The Economy – Basis of Perspectives

As with all societies, we will find the roots of the present political crisis in South Africa in the soil of the economy: in the way the productive system has developed and in the contradictions and crisis which grip that system now.

The interlinked crisis of all sectors of the world today has been explained in previous material – e.g., South Africa’s Impending Socialist Revolution (1982) and The Coming World Revolution (Supplement to Inqaba No. 14). These documents should be reread as a background to South African perspectives at the present time.

In the modern epoch it has been impossible for any country simply to repeat the ‘organic’ all-round development of capitalism, step-by-step, from small-scale to large-scale production, which the nations of Western Europe and later North America passed through a century or more ago.

National markets are dominated to an ever-increasing extent by the world market, and the world market by the power of the giant monopoly corporations of imperialism. In the stranglehold of world monopoly capitalism, the development of the colonial or ex-colonial countries has, notwithstanding formal independence, been partial, uneven and distorted. The dreadful stagnation of most of Africa today results from this fact.

To the extent that capitalism has developed in these countries, and to the extent that a national capitalist class has grown up, this has invariably taken place not as an independent development, not ‘on their own feet’, so to speak, but in a relationship part-parasitic upon the imperialist monopolies and part one of manoeuvre and resistance to loosen their grip.

Considered against the international background, it is clear that South Africa is one of the few countries of the colonial world to have had a significant national capitalist development. It is correct to say ‘national capitalist’ even though the capitalists are whites and not black Africans.

Descended from settlers, most whites are ‘settlers’ no longer but now an indigenous part of the society with no motherland anywhere else. As second-, third- and fourth-generation immigrants to America are Americans, so these are South Africans.

Moreover, in the past they (particularly the Afrikaner nationalist middle class) organised and campaigned politically and economically, to wrest part of the surplus from the international monopolies in order to develop domestic industry. If this has not amounted to a national capitalist development, and the rise of a national capitalist class (however deformed), then what would?

South Africa’s exceptional industrial development, in a world economy already dominated by the great monopolies of the imperialist powers, was possible fundamentally for two reasons. On the one hand because of the mineral wealth of this country, which produces three-quarters of the gold of the capitalist world. Because gold is readily exportable, it provided a source of easy foreign exchange with which to import machinery, and at least part of the surplus from gold mining could be turned towards investment in industrial development.

But the basis of that development depended equally on the fact that there came to exist within SA a settler population of whites, a sufficiently large minority so that in the course of time it could be organised and developed into a privileged elite to act as policeman over the mass of the black population, who were torn from the land and turned into a massive working class.

In this way it was possible to enforce a system of cheap labour based on the exploitation of the black workers. This, indeed, is the essence of the apartheid system, which has been developed into a monstrosity with no parallel anywhere else.

With the African majority, 73% of the population, robbed of all but 13% of the land; with an enforced racial division of society in almost every sphere; with systematic legislated inequality; with the denial not only of the franchise, but of all civil rights to the Africans, who have been stripped even of their citizenship; with 18 million black people arrested under the pass laws and other influx controls since 1916; with 3.5 million forcibly removed from urban areas and from ‘white’ farming areas to the rural dumping grounds of the Bantustans; with the apparatus of a police-state, political prisons, detention without trial, tortures and massacres – these have been the means necessary for the development of capitalism in SA to its present level.

Enjoying the twin advantages of yellow gold and ‘black gold’ (as the crude bourgeois in SA put it), the SA ruling class has been able to withstand the competitive winds of the world market and gain some room to breathe within the stranglehold of the international monopolies.

Over the years, funded by taxation of the gold mines and later also by foreign loans, the state was used to invest massively in industrial infrastructure – for example in transportation, in steel, in producing oil from coal, in electricity supply and so on.

The state sector, together with the privileged standard of living of the whites, at the same time provided a certain domestic market for the development of manufacturing. This development was aided by protective tariffs and import quotas, for example to protect the textile industry; and by a ‘local content’ program, so that in the development of the motor industry, for example, a certain percentage of the components of every car (up to 65% by weight) has had to be locally produced.

So a basis was laid for a certain take-off, mechanisation and development of modern industry. So it is that SA has developed as the industrial giant of the African continent – with nearly half the motor vehicles, half the electricity consumption, and three-quarters of the railway trucks of all of Africa south of the Sahara.

South Africa is a colossus in Southern Africa – with fourteen-times the production of Zimbabwe (the second most industrialised African country per head of population), and 80% of the production of the whole region.

By this development, SA capitalism has brought into being a massive industrial proletariat which almost matches that of the advanced countries in terms of its social weight within society.

