amounts of income tax. Therich have an opportunity – and a moral duty –to assist in redressing these imbalances by will-ingly accepting higher levels of taxation, espe-cially when such increases do not threaten todeny them a comfortable standard of living. Byembracing such a “solidarity” tax they wouldcontribute further to economic justice and at thesame time demonstrate a profound commitmentto national reconciliation and the commongood.

7.2.5 Job creation by the state Government also has an opportunity to promotejob creation directly by making this a centralrequirement for successful tenders for statecontracts. Job creating tenders should beaccepted even where they are not the lowest,for the same reasons which we have given infavour of flexible company taxation.

7.2.6 Support for unemployedRegarding the unemployed, the state mustrecognise that, as guardian of the interests ofthe whole community, it carries the ultimateresponsibility for their support. The statealready recognises its duty to support the aged,the disabled and, through the UnemploymentInsurance Fund, those who have lost their jobs.We suggest that some form of support be pro-vided for all the unemployed, including thosewho have never held a job.

7.2.7 PrivatisationThe issue of privatisation must also be raised,especially in relation to job losses. It is wellestablished that privatisation of state-providedservices leads to job losses and, in many cases,to a deterioration in job quality. Concerning thelatter, we find that working conditions and jobsecurity offered by private sector organisationsthat take over the provision of such services areusually inferior to those offered by the publicsector. While it may be superficially attractiveto outsource the provision of services to the pri-vate sector, the long-term costs to the commu-

91

Economic Justice in South Africa: A Pastoral Statement

nity of increased unemployment must be bal-anced against any short-term savings. It mustalso be clearly stated that jobs must never belost simply for the sake of profit; and it is theprofit motive which attracts the private sectorto service provision.

Secondly, privatisation of essential servicescan and does result in the costs becoming unaf-fordable for many. The state has a duty to pro-vide basic services such as water, electricity,refuse removal, public transport and the like atcosts which are not out of reach of the poor. Ifnecessary the costs of these services must besubsidised out of state funds. If it is proposedthat such services be taken over by the privatesector, the state must make certain guarantees:firstly, that the poor will still be provided withthese services; secondly, that privatisation willnot increase costs; thirdly, that the workforceengaged in supplying these services will not bereduced simply to ensure a profit for the opera-tor; and fourthly, that such workers will enjoythe same benefits and working conditions asthose provided by the public sector serviceprovider.

There are also those state-owned enterprisesthat are not in the business of providing essen-tial services. These might possibly be sold offwithout resulting in job losses or reductions inbenefits.

In such cases we strongly urge the state toconduct privatisations in ways that empower asmany people as possible. It is better that suchassets, paid for by taxpayers over many years,be transferred into the hands of many commonowners than into the hands of big business orthe already rich.

7.2.8 Economic redressIt must always be borne in mind that much ofthe gross inequality in wealth and income dis-tribution derives from the ways in which blackpeople were dispossessed of their land andother property, denied training, prevented fromtaking better jobs, forced to suffer influx con-trol and generally discriminated against.Although the laws which governed all this havebeen repealed, their legacy is still with us, andthose who benefited financially under apartheidnow have a responsibility to make economicredress. We urge the government to facilitatesuch redress through legislative and other mea-sures.

7.2.9 Public debtNone of these measures, however, will have thedesired effect if they do not go hand in handwith a serious and creative attempt to deal withthe single greatest drain on the economy – thepublic debt, to which we have already alluded.It would appear that there are various ways toreduce the debt burden significantly withoutunduly prejudicing anyone’s legitimate inter-ests. To date government appears not to havepaid sufficient attention to these, nor has itexplained why they cannot be implemented.Failure to deal with this problem can onlyundermine other efforts to achieve economicgrowth and prosperity for all.

7.3 The role of businessThe business community has a deep responsi-bility to cooperate with government in pursuingsuch national goals as job creation, wealth distribution and the alleviation of poverty.Businesses are accountable not only to theirshareholders but also to the wider community.

