by Naomi Klein
Want to redistribute land? Impossible—at the last minute, the negotiators agreed to add a clause to the new constitution that protects all private property, making land reform virtually impossible. Want to create jobs for millions of unemployed workers? Can’t—hundreds of factories were actually about to close because the ANC had signed on to the GATT, the precursor to the World Trade Organization, which made it illegal to subsidize the auto plants and textile factories. Want to get free AIDS drugs to the townships, where the disease is spreading with terrifying speed? That violates an intellectual property rights commitment under the WTO, which the ANC joined with no public debate as a continuation of the GATT. Need money to build more and larger houses for the poor and to bring free electricity to the townships? Sorry—the budget is being eaten up servicing the massive debt, passed on quietly by the apartheid government. Print more money? Tell that to the apartheid-era head of the central bank. Free water for all? Not likely. The World Bank, with its large in-country contingent of economists, researchers and trainers (a self-proclaimed “Knowledge Bank”), is making private-sector partnerships the service norm. Want to impose currency controls to guard against wild speculation? That would violate the $850 million IMF deal, signed, conveniently enough, right before the elections. Raise the minimum wage to close the apartheid income gap? Nope. The IMF deal promises “wage restraint.”12 And don’t even think about ignoring these commitments—any change will be regarded as evidence of dangerous national untrustworthiness, a lack of commitment to “reform,” an absence of a “rules-based system.” All of which will lead to currency crashes, aid cuts and capital flight. The bottom line was that South Africa was free but simultaneously captured; each one of these arcane acronyms represented a different thread in the web that pinned down the limbs of the new government.
A longtime antiapartheid activist, Rassool Snyman, described the trap to me in stark terms. “They never freed us. They only took the chain from around our neck and put it on our ankles.” Yasmin Sooka, a prominent South African human rights activist, told me that the transition “was business saying, ‘We’ll keep everything and you [the ANC] will rule in name…. You can have political power, you can have the façade of governing, but the real governance will take place somewhere else.’”*13 It was a process of infantilization that is common to so-called transitional countries—new governments are, in effect, given the keys to the house but not the combination to the safe.
Part of what I wanted to understand was how, after such an epic struggle for freedom, any of this could have been allowed to happen. Not just how the leaders of the liberation movement gave up the economic front, but how the ANC’s base—people who had already sacrificed so much—let their leaders give it up. Why didn’t the grassroots movement demand that the ANC keep the promises of the Freedom Charter and rebel against the concessions as they were being made?
I put the question to William Gumede, a third-generation ANC activist who, as a leader of the student movement during the transition, was on the streets in those tumultuous years. “Everyone was watching the political negotiations,” he recalled, referring to the de Klerk–Mandela summits. “And if people felt it wasn’t going well there would be mass protests. But when the economic negotiators would report back, people thought it was technical; no one was interested.” This perception, he said, was encouraged by Mbeki, who portrayed the talks as “administrative” and of no popular concern (much like the Chileans with their “technified democracy”). As a result, he told me, with great exasperation, “We missed it! We missed the real story.”
Gumede, who today is one of South Africa’s most respected investigative journalists, says he came to understand that it was in those “technical” meetings that the true future of his country was being decided—though few understood it at the time. Like many people I spoke with, Gumede reminded me that South Africa was very much on the brink of civil war throughout the transition period—townships were being terrorized by gangs who had been armed by the National Party, police massacres were still taking place, leaders were still being assassinated and there was constant talk of the country descending into a bloodbath. “I was focusing on the politics—mass action, going to Bisho [site of a definitive showdown between demonstrators and police], shouting, ‘Those guys must go!’” Gumede recalled. “But that was not the real struggle—the real struggle was over economics. And I am disappointed in myself for being so naive. I thought I was politically mature enough to understand the issues. How did I miss this?”
Since then, Gumede has been making up for lost time. When we met, he was in the middle of a national firestorm sparked by his new book, Thabo Mbeki and the Battle for the Soul of the ANC. It is an exhaustive exposé of precisely how the ANC negotiated away the country’s economic sovereignty in those meetings he was too busy to pay attention to at the time. “I wrote the book out of anger,” Gumede told me. “Anger at myself and at the party.”
It’s hard to see how the outcome could have been different. If Padayachee is right and the ANC’s own negotiators failed to grasp the enormity of what they were bargaining away, what chance was there for the movement’s street fighters?
During those key years when the deals were being signed, South Africans were in a constant state of crisis, ricocheting between the intense exuberance of watching Mandela walk free and the rage of learning that Chris Hani, the younger militant many hoped would succeed Mandela as leader, had been shot dead by a racist assassin. Other than a handful of economists, nobody wanted to talk about the independence of the central bank, a topic that works as a powerful soporific even under normal circumstances. Gumede points out that most people simply assumed that no matter what compromises had to be made to get into power, they could be unmade once the ANC was firmly in charge. “We were going to be the government—we could fix it later,” he said.
What ANC activists didn’t understand at the time was that it was the nature of democracy itself that was being altered in those negotiations, changed so that—once the web of constraints had descended on their country—there would effectively be no later.