But in world terms South Africa is a third-rate industrial power, with many of the features still of a ‘Third World’ economy. It exports mainly minerals and agricultural products, and depends upon imports for advanced machinery, transportation equipment and so on. Thus SA is affected by the same kind of squeeze (partially alleviated by gold) as the whole of the under-developed world suffers through the terms of trade weighted against it by the monopolies’ domination of the world market.

South African industry developed especially in the Second World War and in the decades of the post-war up-swing of capitalism – linked in other words to the progress of world capitalism. In 1946 the SA capitalists were discussing the production of their own packaging materials, so that they would not have to import bags and sacks. Now they claim to be able to produce 80-85% of their own armaments (although this is, of course, with the assistance of the Western powers).

But SA’s national capitalist success has in no sense implied economic independence. The more successful they have become the more integrated they have become with international monopoly capitalism.

Within SA itself there has come about the integration of the Afrikaner and English capitalists together in partnership in giant monopolies – in mining, in finance, in industry, in agriculture and in commerce. In fact one of the underlying causes of the split within the Afrikaner nationalist movement (with the emergence since the 1960s of two parties to the right of the ruling NP) has been the fact that the working class whites and the lower-middle class whites feel deserted now by those bourgeois nationalists whom they previously raised to power.

In turn, South African capital has become more and more integrated with the big banks and multi-national companies in the USA, Europe, etc.

With the development of the monopolies, and with the fusion together of the Afrikaans and English bourgeoisie, the state, at least at the topmost levels of command, has been shaped into a more responsive instrument for the dictatorship of big capital.

Extreme Polarisation

The main feature of SA society is the extreme polarisation of white capitalist wealth on the one hand and black working class poverty on the other.

A study by M. McGrath of Natal University in 1983 showed that there is a phenomenal concentration of the ownership of the means of production in a few hands. The richest 5% of South Africans owned 88% of all personally owned wealth – double the proportion in the USA.

This concentration of wealth (calculated on the basis of 1975 statistics) was described as “more concentrated than in any other Western nation.”

Whites owned 98% of all farms, 93% of (private) fixed property, 99.7% of quoted shares, and 95.7% of unquoted shares.

Recently it has emerged that no less than 80% of the shares on the stock exchange are owned or controlled by six South African-based monopoly corporations. In addition, the state owns 58% of fixed capital.

That degree of state and monopoly ownership is, from the revolutionary standpoint, a tremendous advantage, because it will immensely simplify the task of taking the commanding heights of the economy into the hands of the working class in the future. In that sense it could be considered an ‘achievement’ of the bourgeoisie!

South Africa’s economic development has also involved a greater dependence upon the world market: in finance, and also in South Africa’s reliance on the world market for exports and for importing advanced technology.

Quantitative changes accumulate and produce – qualitative change.

Particularly within the last decade or two decades, the point has been reached in the expansion of industry in South Africa where the capitalists must increasingly export manufactured goods in order for the economy to advance – even, in the long term, to survive. Ironically, this stage in the development of SA capitalism has coincided with the onset of the world economic crisis and the suffocation of world trade.

Why has this change happened?

Like all capitalist countries, South Africa is encountering the limits imposed on the further development of the productive forces by private ownership on the one hand and the national state on the other. This is the fundamental basis of the present epoch of crises, wars, revolutions and counter-revolutions – the most disturbed period in world history (which we have discussed in previous material – see especially The Coming World Revolution).

But in addition there are the special limitations of the system on which the South African bourgeoisie’s whole success was founded, namely the apartheid cheap labour system, the chief source of their profitability in the past.

By systematically impoverishing four-fifths of the South African population, they have created a situation where the home market is extremely limited. It cannot absorb the products of expanding industry.

Now dialectically the basis of their success turns into an obstacle. But they cannot break their dependence on cheap labour.

In the 1950s, the Stalinists (showing how completely they had broken from Marxism, and how little they have understood) actually appealed to the employers in leaflets to raise the wages of their workers, from the standpoint of the employers’ own self-interest! They argued that this would expand the market so everybody would be better off. Of course that is impossible because every individual capitalist has to struggle in competition to keep his costs as low as possible against the next producer. And in competition with the advanced capitalist countries, it is all the more important that labour be kept as cheap as possible in every national capitalist economy.

As practically every trade union member knows from experience, wages can only be raised, or real wages even maintained, by vigorous struggle against the capitalist class.