We urge business leaders to find ways of pre-serving and expanding existing employmentlevels, and to consider that profit maximisationis beneficial only to those who share in thoseprofits. Where the choice is between modestprofit levels and increased employment on theone hand, and maximum profits and reducedemployment on the other, the former must bechosen.

There are various specific steps available tothe business community which would con-tribute substantially to job creation and jobenhancement, and we will mention some ofthese. But, in a general sense, what is alsoneeded is the development of a mindset whichlooks with disfavour on retrenchments,favourably on investment in more labour-inten-sive methods of production, and favourably oninvestment in people.

7.3.1 RetrenchmentsThe large-scale retrenchments that havebecome a feature of our economy, and whichtreat employees purely as a commodity to beused and discarded at whim, should be anembarrassment to business. When carried outwilfully with a view to profit maximisation –no matter that such terms as rationalisation,right-sizing and outsourcing are used todescribe the process – such retrenchments con-

92

Economic Justice in South Africa: A Pastoral Statement

stitute structural sin, and are abhorrent to theChurch and to economic justice.

With the best will in the world, of course,there are still circumstances in which businesshas no choice but to retrench employees inorder to survive. When this happens, everyeffort must be made to soften the blow. Toooften, workers receive almost no warning ofimpending job cuts, and no assistance in find-ing other employment. All employers, of what-ever size, should have in place contingencyplans which can be put into operation as soonas the likelihood of retrenchments arises.Compensation must be adequate, as it cannot beassumed that retrenched workers will find otheremployment.

7.3.2 ProductivityBusiness leaders continually demand that pro-ductivity levels be improved, and they eitherseek to get more work out of the same numberof employees, or to get the same work out of asmaller number. These tendencies rest on thefalse assumption that the best way of achievinggreater productivity is by reducing employmentlevels. To date tens of thousands of workershave borne the brunt of this assumption bybeing forced into joblessness and their familiesinto poverty.

A common method of increasing productivityis by expecting employees to put in extra hoursof work; this is necessary in order to avoid hav-ing machinery and capital equipment standingidle. Thus, rather than employing more workerson an extra shift, the existing staff is encour-aged to work overtime and on Sundays. Thispractice of habitual overtime must seriously bequestioned.

Every opportunity to increase the size of theworkforce must be taken, rather than relying onregular overtime being worked by existingemployees. Where such employees depend onsuch overtime earnings to make ends meet, it ishard to escape the conclusion that they are notbeing paid a just wage for their ordinary hoursof work.

7.3.3 TechnologyThe unemployment problem is compounded byinvestment in new technology and mechanisa-tion. While we do not argue that such invest-ments are invariably undesirable, we do urgethat, before decisions are made in this regard,

their effect on people and on the country as awhole be seriously considered.

7.3.4 TrainingBy international standards companies in SouthAfrica spend relatively little on training anddevelopment of the workforce.12 Much moreneeds to be done in this area, and it is regret-table that government has had to intervene toimprove the situation.13 A voluntary increase intraining and development expenditure wouldhave been an indication of the seriousness withwhich the business community claims toapproach matters of employment.

Adequate training is an important require-ment for increased productivity at all levels ofthe enterprise. At present too much emphasis isplaced on labour productivity, and not enoughon capital and management productivity.Furthermore, increases in productivity perworker often disguise the fact that, as a result ofretrenchments, the same output is being main-tained by a smaller number of workers. What isneeded is increased productivity together withincreased employment.

