Government solidarity with the banks and monopoly capitalists

(or why the government will not solve the unemployment, and housing crisis)

(A critique of the 2007-2008 budget and the proposed wage subsidy and compulsory pension scheme)

The February Budget speech and the State of the Nation Address by Manuel and Mbeki, respectively, are littered with references to the principle of ‘social solidarity’. Behind the slogans lies the reality of the South African state apparatus being in solidarity with the (local and international) banks and monopoly capitalists, against the working class.

The IMF is behind the wage cuts in South Africa

The International Monetary Fund (IMF) and the World Bank are the leading representatives of the giant banks and monopolies in the imperialist centres. They are instruments of imperialism that help ensure that the working classes of the world remain enslaved for continued capitalist exploitation. When the working class has been subdued and kept under control, the IMF says that the economy is ‘stable’.

The world capitalist economy is in long term crisis; it is not expanding but in decline. The biggest industry is the arms industry, in other words, the mainstay of capitalism in the current era is the need for ongoing war. The next largest is the drugs industry; this means that it is more profitable to these companies to provide ongoing ‘treatment’ with drugs but not cure the various diseases and sicknesses in the world. Interconnected with these massive industries are the international banks who have part ownership of the arms and drugs trade. With little growth in the world capitalist economy and with falling profits, the alliance of the world’s banks and monopolies are constantly seeking ways to cut costs and increase profits. The imperialists always try to shift the effects of their crisis away from themselves, onto the working class in general. They also try to shift their crises onto the backs of the working class in the neo-colonial countries, such as South Africa.

The IMF meets at least once a year with the SA government. In 2006 the IMF were happy that there was ‘growing support’ for ‘inflation targeting’. With the blessing of the IMF, the SA government has set the range for inflation as 3-6 %. What this means is that irrespective of the inflation that workers suffer, the wage increases are kept to the range of 3-6%. Inflation targeting therefore means that workers wages are cut or kept low so that profits of the capitalists are increased or at least maintained. The Budget Review (2007) unashamedly brags about ‘moderate wage increases’ and ‘high corporate profits’ over the past few years. In 2006 the IMF was arguing that the SA government should aim for inflation of the middle of the range, that is, of 4.5%. Although on paper, the SA government said this would be difficult, in the current wage negotiations in the public sector, they have offered a 5.3% increase as a final offer. In other words, the SA government is implementing the IMF proposal of keeping wage increases down within the 3-6% range. So loyal are they to the international capitalists that the SA government is prepared to face a strike of over a million workers just to help maintain the profits of the imperialists. Many workers spend half or more of their wages on food. With food inflation at 20% or more, it is clear that even the public sector union demand of 12% falls short of workers needs. Union members need to ensure that their leadership do not compromise below the 12% that is the current position; a low wage increase will, as it has before, set a precedent for the entire working class.  (see our pamphlet on inflation).

So confident of the pro-capitalist role of the SA government are the IMF that they predict that wage increases will fall from 7.2% to 6.5% from 2005 to 2011.

That the IMF can talk about ‘growing support’ for inflation targeting means that there is increasing support among trade union leaders for official ‘inflation-related’ increases and multi-year agreements. This means that workers should keep an eye on the trade union leadership, and change them if necessary, should they become agents of (false) inflation-related deals and/or multi-year agreements.

The IMF is also driving privatization

At the meetings with the SA government the IMF has consistently argued for privatization. Although on paper, the SA government has stopped privatization, they are in reality pressing ahead with it through PPP (Public-Private Partnerships) and through outsourcing. In the run-up to the 2004 general election the ANC promised to examine the rampant outsourcing and retrenchments that were taking place. In the February speeches, privatization and outsourcing is openly promoted and dressed up as ‘business-process outsourcing’. The ANC have now become the champions of outsourcing. In fact, outsourcing has become not only the vehicle for privatization of state assets but a means to give a section of the black middle class a stake in the system. Services are outsourced to BEE, Black Economic Empowerment, companies and usually goes hand in hand with reduced or total loss of benefits and lower wages. Outsourcing thus serves as a means to shift the crisis of falling profits onto the working class at the price of a few pieces of silver to the empowerment capitalists.