Even in the most technologically developed countries the bourgeoisie is now screaming for wage cuts, precisely because of the stagnation of world trade and the increasingly desperate competition between the capitalist powers as a result. Yet wage cuts further reduce the size of the market and so further increase the squeeze.

Acute Contradiction

Today we see this contradiction in South Africa in the most acute form. The chief capitalist in the motor industry points out in the national press that there is no way the motor industry can develop further in SA on the basis of the white consumer market. Already there are 424 cars for every thousand whites, almost the figure of the United States. Among blacks the figure is 33 cars per thousand.

So he says: it’s obvious, if we are to develop and sustain the motor industry, we shall have to develop our ability to sell cars to the blacks. What he doesn’t say is who will offer the wage increases to put the blacks in the position to buy these cars! – or how, in any event, that could be done without destroying the underlying profitability (such as it remains) in South African industry.

At the very same moment the textile bosses are complaining about the opposite side of the contradiction! They are complaining that their cheap labour is no longer as cheap as labour in Hong Kong, Taiwan, Singapore, South Korea and so on. (More than likely they have cooked the figures to come up with this argument. If they cannot now face the breeze of Far East competition, it is essentially because they have failed to invest in new technology, having sheltered instead behind quotas and tariff walls.)

Today these vultures are screaming for real wages to be driven even lower in South Africa to rescue their profitability!

The insoluble predicament of the bourgeoisie is expressed in the fact that at least half of the retail turnover in the Johannesburg central business district, for example, now depends on black spending. The contradictions of their system oblige them to seek both to expand and to cut black spending power at the same time. In neither direction can they find any way forward.

Imperialist Foreign Policy

As South African industry has begun to overstep the limits of the domestic market and become increasingly dependent on exporting manufactured goods, so we have seen the change also in South Africa’s foreign policy under the Nationalist government from ‘isolation’ to increased imperialist aggression against the neighbouring states of Southern Africa. Pretoria’s secret arms deal with Somalia, reported recently, shows SA’s ambitions today as a continental power.

The ruling class feels threatened by any advance of the revolution in Africa – by the effect of that on the black population at home. It wants, of course, to eliminate ANC guerrilla bases in other countries – but those are really an irritation rather than a serious threat to the regime.

South Africa pursues an aggressive foreign policy in the vain hope of subduing black working class rebellion at home: to prove itself ‘invincible’ by forcing the neighbouring states, already economically dependent, into obvious political dependence upon it. Hence the pressure for ‘agreements’ like Nkomati.

At the same time, and bound-up with its political aims, SA imperialism pursues a deliberate policy of increased economic domination over Southern Africa.

The states around South Africa are hoping to escape the grip of SA imperialism by means of SADCC. This is intended as a kind of economic community of states aimed at reducing their dependence on South Africa.

SADCC is, however, utopian on a capitalist basis, already tending to fall apart through the inevitable competitive struggle between its members over stagnant or declining home markets and scarce investments. At the same time the SA monopolies are penetrating further into the SADCC countries.

Nevertheless, Botha’s dream of creating a so-called ‘constellation of Southern African states’ orbiting around white-controlled South Africa will not succeed either. It will time and again be frustrated and cut across by revolutionary mass pressures welling up all over the region.

Overall, South Africa’s policy in regard to Southern Africa is to try to have it as a captive market for its own goods and keep at bay competitive exports from the advanced capitalist countries. But domination of the Southern African countries, a market of 60 million people, nevertheless provides no way out of the crisis for South Africa.

Although 49 out of 52 African countries trade with South Africa, even the African market as a whole can provide no way out. It is a market of the poor, of the unemployed, of the homeless and the starving. In 1984 it absorbed less than R1 billion of SA’s more than R23 billion exports.

Now, for their development, modern productive forces require a world market.

Scale of Production

For SA capitalists to produce manufactured goods cheaply enough to gain a real foothold in the world market, or even to hold on to their own domestic market in the long term, they would have to be able to increase massively the scale of production in South Africa in order to reduce unit costs.

But that is ruled-out, on the one hand, because of the limits of the domestic market already mentioned, and, on the other hand, because of the limitations of the world market and of world trade which is a basic feature of the international crisis of capitalism.

The avenues for major new industrial developments are correspondingly narrowed. As Anglo American Corporation chairman Gavin Relly expressed it: “The country is still dependent almost wholly on a mixture of old technology and raw materials.”

‘As an example,’ says the Financial Times[1], ‘he quotes South Africa’s reserves of high-quality iron ore, which could be beneficiated into high-grade steel and shipped to the US for rolling, perhaps through Saldanha Bay…

“However,” he concludes, somewhat despondently, “we had these ideas for twenty years now, and we have not yet been able to make them work.”