RemunerationOur brief discussion on the role of business hasso far focused mainly on questions of employ-ment, since this is where business is able tomake the greatest impact. However, there areother areas in which it can play a part. Forexample, business must take much of theresponsibility for the fact that our workplacewage differentials (the difference between whatthe highest- and lowest-paid employees earn)are among the highest in the world (SouthAfrica 100:1 Japan 7:1).14

This situation underpins the scandalous rich-poor gap which exists in our society, and busi-ness leaders are called upon to set the examplein redressing this imbalance. The Church teach-es that people “are bound to come to the aid ofthe poor, and to do so not merely out of theirsuperfluous goods.”15

Therefore, in those workplaces where suchhuge wage differentials exist, we propose thatexecutive wages be either frozen or reduceduntil the wage-gap has been substantially nar-rowed; and that greater attention be paid to amore equitable distribution of company profits,preferably in the form of increased wages tolower paid employees.

93

Economic Justice in South Africa: A Pastoral Statement

7.3.6 Input costsIt is an inescapable fact that South Africa’sbanks and financial institutions have achievedvery high profits in recent years. Some of theseprofits have derived from speculation in themoney markets – with resulting negative conse-quences for our currency – rather than frominvestment in the productive capacity of ourpeople and our economic infrastructure. But thehigh interest rates prevailing in our economy,though not set by the banks, have also con-tributed to these profits. In addition, there arethose companies which exert monopoly, or nearmonopoly, control in certain sectors of theeconomy, and which have also achieved hand-some profits.

In this context it is important for business tomove away from repeated calls for labour mar-ket flexibility – which in reality means sup-pressed wages and benefits – while the costs ofother inputs, such as capital and raw materials,remain inflexible. A willingness on the part ofthe financial sector to accept lower, but stilladequate, profit margins would significantlyreduce business’s capital costs. The same, ofcourse, can be said with regard to monopoliesin many of our primary and secondary indus-tries, which lead to unnecessarily high rawmaterial costs. Import parity pricing and exportsubsidisation also tend to keep the costs of rawmaterials artificially high. The business com-munity is in a position to address this problem,and it should lose no opportunity to do so. It isunreasonable to expect workers, many of whomearn disturbingly low wages, to make sacrificesby accepting labour market flexibility whileothers in the economy, notably the banks andthe large primary producers, remain inflexible.

7.3.7 Social responsibilityNothing that we have said so far about the busi-ness community should obscure the fact thatthere are some outstanding examples of busi-ness philanthropy and social responsibility;these we commend and encourage. We believe,though, that much more could be done in thisrespect. Money given to poverty relief, educa-tion and training, job creation schemes and thelike may well reduce the amount of profitwhich a business can distribute to its sharehold-ers; but those shareholders must realise thatsuch expenditure is an investment in the future,one which has the potential to benefit the econ-

omy as a whole, thereby, in the long-term, ben-efiting all our businesses.

We conclude by reminding the business com-munity that it is incumbent on it to respond tothe steps which, largely at business’s urging,government has already taken in the macro-economic sphere. Regrettably, while we weretold that these steps were necessary in order toenable business to play its part in creating jobsand expanding the economy, all we have seenis further retrenchments and “downsizing”,while considerable profits continue to accrue tothat small part of our population lucky enoughto be shareholders.

7.4 The role of labourAlthough the view is often expressed that thereare three more or less equal partners responsi-ble for economic progress – government, busi-ness and labour – it is usually the case thatlabour has relatively little ability to influencepolicy. More often than not, workers are on thereceiving end of economic policy decisions.For this reason labour has every right to have avoice in economic decision-making, whether inthe individual workplace or nationally, throughrepresentative organisations, but also as indi-viduals. Especially in our context, where work-ers have been expressing unhappiness at eco-nomic policy, their organisations should insiston their right to be heard.

There are various ways in which labour,especially organised labour, can contribute toeconomic justice. Firstly, labour must do every-thing in its power to combat job losses. TheChurch teaches that, just as everyone has theduty to work loyally, so also everyone has theright to work. By safeguarding this right, there-fore, labour will not only assist workers, butplay an important role in our overall economicwell-being.

