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The markets can stomach a captured Treasury but South Africa’s poor will suffer

The markets can stomach a captured Treasury but South Africa’s poor will suffer

The formal economy might find it a lot easier to live with a (partly) captured national treasury than many might imagine. This is bad news for people living in poverty who would then lack friends in high places to resist the capturers.

In trying to restore calm, after the firing of Finance minister Pravin Gordhan and his deputy Mcebisi Jonas, the spin doctors of the governing party, the African National Congress, say the markets will adjust. They point out that the appointment of previous finance ministers also spooked the markets, only to attract something close to hero worship once they settled in. Thus the new minister of finance, Malusi Gigaba, would also come to be loved by the markets.

Just about no-one believes them. Their reassurances do not gel with the understanding of everyone opposed to the change and even some who welcome it. The change in minister is widely seen not as the replacement of one politician by another but as the capture of the Treasury by a faction which is interested not in the health of the economy but in using public money to feed the patronage networks of a connected few.

At issue is far less the policies the new Treasury leadership will proclaim than the likelihood that they will relax controls which hamper patronage politicians and connected businesses. And so it’s widely assumed that the economy is now to be laid waste by looting which will place the market economy in great danger.

It’s hard to argue against much of this account. The only plausible reason for Gordhan and Jonas’s removal is their campaign to prevent public resources and state-owned enterprises serving particular private interests. There would be little point in courting a ratings downgrade and other upheaval unless the purpose was to ensure that Treasury didn’t stand in the way of those interests who Gordhan and Jonas were frustrating.

But the rest of the story is not self-evident. In principle, the view that the ‘captured’ Treasury leadership is certain to lay waste the marketplace and make war on the owners of capital may be far less obvious than it seems. The marketplace and a Treasury which gives a helping hand to special interests may tolerate each other far more readily than we are being led to assume.

The economy will be hurt

Before the argument is drowned in a wave of indignation, it’s important to stress exactly what this may mean. The new Treasury leadership is not the victim of prejudice. It’s likely to remove barriers to particular businesses and politicians which have prevented them profiting from the public purse. This will weaken the economy and delay movement towards much-needed changes. Even if a captured Treasury really wanted to discuss vitally necessary economic reforms, it’s unlikely that either business or labour would trust it enough to join the dance.

But, while the new leadership will not take the economy forward, it could serve its special interests while keeping in place enough of the current framework to enable markets to continue operating much as they do now.

Gigaba and his deputy Sifiso Buthelezi won’t stay there long unless they remove some of the obstacles which have frustrated the patronage faction. But they could choose to do this in a way which keeps the market economy ticking over much as it does now. Whether they can pull this off is unclear. But it’s far from impossible.

Market and patronage can coexist

There is a myth behind the expectation that a captured Treasury is certain to devastate the formal economy. The myth is that market economies function effectively only when everyone plays by the rules. In reality, market economies can co-exist with all manner of favouritism, patronage and even dodgy dealing.

Consider the South Korea experience which shows how markets can tolerate patronage politics. Every head of state who presided over the Korean economic miracle was jailed for corruption. The apartheid economy is another example of how markets can co-exist with a limited, but fairly high level, of patronage.

One of the great ironies of the last years of apartheid is that left critics consistently denounced its ‘monetarist’ adherence to fiscal discipline when it was really awash with spending, much of it linked to connected insiders, which aimed to buy apartheid out of trouble. Formal business may have opposed this, but also lived with it far more easily than it might care to admit.

Therefore, the new political leadership can choose to be captured in a strategic way. They can give connected interests some of what they want while making sure that the basic financial architecture is kept in place. They may well ensure that business learns to live with them and adjusts to what they are doing.

A captured Treasury which operates in this way wouldn’t be trusted by business. But they might well put up with each other – and make deals with each other – to ensure that the economy keeps running. Decades ago, David Yudelman, then a Wits academic, published an important book on this subject. It showed that, even when business and government dislike each other, they need each other and find ways to cooperate to keep the market economy afloat. If the new Treasury leadership plays its cards competently, it could prove him right yet again. To many, this argument will seem too optimistic. It is, in reality, deeply pessimistic.