Nevertheless, this is still seen as one of the possible areas for expansion, given that the small size of the South African economy does not allow for economies of scale in the production of finished steel products. “Widgets tend to be more expensive here than in Widgetville, US,” he says. (Our emphasis.)

For these reasons there is a long-term decline evident in South Africa in the proportion of the surplus which the capitalists are re-investing in industry, and therefore a stagnation in productivity. In consequence, the economy is becoming diseased to the roots.

In the ten years from 1972, the annual rate of growth of productivity in South Africa averaged only one-tenth of Japan’s; one-ninth of West Germany’s; one-sixth of the USA’s; and one-fifth of Britain’s (one of the most rapidly declining capitalist economies in the world).

Although the choice of statistical basis for calculating productivity in SA (viz., whether GDP or GNP is used) affects the figures to some extent, it does not alter the fact of South Africa’s declining competitive position – certainly not as far as manufacturing is concerned. In manufacturing, productivity actually fell about 4.7% from mid-1982 to mid-1983. A year later the Financial Mail[2] summed up the predicament of the bourgeoisie: “We are no longer seeing even the minimal gains in productivity achieved between 1972 and 1982.”

One of the biggest lies peddled by the bourgeoisie in every country is that workers are responsible for low or stagnant productivity. This is nonsense. To an overwhelming extent it is investment which determines productivity, or output per unit of labour-time: investment in machinery, technique and expanded production. That is in the hands of the bosses.

In South Africa the monopolies, incapable of undertaking the expansion of domestic industry as in the past, and having already carved the joint among themselves, are turning their greedy eyes more and more towards investment opportunities and profit-making abroad.

According to Clewlow of Barlow Rand, for instance, “Barlows is already a dominant force in many areas of the South African economy and it has become necessary to expand internationally in order to maintain our long term record of growth and profitability.”[3]

For over a decade now the monopolies have been seeking ways of exporting capital from South Africa. By 1981, South African companies already held foreign assets totalling R13.5 billion (a figure which, despite exchange controls, had increased more than three-fold in the preceding six years).

Anglo American, for example, has operations now in 45 countries and is pursuing profits in Latin America, Europe and even the United States.

All this expresses the impasse of the South African economy, the limits to its development on the basis of private ownership and within the confines of the national state.

Investment and Inflation

The economic impasse is expressed also in the growing difficulty South Africa finds in attracting foreign investment. While the regime has found it relatively easy to obtain foreign loans, the international financiers have grown shy of risking their capital directly in production – as much because the profitability of investments in SA is increasingly in doubt as through fear of the country’s ‘instability’.

The sale by foreign corporations of their shares on the Johannesburg Stock Exchange reached major proportions before the current ‘disinvestment’ furore in the USA. In the past the US and every other bourgeois never lost a wink of sleep on moral grounds over their South African investments. It is the change in SA’s economic and political situation, and hence in the assessment of their material self-interest, which has tipped the scales among those sections of the American bourgeois now hastening to identify themselves opportunistically with the anti-apartheid campaigns of the labour unions and the black civil rights organisations.

The fear of the SA regime and ruling class that disinvestment could become a flood, flows from their knowledge that the economy cannot regain the old relatively high rates of profit which alone could attract investment back.

The declining competitive position of SA capitalism manifests itself also in a rate of inflation persistently two- or three-times higher than the average in the advanced capitalist countries, and in a tendency for the value of the rand to depreciate against the major currencies.

Because the bourgeoisie cannot look the organic disease of its system in the face, its most authoritative economic spokesmen have for years refused to admit that there is any “structural” cause for South Africa’s inflation rate. Apparently it is all a matter of the money supply. Curbs on public expenditure, “if only” sufficiently stringently applied, would succeed in reducing inflation to the levels unavoidably imported from the developed countries. Then South Africa would be on the road to economic health. This is sheer quackery.

In a pamphlet to be published later in the year, Inqaba will deal fully with economic issues. Here it is enough to make the central point:

Because of the interlinking of economies through the world market to a greater extent than ever before, the law of value explained by Marx operates ever more imperiously through the world economy.

Lagging productivity in a national economy, due to low investment, means that more labour is required to produce goods locally than the equivalent goods on the world market – and this must reflect itself, in the final analysis over time, in a tendency towards inflated domestic prices and a weakening currency. Even the cheapest of cheap labour cannot overcome this in the modern epoch of computer technology and automation.