7.4.1 The interests of the poorestVast numbers of South African workers earnvery low wages and are unable to satisfy eventhe most basic needs of their dependants.Moreover, as unemployment grows the averagenumber of dependants that each employedworker has to support is rising steadily. Suchworkers are entitled to demand wage increasesbeyond cost of living levels, and organisedlabour must continue to represent their legiti-mate interests, especially those of the lowest

94

Economic Justice in South Africa: A Pastoral Statement

paid and the most disadvantaged. It must alsobe noted that it is absurd to expect such work-ers to exercise wage restraint. This is all themore the case when management does not dolikewise, and there is a disturbing tendencytowards precisely such a situation in our coun-try at present. Our expectation is for organisedlabour to take note of those who earn below thepoverty datum line, and to promote their inter-ests.

7.4.2 ProductivityIt is essential that productivity levels beimproved. Management and workforce shareresponsibility for this, as we have pointed outabove, and a constructive approach from theformer in this regard must be met with anequally constructive response from the latter.All workers, at whatever level of the enterprise,must consciously strive to work to the best oftheir ability, realising that in doing so they con-tribute to the overall good of the economy. Thetemptation to increase labour unit productivitysimply by reducing the workforce and requiringthe remaining employees to work longer andharder, must be rejected. Nominal increases inproductivity at the cost of jobs are unaccept-able, and organised labour must take the lead inopposing any such development.

7.4.3 Representing exploited workersWe note that many employers have found it totheir advantage to reduce their permanent staffand to employ instead “temporary” or “casual”labour. Through our pastoral work we know ofmany such workers who have worked full-timefor the same employer for many years, and yethave never been placed on the permanent staff.In this way these employers successfully reduceor eliminate their liability to contribute to theUnemployment Insurance Fund and to pensionor provident funds. In addition, they avoid theinconvenience and costs of employees claimingannual leave, sick leave and maternity leave.

While labour legislation has of late made sig-nificant strides towards protecting such work-ers, ways are continually being found to cir-cumvent employment regulations and to negatethe benefits of such legislation. We urge organ-ised labour to find ways of representing theseworkers and of exposing these harmful prac-tices.

The same principles hold true for those work-

ers who are hired out on a daily basis by labourcontractors. They enjoy little or no protectionfrom exploitation, and are too often treated ascommodities. Some way must be found to pro-mote the interests of such workers, possibly bycampaigning for appropriate legislation.

7.4.4 The unemployedThe interests of the vast number of unemployedpeople in our country must not be lost sight of.It is often claimed that the demands of organ-ised labour – for improved wages and workingconditions – prevent employers from expandingthe size of the workforce. While there is littleevidence to show that there is any direct corre-lation of this sort, it is an argument that can beused to justify a failure to create jobs. It mustbe stated clearly, however, that it is not accept-able to create jobs with unacceptably lowwages and poor working conditions. Labourcan assist the unemployed by declining to workregular overtime and calling for increasedemployment instead. This would also secure forworkers and their families adequate time forrest, recreation and spiritual development.

These, then, are some of the practical inter-ventions which we believe are available to themost economically influential sectors of oursociety. We must not neglect, however, thepractical steps which are open to other sectors,including, for example, the churches and thenon-governmental organisations (NGOs).These too should ensure that they are doingwhatever is in their power to create jobs, to pro-vide training and development, to pursue justfinancial and economic policies.

7.5 Role of civil societyCivil society organisations are motivated altru-istically to contribute to the good of society.While very few of them are in a position direct-ly to influence economic policy, they have arole to play in two important respects. Firstly,such organisations often possess a great deal ofexpertise and experience in fields such asdevelopment, education, capacity building andhuman rights advocacy. These valuable assetsshould continually be made available to thosein government, business and organised labourwho are able to influence economic policy. It isencouraging to note that this is happening, andwe urge NGOs and community-based organisa-tions (CBOs) to persevere in this regard.