In the first two years of ANC rule, the party still tried to use the limited resources it had to make good on the promise of redistribution. There was a flurry of public investment—more than a hundred thousand homes were built for the poor, and millions were hooked up to water, electricity and phone lines.14 But, in a familiar story, weighed down by debt and under international pressure to privatize these services, the government soon began raising prices. After a decade of ANC rule, millions of people had been cut off from newly connected water and electricity because they couldn’t pay the bills.* At least 40 percent of the new phones lines were no longer in service by 2003.15 As for the “banks, mines and monopoly industry” that Mandela had pledged to nationalize, they remained firmly in the hands of the same four white-owned megaconglomerates that also control 80 percent of the Johannesburg Stock Exchange.16 In 2005, only 4 percent of the companies listed on the exchange were owned or controlled by blacks.17 Seventy percent of South Africa’s land, in 2006, was still monopolized by whites, who are just 10 percent of the population.18 Most distressingly, the ANC government has spent far more time denying the severity of the AIDS crisis than getting lifesaving drugs to the approximately 5 million people infected with HIV, though there were, by early 2007, some positive signs of progress.19 Perhaps the most striking statistic is this one: since 1990, the year Mandela left prison, the average life expectancy for South Africans has dropped by thirteen years.20
Underlying all these facts and figures is a fateful choice made by the ANC after the leadership realized it had been outmaneuvered in the economic negotiations. At that point, the party could have attempted to launch a second liberation movement and break free of the asphyxiating web that had been spun during the transition. Or it could simply accept its restricted power and embrace the new economic order. The ANC’s leadership chose the second option. Rather than making the centerpiece of its po
licy the redistribution of wealth that was already in the country—the core of the Freedom Charter on which it had been elected—the ANC, once it became the government, accepted the dominant logic that its only hope was to pursue new foreign investors who would create new wealth, the benefits of which would trickle down to the poor. But for the trickle-down model to have a hope of working, the ANC government had to radically alter its behavior to make itself appealing to investors.
This was not an easy task, as Mandela had learned when he walked out of prison. As soon as he was released, the South African stock market collapsed in panic; South Africa’s currency, the rand, dropped by 10 percent.21 A few weeks later, De Beers, the diamond corporation, moved its headquarters from South Africa to Switzerland.22 This kind of instant punishment from the markets would have been unimaginable three decades earlier, when Mandela was first imprisoned. In the sixties, it was unheard of for multinationals to switch nationalities on a whim and, back then, the world money system was still firmly linked to the gold standard. Now South Africa’s currency had been stripped of controls, trade barriers were down and most trading was short-term speculation.
Not only did the volatile market not like the idea of a liberated Mandela, but just a few misplaced words from him or his fellow ANC leaders could lead to an earth-shaking stampede by what the New York Times columnist Thomas Friedman has aptly termed “the electronic herd.”23 The stampede that greeted Mandela’s release was just the start of what became a call-and-response between the ANC leadership and the financial markets—a shock dialogue that trained the party in the new rules of the game. Every time a top party official said something that hinted that the ominous Freedom Charter might still become policy, the market responded with a shock, sending the rand into free fall. The rules were simple and crude, the electronic equivalent of monosyllabic grunts: justice—expensive, sell; status quo—good, buy. When, shortly after his release, Mandela once again spoke out in favor of nationalization at a private lunch with leading businessmen, “the All-Gold Index plunged by 5 per cent.”24
Even moves that seemed to have nothing to do with the financial world but betrayed some latent radicalism seemed to provoke a market jolt. When Trevor Manuel, an ANC minister, called rugby in South Africa a “white minority game” because its team was an all-white one, the rand took another hit.25
Of all the constraints on the new government, it was the market that proved most confining—and this, in a way, is the genius of unfettered capitalism: it’s self-enforcing. Once countries have opened themselves up to the global market’s temperamental moods, any departure from Chicago School orthodoxy is instantly punished by traders in New York and London who bet against the offending country’s currency, causing a deeper crisis and the need for more loans, with more conditions attached. Mandela acknowledged the trap in 1997, telling the ANC’s national conference, “The very mobility of capital and the globalisation of the capital and other markets, make it impossible for countries, for instance, to decide national economic policy without regard to the likely response of these markets.”26
The person inside the ANC who seemed to understand how to make the shocks stop was Thabo Mbeki, Mandela’s right hand during his presidency and soon to be his successor. Mbeki had spent many of his years of exile in England, studying at the University of Sussex, then moving to London. In the eighties, while the townships of his country were flooded with tear gas, he was breathing in the fumes of Thatcherism. Of all the ANC leaders, Mbeki was the one who mingled most easily with business leaders, and before Mandela’s release, he organized several secret meetings with corporate executives who were afraid of the prospect of black majority rule. In 1985, after a night of drinking Scotch with Mbeki and a group of South African businesspeople at a Zambian game lodge, Hugh Murray, the editor of a prestigious business magazine, commented, “The ANC supremo has a remarkable ability to instill confidence, even in the most fraught circumstances.”27
Mbeki was convinced that the key to getting the market to calm down was for the ANC to instill that kind of clubby confidence on a much larger scale. According to Gumede, Mbeki took on the role of free-market tutor within the party. The beast of the market had been unleashed, Mbeki would explain; there was no taming it, just feeding it what it craved: growth and more growth.