The same was proved in Chile despite all the potions of the monetarist witchdoctor Friedman and his ‘Chicago Boys’. In the face of a catastrophic collapse of industry, in fact, the Pinochet dictatorship was forced desperately to swing back to policies of deficit spending, which in turn have only made matters worse.

Throughout the world capitalist economy, prices continue to rise even during the worst recessions – a condition which, fifty years ago, used to cause prices to fall. Now only the rate of inflation can be curbed, and then only here and there for temporary periods.

Directly or indirectly, 500 monopolies control about 90% of capitalist world trade. To the extent that monopolies can ward off competitive pressures, they raise prices at the stroke of a pen in order to reap super-profits.

State expenditure has continued to rise relative to production in all the main capitalist economies, even in Thatcher’s monetarist Britain, necessitating continued deficits of vast proportions.

A thousand billion Euro-Dollars – money without real backing in production or gold – float around the European and North American capital markets. Mountains of international debt continue to accumulate, now also in the region of $1,000 billion. World arms expenditure is now approaching a similar figure – every year.

All this adds up to massive inflationary pressures throughout the capitalist world economy.

Only brutal deflationary policies have held down the rate of price rises in the advanced industrialised countries in the recent period. But these policies have resulted in turn in the wholesale slaughter of old industries, rising mass unemployment, decaying infrastructure, and pressures towards protectionism and trade war which would precipitate a major world depression if resorted to on a big scale.

Any massive reflation, on the other hand, would rapidly lead to galloping inflation. The bourgeoisie is haunted by the spectre of Latin American rates of inflation, should they be forced to swing back to Keynesian policies. (By ‘Latin American’ inflation is meant prices which rise, not by tens of percent, but by hundreds or thousands of percent annually. In Argentina, for example, a one million peso note, which could buy a car twelve years ago, buys less than a packet of cigarettes today. In Bolivia, inflation has now reached 8,200%. Elsewhere, for example, Israel’s inflation rate topped 500% in 1984.)

In the United States, the dominant capitalist economy, the recent boom was based on record budget deficits and astronomical arms spending. However, for exceptional reasons which cannot be repeated elsewhere, price increases slowed below 5% at the same time. Now the signs are that a new recession in the US is beginning again coupled with rising inflation. The chickens are coming home to roost.

Diseased System

World capitalism is now an organically diseased and totally reactionary system. It staggers on at appalling cost to mankind only because it has not been overthrown, because the proletariat internationally has yet to raise itself consciously to the position of ruling class and carry-out the revolutionary tasks which history poses before it.

To free itself from exploitation and solve the problems facing mankind, the working class has to take the productive forces into common ownership and, linking up internationally, organise a planned economy, under workers’ democratic control and management.

In this way all the vast resources of the earth, all the modern technique created by science and labour, can be put to use – not for the private profit of a few, but to meet the needs of all. In this way, easily within the space of a generation, it would be possible to end unemployment, homelessness and mass diseases throughout the world, while lifting all humanity out of the nightmare of ignorance, competition for survival, and war – to begin for the first time a really civilised human existence and development.

Only the bourgeoisie, whose system has outlived itself; or inveterate reformists for whom the socialist revolution is too ghastly to contemplate; or Stalinist bureaucrats who know that democratic workers’ rule anywhere will toll the end of their own dictatorship and privilege – only these can continue to place hope in the regeneration of capitalism in the West.

Capitalism is bankrupt. What is the case on a world scale is the case ten and a hundred-times over in a country like South Africa.

In the past, the mainstay of SA’s economy has been gold, and that remains the case to an important degree.

Gold production does serve at least partially to cushion the economy against the effects of world recession. In particular, the capitalists can export all the gold produced, and this tends to ease what would otherwise be very serious balance of payments crises.

But what has become clear is that gold no longer provides a means of sustaining the development of industry as in the past. That was shown in 1979-80 when the gold price reached record levels. An absolute bonanza of profits resulted, which could not be profitably invested in production.

At the same time the ups and downs of the gold price on the world market – a feature of the world crisis – now introduce a factor of tremendous instability in the financial system of South Africa. Very rapidly a high gold price produces an excess of ‘liquidity’, of money that cannot find a productive home.

It has become characteristic now that there can be booms on the stock exchange, booms in bank profits, bubbles of property speculation as massive amounts of money change hands among the rich – at the same time as industry is stagnating or actually declining.

This is a mark of the sickness of the productive system. It also accelerates the tendency towards inflation, further undermining the competitive position of the economy and the position of the rand on world currency markets.