95

Economic Justice in South Africa: A Pastoral Statement

Secondly, while it is often said that suchorganisations are unrepresentative and unac-countable (and that, therefore, their opinionscount for little or nothing), we believe theopposite to be true. Many of these organisationsare in closer touch with the needs and aspira-tions of society, and particularly with its poorand deprived sections, than is the leadership ofthe other sectors we have addressed. Theirviews must therefore be taken seriously, espe-cially when it is also the case that these organi-sations are generally free from party politicaland profit motivations. Consequently, weencourage civil society organisations to maketheir voices heard at every opportunity onbehalf of those who cannot do so themselves.

The same considerations hold true for thereligious community as well; the present letteris an attempt by one section of that communityto play its part in highlighting some importantsocial concerns and in contributing to their res-olution. In addition, for our part, we commit theCatholic Church to following just employmentpractices; to a continual review of investmentdecisions; and to making the best use of ourlimited material resources for the good of thosemost in need. But the religious community alsohas a particular responsibility to ensure that theunderlying attitudes of the community areformed in such a way as to promote economicjustice. It is to this question that we now turn.

7.6 AttitudesEven the most enlightened and well-consideredeconomic policies will not, on their own, guar-antee justice. Economic theories and policiesalways have to be translated into reality byhuman agents – by workers and managers, bygovernment officials, by buyers and sellers. Itis here that the question of attitude is so impor-tant. The attitudes of people determine the eco-nomic choices they will make, and it is thesechoices which, more than any other factor, willincline an economy towards justice or injustice.

Clearly, of course, the overall economic sys-tem in which people make their choices willhave an influence, even a strong one, but thesystem cannot mechanistically determine peo-ple’s attitudes and choices. Capitalism, forexample, by stressing the profit motive, mayencourage and facilitate greed, but it cannotforce people to be greedy. Socialism, byremoving the profit motive, may discourage

people from working hard, but it cannot forcethem to be lazy. To be greedy or lazy, to workselfishly or for the good of others, to want moreor to give more, all these are choices whicheveryone faces on a daily basis. Which optionwe choose will depend very largely on the val-ues which guide us.

Unfortunately, too many people put theirfaith in transitory values – money, status,power, and so on. Consequently, their econom-ic choices, based on these values, tend to bethose which favour their own narrow interests,ultimately at the expense of others. The econo-my thus becomes nothing more than an arena ofcompetition, in which the strongest survive.The interests of the weak are attended to, if atall, only to the extent that it suits the strong todo so. This can be seen, for example, whenthose with money to invest put it where it willbrings them the greatest reward, rather thanwhere it will do the most good; when wages arepaid not according to what is just, but accord-ing to the bare minimum for which people areprepared to work; or when employees seek asmuch overtime as possible, and in the processdeprive others of a job.

These are all examples of economic “bad atti-tudes” which lead inevitably to economic injus-tice. No economic plan or policy or theory canwithstand such attitudes, and it is therefore atthe level of attitude that the greatest transfor-mation must be sought.

7.6.1 Promoting attitudinal changeIn this the Churches and the faith community asa whole have a central role to play. We haveconcentrated, fittingly, on Christian preceptsand teaching, but all the great religions of theworld have their own social message, in manyways substantially similar to the Christian one.We are blessed in South Africa with the pres-ence of many of these religions, and with apopulation that claims adherence in high pro-portion to one or other religious faith. And yet,large-scale economic injustice, as we haveseen, prevails in our country. This can onlymean that the social message of the religionshas been ignored or neglected, or that it has notbeen communicated effectively. This presentsthe Churches and others in the faith communitywith an urgent challenge – to spread their socialteachings more zealously, not as an optionalextra, but as an integral and indispensable part

96

Economic Justice in South Africa: A Pastoral Statement

of their overall message. Once again, the pre-sent letter is an attempt in this direction.

Attitudes, however, are not formed only byreligious faith; nor are questions of justice theconcern only of religious people and theirorganisations. The various stake-holders in theeconomy all have a role to play in promotingchanges of attitude.