In the rest of Africa the programme of the IMF for privatization is proceeding. In fact a cornerstone of NEPAD (New Partnership for Africa’s Development) is privatization. Further, a precondition by the IMF for expansion of SA capital into Africa (in reality a drive by imperialism for further control) is that the risks are ‘shared’. In other words, if the venture into the rest of Africa is not profitable, the workers in South Africa will have to carry part of the burden, through lower wages and benefits, etc.

Imperialism still controls the SA economy

Since the 1902 ‘Anglo-Boer’ war, when the imperialists consolidated their control of the SA economy, their control has continued, unchecked. At no stage was there ever a time when imperialist control of the economy was thrown off. To have portrayed the SA struggle as one against ‘apartheid’, literally ‘separateness’, meant that what the ANC saw as the main problem was that the black middle class was separated from or excluded from profiting from the system of exploitation. The entire basis of imperialist control was never challenged; in effect their ‘anti-apartheid’ struggle was to battle the Afrikaner middle class for the right to be the new managers on behalf of imperialism.

The 5 major corporations, Anglo American, Liberty Life, Rembrandt, Old Mutual and Sanlam, still control the bulk of the SA economy; these same monopolies have cross-ownership and shareholdings with banks and corporations from the main imperialist centres; they also have cross-ownership with the 4 major ‘local’ banks (Absa, Standard, FNB, Nedbank).

The concessions that the SA state makes to the local capitalists therefore, are actually concessions to imperialism as well.

The myth of ‘job creation’

Mbeki, Manuel and the Cosatu Office Bearers are united in their praise of government’s performance in creating jobs. They even proclaim a slight decline in unemployment. The reality is in stark contrast to the alliance leadership’s position.

The Strategic Plan of the Department of Public works (2007-2009) exposes the nature of the government’s claim to be creating 1 million jobs over the next period. In the 2006 period about 223000 ‘jobs’ were created to build infrastructure at a cost of R823 million. This amounts to about R300 per worker per month. Contrast these casual wages to that of permanent municipal workers who should have been employed and we see that the state is saving millions on wages and at the same time cutting back on employing more, permanent workers. A R300 per month allocation to workers is being counted as a ‘job’. After the infrastructure has been built, the temporary workers are laid off, so what on paper looks like 1 million jobs are in fact 1 million temporary, short term jobs, which cannot be counted as job creation. The huge savings in labour costs are being indirectly funded by the cut in company secondary tax from 12.5 % to 10% (saving the capitalists R3 Billion per annum). In other words, without the tax cut, the government would have had R3 Billion more to employ more, permanent workers at trade union rates. Without the R3 Billion, much more of the infrastructure work is casualised (ie at a lower wage rate). The capitalists benefit from improved infrastructure by being able to more quickly and effectively exploit workers. Having casual workers building the infrastructure is a further subsidy to the bosses as they work at a greatly reduced wage rate. In essence the government decides to give the capitalists class R3 Billion more instead of giving these funds to meet the needs of the working class.

What the supposed ‘increase’ in employment hides is the massive loss of 630 000 jobs on the farms since 2001.

The number of people of working age increases by at least 400 000 per year. The government and the capitalists create less than 400 000 jobs per year. This means that the absolute rate of unemployment will increase every year. Thus the government and capitalist ‘commitment’ to job creation is a farce.

So how are the government and the Cosatu leaders hiding the real picture on unemployment?

The official definition of unemployment has been changed to exclude those unemployed who have given up hope of even looking for work. Only those unemployed who are still looking for work are regarded as officially unemployed. With this manipulation the government reduces the unemployment rate from 40% to about 27%. Since 2001 the labour participation rate has dropped from 58.3% to 56,0%. What this means is that since 2001 the number of unemployed who have given up hope of ever finding work has increased by 1.6 million. This does not reflect ‘successful’ job creation but a massive crisis. This is a direct indicator of the growing numbers of lumpen proletariat or in other words this is the reality behind the increase in ‘crime’. Capitalism is a criminal system in that the wealth that the workers produce is stolen from them; this wealth is concentrated in the hands of a group of capitalists and the upper middle classes while the working class is kept in starvation. Such are the current desperate conditions of the working class that every day, more and more of the unemployed give up on ever finding work; thus many more turn to gangsterism and attacks on fellow members of the working class and on the middle classes.  The numbers of people, not working, has grown from 15.8 million in 2001 to 17.4 million in 2005. No amount of ‘spin’ can alter this fact. The false claims by government on job creation reveals that they have no intention of meeting the needs of the working class; on the contrary it shows that the government is absolutely loyal to the needs of the capitalist class and thus to imperialism. As long as capitalism exists in South Africa, unemployment will continue to grow and the desperate, starvation conditions of the working class will deepen.