It is an expression of the contradictions inherent in the economy that the regime has been obliged to move, by a series of steps over the past ten years, towards easing foreign exchange controls and ‘floating’ the rand on world currency markets precisely as the difficulty of attracting funds into productive investment in SA, and the tendency towards excess ‘liquidity’, has increased.

Capitalism is an anarchic system, governed by private profit, and cannot be otherwise. Thus the capitalist regime could not simply direct funds available locally into local productive investment. It had to allow capital, which capitalists did not want to invest locally, to flow out of the country. At the same time, foreign investors were all the more wary of investing in enterprises in SA if they could not bank on being able to withdraw their capital again at will. Uninvested local funds fuelled inflation and necessitated a foreign outlet; a lack of foreign investment was threatening further to weaken the country’s productive base and thus add to the spiral of competitive decline and inflation.

Under these and related pressures the government introduced, for example, the ‘managed float’ of the rand in January 1979. This was soon followed by the high gold price of 1979-80, which in turn increased the pressure for further easing of controls. Against the background of a rising gold price in 1982-83, the regime abolished exchange control over non-residents on 7 February 1983, allowing foreign investors to withdraw funds from SA without obtaining prior approval from the Reserve Bank.

There was a massive outflow of capital. In the first nine months of 1983, for example, foreign investors alone sold R1 billion worth of shares on the stock exchange in Johannesburg.

The boom in the United States, together with a partial rise in the gold price, contributed to a short consumer boom in South Africa from late 1983 onwards. But the depth of the organic crisis is shown in the fact that that boom lasted no more than six months. A combination of factors rapidly turned it into a recession once again.

Because American interest rates were high, and because the dollar was rising also on the basis of the US boom, the gold price fell.

This, together with doubts about the economic and political viability of SA capitalism, caused the international speculators to turn away from the rand. Rapidly the rand plunged in value from $1.30 to below 60 US cents. The rand also fell sharply against sterling and other major currencies, showing that its weakness was due only in part to the exceptional rise of the dollar.

The SA capitalists found themselves in an impossible position. Although the gold price was low in dollars, the rand fell even lower against the dollar – and therefore the gold price actually rose in rands, in fact to record levels. So they found themselves with excess ‘liquidity’ again – on top of a collapsing rand. Inflation, which never went below 10%, again approached 14% or more officially.

Meanwhile, the South African ‘boom’, fuelled by massive increases in consumer credit, was sucking in imports at rapidly rising prices (measured in depreciating rands), so giving a further twist to inflation.

The dangerous consequences were rapidly outweighing the advantages the SA economy would derive from the cheapening of its exports abroad.

Therefore very rapidly the government had to take measures to induce a recession, to attempt to rescue the rand and prevent hyper-inflation by jacking up interest rates to a record level of about 25%. This is nearly double the level at which ‘high’ interest rates have been running in the USA.

Effect of these Measures

With a prime rate of 25%, interest on hire-purchase has been raised as high as 32%, sharply hitting the car market. Interest on mortgage bonds has gone above 20%, inevitably affecting construction. Whites accustomed to cheap mortgages now face the little problem of finding R10,000 or more a year just to pay the interest on their R50,000 houses! The high cost of borrowing meanwhile squeezes investment still further and deepens the recession.

But high interest rates alone are not sufficient to support a currency whose basis in the productive economy is in decline. It was notable that, despite the extreme monetary measures taken by the SA government, the rand continued to fall, at one point dropping to 42 US cents. It has only partially recovered since (currently to 51 cents) with some improvement in the gold price and an easing of the dollar. Significantly, it has not regained lost ground against sterling, etc.

The most spectacular consequence of the devalued rand so far has been the 40% hike in the price of petrol. More price shocks are sure to follow.

Not to have induced the recession in this way would have led to even worse inflation. Yet, by crash-diving the economy and throttling production in an attempt to rescue the rand, the ruling class is merely ensuring by another route the long-term decline and instability of its currency and financial system.

Whichever economic policy the bourgeoisie pursues now, it is a question of alternative roads to ruin.

There will continue to be temporary recoveries in the economy – continued cyclical phases in the life of world and SA capitalism. But these will be like the temporary remissions of disease in a cancer victim. The general course will be downhill. The reason for this lies in the fundamental contradictions we have outlined, for which there is no capitalist cure.

Even future leaps in the gold price, inevitable in the context of extreme instability in the world monetary system, will confer only limited advantages on South African capitalism. As already explained, whether the gold price is high or low, damaging consequences follow each fluctuation. It is now impossible, on a capitalist basis, to rejuvenate the productive system.