7.6.2 GovernmentPositive and people-centred values can beengendered through education, through publicpolicy and through the state’s many activities inthe fields of human rights, development andwelfare, to mention but a few. Holders of pub-lic office have the opportunity and the duty toset an example, to uphold standards of serviceto the community, and to place the interests ofsociety before their own.

In this regard holders of public office, such asmembers of Parliament, cabinet ministers andtown councillors, must ensure that they areabove any criticism that they are using theirpositions for personal financial advancement. Ithas to be said, however, that this is indeed theimpression held by many people. In addition,we have to question the notion that our repre-sentatives, elected to serve the community,should be remunerated at levels comparable tothe private sector.

7.6.3 BusinessThese considerations also hold true for businessand commerce. Regular calls for wage restrainton the part of employees at the lower levels donot appear to be matched by similar efforts atthe higher levels. Salaries and packages at thetop end of the private sector are extremely high,and are resulting in the creation of a class of thesuper-rich, be they black or white, while at theother end retrenchments and “down-sizing”, aswe have seen, are the order of the day. It is noargument to say that private institutions areresponsible to their shareholders, who appear toaccept the situation; as we have already men-tioned, there is also a responsibility to the widercommunity within which businesses operate.Business and commerce also need to set anexample. That exorbitant remuneration isrequired to attract competent executives is anindication that they are motivated too much byself-interest, and not enough by the needs of thecommunity as a whole. An attitudinal change

on the part of business would go a long way tonarrowing the huge gap between rich and poor,and to creating a climate where our economicproblems could be addressed in a spirit of coop-eration between those at different levels in theworkplace. We commend those in the businessworld who have initiated social responsibilityprogrammes and who apply their skills andresources in various charitable and develop-mental activities.

7.6.4 LabourWorkers, too, bear a responsibility to ensurethat they also place the good of the communityat the forefront of their activities. The unskilledworker is just as capable of concentrating onnarrow self-interest as is the business execu-tive. Workers have a duty to work diligentlyand to the best of their ability, looking togetherwith management towards the wider economicgood.

It is encouraging to note how many employedworkers, even though they earn very little, dowhatever they can to assist those who haveeven less. Similarly, we commend those unionswhich campaign actively on behalf of theunemployed, whether or not these have beenunion members.

As we have said before, all of us make eco-nomic decisions every day. Clearly, the deci-sions made by those in powerful positions, peo-ple in government and business and trade unionleaders, for example, will have much greaterand more far-reaching consequences than thedecisions made by those who occupy morehumble positions. Nevertheless, we are allcalled to think deeply about the basis of ourdecisions and choices. Our attitudes towardsour society, towards the needs of our country,and our willingness to find a balance betweenour legitimate personal wishes and the commongood of all, must be rooted in the kinds of val-ues which we have referred to. If we fail toadhere to these essential and abiding values,and to shape our attitudes accordingly, we willnever achieve economic justice.

CONCLUSION Describing his purpose on earth, Jesus pro-claimed that he came so that we “may have lifeand have it to the full” (cf. John 10:10). TheChurch’s duty – and that of every Christian – isto continue Jesus’ mission. It is our task as fol-

97

Economic Justice in South Africa: A Pastoral Statement

lowers of Christ to proclaim this good news, tohelp in bringing about the reign of God hereand now in our earthly reality. Therefore, wemust speak out against anything which preventsany of God’s people from enjoying life to thefull.

As we have seen, many features of the SouthAfrican economy, and of the world economy,present obstacles to fullness of life. As such, itis not enough that we bemoan them and regrettheir existence – we must take action againstthem and build in their place an economywhich provides at least the minimum conditionsfor fullness of life.

This has been attempted by various politicaland ideological systems throughout history, allof which have failed to a greater or lesserdegree to deliver economic justice. The lessonis clear: people cannot be forced by law or bythe imposition of a system to be good and torelate justly to each other. What is needed is achange of heart.