Of greater concern is the position of the Cosatu leaders, immediately after the radical September 2006 Congress. This Congress clarified to a greater extent the capitalist nature of the ANC and its role in deepening unemployment. The Congress position was contradicted by the Cosatu leaders when they claimed that they were happy with the government’s progress on job creation.  The campaign for Jobs and against poverty, adopted by this September Congress has been turned into a partnership with the ANC as a desperate measure to revive its (the ANC) structures. Thus Cosatu members are being misdirected into reviving defunct structures of a pro-capitalist party instead of building independent working class structures. This is a slap in the face of the Congress delegates.

The Housing crisis

There are a number of areas where the absolute loyalty of the government to the capitalists are revealed. We confine ourselves to the question of housing:

The state has committed itself to spend over R29 Billion on a few stadiums and the Gautrain. This is about the same as the housing budget for the entire country for 2006. This shows that the government is more committed to the profiteering of a handful of capitalists for the 2010 soccer world cup than of meeting the basic needs of the working class.

According to StatsSA (2006) the number of shacks, backyard rooms and flatlets is growing at about 236 000 per annum.  This means that the government has to spend at least R11,8 Billion just to keep pace with the current increases (without even building houses for the existing 3 million families without homes).  However the government is only allocating about R9 Billion each year for new housing developments. The housing budget is about R30 Billion per annum but less than R10 Billion goes for actual housing. What happens to the R20 Billion? Who benefits? In other words, the housing officials enrich themselves, pay themselves huge salaries but when it comes to the homeless, they are told to wait and be patient; if the homeless are lucky they may get an offer of 4 poles, some plastic and a bag of nails.

This means that not only will the current shack and back room  dwellers never get houses but the numbers of homeless is set to increase every year. The stated aim of the so-called Millenium goals of abolishing informal settlements by 2014 is exposed as just another excuse to postpone mass action by the working class. Without a doubt, closer to 2014 the government will come up with new excuses and new ‘plans’ for housing. The government prides itself on granting 300 000 new housing subsidies last year; yet despite this the numbers of informal settlements grew in the same period. The government has helped 300 000 more families become enslaved to the banks, showing that the government is committed to support profiteering from housing. The slow pace of housing delivery also adds to the desperation of the working class and helps drive up housing prices that the banks and construction monopolies benefit from (see our housing pamphlet for further information). Leading ANC members sit on the boards of the banks so it is not surprising that housing delivery is seen on a purely capitalist basis and not based on the needs of the working class.

Asgisa = Gear II

The government claims to be committed to spending R416 Billion in the next period for infrastructure. This will be mainly for roads, ports, telecommunications, electricity and transport; in essence this is a giant subsidy for the capitalists to extend their efficiency in exploiting the working class and to more quickly extract profits from the working class in South Africa. The capitalists have learnt from Gear (Growth, Employment and Redistribution) in that they have now put Asgisa (Accelerated and Shared Growth Initiative South Africa) as a vague vision without clear parameters so that it is less clear what the nature of the programme is. There are a number of common factors though:

  1. Both Gear and Asgisa are based on capitalist stability (in other words, both are based on keeping the working class under control) ;
  2. Both promise that if the economy growth hits 6% that there will be up to 500 000 jobs created per annum (in other words, they claim if the capitalists are richer they will create more jobs);
  3. Both involve real employment cutbacks in the public sector as the infrastructure programme is driven by temporary workers;
  4. Both involve wage restraint or ‘inflation targeting’- in other words workers must accept lower wages while capitalists get higher profits;
  5. Devaluation of the Rand - a supposed ‘more competitive’ exchange rate (ie a wage cut for all workers relative to international prices).