As the limits of the domestic market have driven the capitalists onto the world market to find an outlet for manufactures, so the limits of the world market and SA’s weak competitive position drive them back to the domestic market again – which, meanwhile, has been more extensively opened to foreign goods.

A section of the bourgeoisie – those dependent to a significant extent on manufacturing – have begun talking of the need for major new protectionist measures to insulate industry from foreign competition while a programme of expansion is undertaken.

But, by employing more expensive materials and less productive technique, and by sheltering the SA monopolies even further from competition, this would soon lead to further leaps in domestic prices. There would be an explosion of demands for wage increases, from black and white workers alike. Costs throughout the economy would rise further, undermining in particular the profitability of exports.

Already the government has had to move to dismantle part of the previous protectionist devices – notably import quotas – as a measure against inflation.

Even if a protectionist policy had a temporary effect in boosting SA manufacturing, it would soon be met with retaliation against South Africa’s exports by countries whose exports to South Africa had been cut-off. This at precisely the time when SA capitalism is desperate to break new ground for the marketing of its products abroad.

Already heavily dependent on foreign loans, the SA ruling class is worried that exports will soon not be sufficient to finance the country’s rising debts. SA’s foreign debt is now R40 billion, of which R17 billion is very short-term.

Meanwhile exports have declined as a proportion of GNP from 30% in the late 1970s to about 25% in 1984 (15% if gold is left out of account). Although gold enjoys a virtually guaranteed market, the SA bourgeoisie can scarcely afford to risk retaliation against its other exports, by gambling with protectionism.

Nevertheless, it may resort to such self-defeating measures under the impact of the crisis in the coming years. Marxists must combat any illusions which may develop in the trade unions that this would provide a way out for the economy, or for employment.

Whether on the road of protectionism, or an ‘open door’ policy in trade, or a combination of the two, the bourgeoisie is leading SA deeper and deeper into the swamp. At each and every step, the effects of the crisis are loaded onto the already bent backs of the black working class.

The present sharp recession has come against a background already of three million or more black unemployed, most of whom have no social welfare protection whatsoever. For the small minority entitled to the pittance from the Unemployment Insurance Fund, payments end after six months.

Many survive only by sharing the meagre income of the aged in their families, whose pensions were recently ‘raised’ to a mere R79 a month.

Job losses continue apace. Now even plant closures, hardly known in SA previously, have become a feature of the situation. Press reports claim that 45,000 black jobs have been lost in steel and engineering alone. In a new turn of immense significance, 20,000 white jobs have also disappeared in this industry.

In the three months to October 1984, an estimated 10,000 jobs were axed in the motor industry. Most motor manufacturers were down to a three- or four-day week by the end of the year. On top of that has come the merger of big motor corporations and the closure of the Ford plant in Port Elizabeth.

Employment in other manufacturing sectors has likewise been hit by the recession. In a survey reported in Die Beeld,[4] 22% of blacks said a family member had been hit by retrenchment. 5% of whites said the same.

The point we have to stress is that even during the long upswing in the development of South African industry since World War Two, capitalism was incapable of raising the living standards of the mass of black people. The onset of the world crisis and the crisis in SA has had a shattering effect on the living standards of the blacks.

These fell persistently in the second half of the 1970s, even during the few ‘boom’ years. Then there was a fall of at least 20% in the past four years. In Die Beeld’s survey, 39% of whites said their living standards had declined in 1984, while 64% of blacks in the PWV and Port Elizabeth areas said so.

Barclays Bank calculates that living standards of all South Africans, white and black, will fall an average of 6% this year. At least half the black population already live in what newspapers term ‘absolute poverty’. The burden of poverty on the black proletariat has become intolerable.

Nightmare Situation

It is impossible in a few lines to describe adequately the nightmare situation of poverty, of homelessness, of hunger which is faced by growing numbers of the black working class and unemployed masses in the rural and the urban areas.

Food prices are rising much faster than the official rate of inflation, which is currently above 16%. In 1984 alone the price of maize rose 30%, bread 25%. In the twelve months to February 1985, the price of goods in household budgets rose 21%, when the official inflation rate was 14% – and that was before the petrol price went up.

There has been a 20% fall in the volume of maize consumption without any corresponding rise in the consumption of other foods.

Meat has become a luxury. Only 11% of black urban households can afford to eat fruit.

In the Durban area every year 8,000 new-born babies are dumped by parents who cannot keep them. In the rural areas there are now 820,000 people dependent for their food on charitable relief. ‘Active malnutrition’ among children in the Ciskei is estimated at 89% – and the probable figure for other Bantustans would not be much lower.