We can achieve this by adhering to what wehave called “Christian Economic Values”. Wemust allow these values to inform our attitudesto one another in economic matters. In turn,these attitudes will underpin our economicdecisions and actions.

We said at the outset of this letter that thepoor who are now with us, as well as the gener-ations yet to come, demand that we strive for amore equitable, just and sustainable economy.

Of course, this is also what God demands of us.Indeed, as the approach of the Jubilee Year2000 reminds us, God has always required eco-nomic justice among his people (cf. Leviticus25). As a faith community we translate God’sword into a living context, discovering how itchallenges us in our time and place. And wefind invariably that God’s word challenges usto transform our personal attitudes, as well asthe systems and policies which diminish full-ness of life, especially that of the poor and thedisadvantaged.

In proclaiming this approach to life we chal-lenge in turn all those who bear economicresponsibility always to judge their policies andpractices from the perspective of fundamentalvalues. Working together, challenging andbeing challenged, we will truly be doing God’swill, and be worthy of God’s reward:

“Is not this the sort of fast that pleases me– it is the Lord Yahweh who speaks – to break unjust fettersand undo the thongs of the yoke,to let the oppressed go free, and break every yoke, to share your bread with the hungry,and shelter the homeless poor,to clothe the one you see to be nakedand not turn from your own kin?Then will your light shine like the dawnand your wound be quickly healed over.”(Isaiah 58: 6–8)

98

Economic Justice in South Africa: A Pastoral Statement

1) See, for example, Business Report, 13April 1999, p2.

2) In August 1997 the South African Non-Governmental Organisation Coalition(Sangoco) reported that 53% of SouthAfricans were living below the R301 permonth poverty line (NGO Matters vol 2 no9, p7). The government report Poverty andInequality in South Africa, issued in May1998, calculated the poverty line as R353per month, and found that 19 million peo-ple, or just below 50% of the population,lived on or below this line.

3) The Gini coefficient is an economic indica-tor which measures inequality in incomedistribution. If income is perfectly equallydistributed among a country’s populationthe coefficient will be 0, while if all theincome goes to one person the figure willbe 1. Thus, the higher the figure, thegreater the inequality in income distribu-tion. The figure of 0.58 is given in thereport Poverty and Inequality in SouthAfrica.

4) 25% of pre-school children were “stunted”according to the Medical ResearchCouncil’s Annual Report for 1996/7, quot-ed in South Africa Survey 1997/98 SouthAfrican Institute of Race Relations (1998),Johannesburg, p194. The survey puts infantmortality in 1996 at 59.1 per 1000 livebirths (p185).

5) According to the October 1996 nationalcensus.

6) Statistics South Africa measured overallunemployment at 34% in the October 1996national census. This figure has probablygrown since then. There is some debateabout methods of defining and calculatingunemployment, but even those studies thatuse a restrictive, rather than an expansive,approach arrive at figures in excess of25%. (See in general, Census in BriefStatistics South Africa (1998) Pretoria;South Africa Survey 1997/98 South AfricanInstitute of Race Relations.)

7) During the October 1996 national censusunemployment in the Eastern Cape was48.5% and in the Northern Province46.0%.

8) Business Day 9 July 1998, p15. Business

Report 20 January 1999. The SeptemberCommission, set up by the Congress ofSouth African Trade Unions (Cosatu),reported in 1997 that labour productivityrose by 12.8% in the period 1992-1996,while unit labour costs declined by 6.9%over the same period. See in generalExplaining Productivity: A BriefAssessment Church and Work Office of theSouthern African Catholic Bishops’Conference (1998) Pretoria.

9) Details of the extent of the disadvantagecan be found in both Census in Brief andSouth Africa Survey 1997/98. For example,the former shows that unemployment inOctober 1996 was 52.4% for Africanwomen as compared to 34.1% for Africanmen and 5.1% for white women (p47). Thelatter indicates that only 4% of non-urbanwomen earned above R52 000 per year,compared with 41% of urban men and 18%of urban women (p278).