The poor are on their own

Whatever the capture of Treasury does or doesn’t do to the formal marketplace, it’s sure to make life even more difficult for the poor. The social grants scandal shows clearly how easily patronage politics produces arrangements in which the poor are sacrificed so that the insiders can enrich themselves.

Since the poor are also politically weak, the new Treasury is unlikely to worry much about them when it gives the green light to patronage deals. Last time there was an attempt to capture the South African Treasury, poor people were saved because the organised interests in the market economy united to stop this.

But, if the new Treasury leadership do manage to respect the core market rules while turning a blind eye to insider deals which its political masters need, the poor are likely to find themselves once again on their own, as they so often are – left to their own devices while the economic insiders continue to look after their own interests. The markets may just find a captured Treasury less of a threat than they imagined. The poor are unlikely to have any such luck.

  • By Steven Friedman, Professor of Political Studies, University of Johannesburg
  • This article originally appeared on The Conversation – you can read more here

Read: Business leaders opt out of international roadshow with Gigaba


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  • James Dean

    The poor are equivalent to pawns on a chess board, conned and used as collateral to protect a king. They must wake up, fast!

    • Lacrimose Wolfe

      I see little change since the days of indentured serfdom. There have been moments of euphoria and yes Europe created a socio-capitalist system that did make things look groovy for a while. Until 2007 market collapse when everyone figured out it was castles built on sand. Dogma, blinkered thinking – basically mind manipulation – is rife the world over. There are periods where any dogma works, and periods when things fall apart. In America, in the 1950s, the average annual salary was $6900 and the average house price was $9600 (3 beds, all appliances, 2 cars). Today the progeny of that nicely proportioned income vs expenditure have made it impossible for us to earn any where near what we need to feed and house ourselves. The StepFord children turned out to be voracious wolves. Even in far-flung and Ubuntu-redolent Africa, the contagion has caught on. Although cause & effect will debated until one of two of the most demented children of the golden 50s push their respective nuclear buttons. In just 60 years we’ve gone from the most benign and hopeful age, to the age of rage. This is the story of humanity – for some there is never enough. And being human, too many want to be on the winning side. It’s always the few who have to save the many. In this I/me world, the many are hurtling society into extinction

      • bengine

        Well put

  • NewYorker

    The DA wins – and Israel/US will run SA via it’s proxies.
    The ANC wins – and China continues to rule the roost.
    The EFF wins – and you will ALL pass away from hunger!

    The longer China can divide you guys under different factions, the easier it is to keep buying up your land for nothing. The EFF will sell everyone out to China for $5

    • Non racist

      Well said, this explains the wreckless way this government has acted with the tax payers monies over the past decades without any guilt or concience of robbing the poor to enrich themselves of luxuries never heared of before, all at the expense of the tax paying public

    • Masondo Ngubo

      and the Russians? Where do they fit in your scenario?

      • bengine

        Good question – are they linked to any of the above or acting on their own trying to undermine the actions of aforesaid. Perhaps there is a silent war going on (a chess game) and Rosatom’s move is a surprise attempt to get in on the action. Do you think we will ever know – Contradictory Vaudeville.

  • petrosmagomazi

    The article did not clarify how the poor will be affected by the changes in leadership at the treasury. Further, I never felt that the recipient’s of the social grants were in danger of not receiving their monthly grants. Whether the grants are paid by CPS or SASSA is neither here nor there. It was a legal technicality which has/had nothing to do with the recipients. My view is the economy is going to contract it is the middle class that will suffer the most as it is the group that is exposed to debt in the form of mortgage bonds etc. The poor are already poor, for the most part too poor to borrow. To try and use the social grants issue as an example to suggest that the poor are vulnerable is wrong and mischievous.

    • Ecthelion

      Interesting points!

  • Frank Payne

    What is this crap about “stomaching” a captured Treasury? is this some sort of wishy washy acceptance or justification of kleptocratic theft? This is the thin edge of moral decay, when acceptance of a clearly illegal process is given some sort of doubtful legitimacy. However absorbable this action is, particularly by the “markets”, which are themselves already too manipulative, it is fundamentally and morally wrong and shouldn’t be countenanced at all, but resisted vigorously. Too many of the world’s economies are in the mess that they are in, due to this creeping cancer which is unsustainable and will lead to inevitable collapse.

  • Joe Deplorable

    Zuma’s SA? Crony capitalism at its best.

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