So, rather than calling for the nationalization of the mines, Mandela and Mbeki began meeting regularly with Harry Oppenheimer, former chairman of the mining giants Anglo-American and De Beers, the economic symbols of apartheid rule. Shortly after the 1994 election, they even submitted the ANC’s economic program to Oppenheimer for approval and made several key revisions to address his concerns, as well as those of other top industrialists.28 Hoping to avoid getting another shock from the market, Mandela, in his first postelection interview as president, carefully distanced himself from his previous statements favoring nationalization. “In our economic policies…there is not a single reference to things like nationalization, and this is not accidental,” he said. “There is not a single slogan that will connect us with any Marxist ideology.”*29 The financial press offered steady encouragement for this conversion: “Though the ANC still has a powerful leftist wing,” The Wall Street Journal observed, “Mr. Mandela has in recent days sounded more like Margaret Thatcher than the socialist revolutionary he was once thought to be.”30
The memory of its radical past still clung to the ANC, and despite the new government’s best efforts to appear unthreatening, the market kept inflicting its painful shocks: in a single month in 1996, the rand dropped 20 percent, and the country continued to hemorrhage capital as South Africa’s jittery rich moved their money offshore.31
Mbeki convinced Mandela that what was needed was a definitive break with the past. The ANC needed a completely new economic plan—something bold, something shocking, something that would communicate, in the broad, dramatic strokes the market understood, that the ANC was ready to embrace the Washington Consensus.
As in Bolivia, where the shock therapy program was prepared with all the secrecy of a covert military operation, in South Africa only a handful of Mbeki’s closest colleagues even knew that a new economic program was in the works, one very different from the promises they had all made during the 1994 elections. Of the people on the team, Gumede writes, “all were sworn to secrecy and the entire process was shrouded in deepest confidentiality lest the left wing get wind of Mbeki’s plan.”32 The economist Stephen Gelb, who took part in drafting the new program, admitted that “this was ‘reform from above’ with a vengeance, taking to an extreme the arguments in favour of insulation and autonomy of policymakers from popular pressures.”33 (This emphasis on secrecy and insulation was particularly ironic given that, under the tyranny of apartheid, the ANC had pulled off a remarkably open and participatory process to come up with the Freedom Charter. Now, under a new order of democracy, the party was opting to hide its economic plans from its own caucus.)
In June 1996, Mbeki unveiled the results: it was a neoliberal shock therapy program for South Africa, calling for more privatization, cutbacks to government spending, labor “flexibility,” freer trade and even looser controls on money flows. According to Gelb, its overriding aim “was to signal to potential investors the government’s (and specifically the ANC’s) commitment to the prevailing orthodoxy.”34 To make sure the message was loud and clear to traders in New York and London, at the public launch of the plan, Mbeki quipped, “Just call me a Thatcherite.”35
Shock therapy is always a market performance—that is part of its underlying theory. The stock market loves overhyped, highly managed moments that send stock prices soaring, usually provided by an initial public stock offering, the announcement of a huge merger or the hiring of a celebrity CEO. When economists urge countries to announce a sweeping shock therapy package, the advice is partially based on an attempt to imitate this kind of high-drama market event and trigger a stampede—but rather than selling an individual stock, they are selling a country. The hoped-fo
r response is “Buy Argentine stocks!” “Buy Bolivian bonds!” A slower, more careful approach, on the other hand, may be less brutal, but it deprives the market of these hype-bubbles, during which the real money gets made. Shock therapy is always a significant gamble, and in South Africa it didn’t work: Mbeki’s grand gesture failed to attract long-term investment; it resulted only in speculative betting that ended up devaluing the currency even further.
The Shock of the Base
“The new convert is always more zealous at these things. They want to please even more,” remarked the Durban-based writer Ashwin Desai when we met to discuss his memories of the transition. Desai spent time in jail during the liberation struggle, and he sees parallels between the psychology in prisons and the ANC’s behavior in government. In prison, he said, “if you please the warden more, you get a better status. And that logic obviously transposed itself into some of the things that South African society did. They did want to somehow prove that they were much better prisoners. Much more disciplined prisoners than other countries, even.”
The ANC base, however, proved distinctly more unruly—which created a need for yet more discipline. According to Yasmin Sooka, one of the jurors on South Africa’s Truth and Reconciliation Commission, the discipline mentality reached into every aspect of the transition—including the quest for justice. After hearing years of testimony about torture, killings and disappearances, the truth commission turned to the question of what kind of gestures could begin to heal the injustices. Truth and forgiveness were important, but so was compensation for the victims and their families. It made little sense to ask the new government to make compensation payouts, as these were not its crimes, and anything spent on reparations for apartheid abuses was money not spent building homes and schools for the poor in the newly liberated nation.