10) Figures supplied by the Commission onRestitution of Land Rights indicate that atotal of 63 455 claims for the restitution ofland had been received by 31 December1998, the cut-off date. Of the 23 414claims lodged by 31 January 1998, only15% involved rural land; this ratio is likelyto remain substantially the same for thefinal figure of 63 455.

11) This and the other figures in this paragraphare drawn from the publications ofStatistics South Africa and from variouspress reports.

12) According to a 1995 study by the IndustrialStrategy Project (ISP), South African com-panies spent an average of 1% of their pay-roll on training, compared with between4% and 7% in Organisation for EconomicCooperation and Development (OECD)countries.

13) In the form of the Skills Development Act97 of 1998.

14) Sangoco indicates that the ratio of a man-aging director’s salary to that of the lowestpaid worker in the company is 100:1 inSouth Africa compared to 7:1 in Japan(NGO Matters vol 2 no 9, p7)

15) Pastoral Constitution on the Church in theModern World (Gaudium et Spes) para 67.

ENDNOTES

Wednesday 17 May 2000

Opening RemarksCHAIRPERSON: BISHOP KEVIN DOWLING, CHAIRPERSON: SOUTHERN AFRICAN CATHOLIC BISHOPS’CONFERENCE (SACBC) JUSTICE AND PEACE DEPARTMENT

THE CONTEXTSESSION ONECHAIRPERSON: MR ASHLEY GREEN-THOMPSON, DIRECTOR: SACBC JUSTICE AND PEACE DEPARTMENT

Income Inequality and Unemployment in South Africa: Facts, Causes and PerspectivesProf. Charles Simkins, Department of Economics, University of Witwatersrand

Development Finance as a Means of Bridging the Income GapProf. Patrick Bond, School of Public and Development Management, University of Witwatersrand

Thursday 18 May 2000

SESSION TWOCHAIRPERSON: MS NOMABEDU MVAMBO-DANDALA, DEPUTY DIRECTOR: DIAKONIA COUNCIL OF CHURCHES

Globalisation: Facts, Problems, ProspectsMr Elroy Paulus, Programme Manager, Fair Share, School of Governance, University of the Western Cape

STRATEGIES FOR INTERVENTION

The Importance of a Basic Framework for a Sound – Effective and Social – Economic OrderProf. Josef Stegmann, Professor of Christian Social Teaching, Bethlehem Social Academy

Recommendations from the SACBC Pastoral Statement “Economic Justice in South Africa”Bishop Kevin Dowling, Chairperson: SACBC Justice and Peace Department

The Biblical Jubilee Principle and the Relevance of Debt Cancellation for Redistribution Rev. Peter John Pearson, Director: SACBC Parliamentary Liaison Office

99

Programme

SESSION THREECHAIRPERSON: MR ELROY PAULUS, FAIR SHARE, SCHOOL OF GOVERNANCE, UNIVERSITYOF THE WESTERN CAPE

Skills Development as a Strategy to Reduce Inequality in South AfricaMr Yorck Wurms, Principal, Commercial Advancement Training Scheme

Friday May 19

SESSION FOURCHAIRPERSON: MS NOMABEDU MVAMBO-DANDALA, DEPUTY DIRECTOR: DIAKONIA COUNCIL OF CHURCHES

Women, Micro Job Creation and Self-Employment: The Experience of People's DialogueMs Iris Namo, Director: People's Dialogue

The Effectiveness of Social Security Systems for Reducing InequalityProf. H R Hemmer, World Economy and Social Ethics Study Group, German Catholic Bishops’Conference

SESSION FIVECHAIRPERSON: MS MARIA VAN DRIEL, RESEARCH COORDINATOR: ECUMENICAL SERVICE FORSOCIO-ECONOMIC TRANSFORMATION

Presentation of Rapporteurs SynthesisRev. Mokesh Morar, Director: Bethlehem Social Academy

100

Programme