Thus the hideous system in South Africa – the system of capitalism and apartheid bound together – now devours the very foundations of society, forcing growing numbers down towards an animal existence, murdering human beings with poverty and hunger as surely as with the policeman’s gun.

Crisis in State Expenditure

With the productive base of the economy weakening, increasingly we see the inability of the state to finance its expenditure out of taxes on companies, incomes and profits. The white population and the monopolies are proving to be an extremely narrow tax base.

The cost of internal repression and external aggression is rising. This year R4.3 billion will be spent on ‘defence’. There is the occupation of Namibia to pay for: amounting to R1,031 million between 1982 and 1984, according to Pik Botha. There is the structure of puppet Bantustans, the stooge councils, the administration boards, etc. – this whole edifice costing at least R2 billion a year to finance.

Then there are the salaries of the 660,000 provincial and central government employees. And, of course, the politicians don’t want to forget about themselves. Botha took the precaution, when he ‘retired’ as Prime Minister and became President, to pay himself a R300,000 ‘gratuity’!

Finally, and most annoying of all to the bourgeoisie, is the rapidly expanding human need for social services.

There is now a persistent tendency to rising deficits. State expenditure has gone over the budget in every one of the past five years – sometimes dramatically – and despite monetarist stringency. As a result the regime has begun to shift the burden of taxation from companies and the richer individuals towards taxes on the poor.

Black workers have been brought into the income tax net. General Sales Tax has been introduced, and now raised to 12%. Only basic foodstuffs are exempt. That is a tax on the workers, on the youth, on the aged, on the homeless, and on the unemployed.

The contribution of the individual taxpayer, as opposed to companies, has gone up from 31% in 1980 to 58% now.

Nevertheless, the ruling class faces the impossibility of keeping public expenditure within bounds which their system can ‘afford’.

The Star[5] bluntly expressed the cold calculation of the bourgeoisie: “These can only be the first tremors (of the crisis in public spending), since the demand explosion in housing, education, health services, social pensions, infrastructure, and the provision of energy and safe water will, in competition with other more legitimate [!] state functions like defence, law-and-order, foreign affairs and public administration create a bill we [!] cannot meet.”

With South Africa’s rapidly rising population, “present stresses could reach crisis proportions… To finance these cost explosions from taxation in a tottering economy is out of the question.”

Even South Africa’s prized national roads grid is threatened with breakdown because of cuts in essential maintenance spending. R2.5 billion is needed just to repair rural roads.

Just how “out of the question” it is that SA capitalism can ever meet the basic needs of the working people is shown by the present backlog of 700,000 houses. One million houses need to be built for black people by 1990 – yet only 20,000 were built last year. State spending on black housing this year is to be a paltry R265 million (less than one-sixteenth of military spending).

Meanwhile, massive increases for rents and electricity and water supplies are being loaded onto the township-dwellers, who find it impossible to make ends meet.

Now the SA ruling class, displaying even more lunacy than Thatcher in Britain, wants to privatise the state corporations, or the profitable sections of them. This, they figure, will kill two birds with one stone: raise easy money to finance state spending for a temporary period without immediate tax increases, and give the capitalists new avenues for private profiteering.

The regime plans to sell-off part of ISCOR, possibly by the end of this year, and there is talk even of the privatisation of electricity supply.

This would mean turning over the vital infrastructure of the whole economy to the anarchy of the market, and would prepare the way for an even more fundamental crisis in future.

There is an old saying that ‘those whom the gods wish to destroy they first drive mad.’ Some of the money-crazed bourgeois in South Africa now go so far as to demand privatisation of services – health, education, etc. – so that these will only be available to people with the money to pay for them.

Even the lower-middle class and working class whites would not tolerate this for long. And it would be a sure route to yet more massive revolutionary explosions among the blacks. Yet even this madness on the part of the ruling class could not be ruled-out, because of the impossible dilemmas that will face them.

The connection between racial domination and capitalism, between the bosses’ apartheid dictatorship and their exploitation of the black working class, now stands nakedly exposed in every sphere of life.

There is a simultaneous economic, social and political crisis going so to the roots of the entire system that there is no possible way out except a social revolution. This idea has begun to grip the consciousness of masses of black working class people.

© Transcribed from the original by the Marxist Workers Party (2020).

Continue to Chapter Two

[1] 1 November 1984

[2] 20 July 1984

[3] Financial Times, 18 October 1984

[4] 12 December 1984

[5] 24 September 1984