In 2006 the Rand devalued by over 15%. This means that in international terms, the exports brought in to the capitalists 15% more Rands without them having to increase the wages of the workers. Thus in international terms, the entire working class had a real cut in wages by 15%. Contrast this to the capitalists and their puppets in government who receive 30% + increases in salaries and who are thus not affected by the devaluation of the Rand.

The cutbacks in the state social services continues to be a driver of privatization and casualisation. For example, the collapse of public hospitals encourages nurses and other medical staff to moonlight or work for the mushrooming private hospitals. The government is giving over half a Billion Rand to the setting up of private FET colleges, in effect privatizing high schools on a large scale.

What is disturbing about Asgisa is that the union leadership and the People’s Budget Campaign, are critically supporting it, in effect being a conveyor belt for the policies of the IMF to the working class. Workers need to challenge Asgisa and the leadership who are promoting it.

It is no coincidence that the implementation of this massive attack on the working class goes hand in hand with the SA government taking up a seat on the UN Security Council as well as Chair of the G20 (group of imperialist and lackey governments) in 2007. They have proven themselves to be reliable agents of imperialism.

The wage subsidy and the compulsory retirement scheme

The cynicism of the government and their unbreakable alliance with the banks and monopolies is nowhere more clearly shown than their new ‘wage subsidy’ and ‘compulsory retirement’ scheme. The stated objectives of social security funding in this regard, as outlined in the Budget Review (2007) is quite revealing:

  1. The main aim is to lower the cost of employment. In other words, this is a R30Bn annual subsidy to big capital to increase their profits;
  2. The tax base is to increase to include the very poor and informal sector. Thus the street vendor may be forced to surrender 1 sweet in tax for every 10 sweets that he/she sells;
  3. There should be reduced dependence on welfare. In other words, whereas in the past, the few who were lucky enough to live to 60 or 65 were guaranteed a state pension, soon everybody will now be forced to contribute towards this. This raises the fundamental question as to why elections are held. During election periods the capitalist parties promise everything to the poor. To say that the state is above classes and caters for all sections of the population, is exposed as a fraud. Less ‘dependence on welfare’ means the state spends less on the poor while at the same time allocating more funds to the capitalists. Sarkozy (France) and Mbeki are implementing similar anti-working class policies;
  4. There will be a collective pooling of ‘risk’. In other words, the poor will subsidise the rich. As the pension funds are held by the private banks this means that there will be collective exploitation by the banks. Each worker’s contribution will be held in an account by the banks. No worker will have access to the money until (if they live that long) they go on pension. In the years up to retirement, the banks will invest these pension funds and profiteer from it. A fraction of the value will be paid out to the worker at the end. This solidarity with the banks will deepen poverty not decrease it as the worker will have a smaller take-home pay and thus suffering greater starvation. This forced pension contribution will lead to more workers dying before reaching pension age.

According to the UN Human Development Report on SA (2005), the life expectancy in South Africa has dropped from 62 in 1990 to 46 in 2003. This means that most of the working class will not even reach retirement age. What the new retirement scheme does, is to force workers to pay an extra 15% tax, that they will never see the value of. Thus a forced saving will mean a forced 15% reduction in already meagre wages. This will apply to all workers irrespective if they earn R3 , R300 or R3000 or more. The government claims that this pension will be portable. In other words when workers leave a job for another, no payout will be made and the worker will have to wait for retirement to receive a monthly pension. The unemployed and self-employed will be at a disadvantage as their contributions will be low or non-existent.

The government claims that this deduction will be offset by a wage subsidy. But this subsidy is not paid to the worker but to the capitalist.  If the worker earns R1200 per month then the boss gets a subsidy of about R400 per month. Thus the boss only pays R800 per month per worker while the rest , the R400, is paid by the state. If the wage is R1250 per month then the government pays its biggest subsidy, namely R420. This means that the bosses pay only R830 per worker and the rest is paid by the state. For wages less than R1200 per month the state only pays 1/3 (one third) of the wage. For example, if the worker’s monthly wage is R600 then the state pays R200 and the boss pays R400. Also if the wage is R300 then the state pays R100 while the boss pays R200, and so on. For wages above R1250 but less than R3750 per month, the subsidy decreases from R420 to 0. For example, if the monthly wage is R2000 then the state pays R290 and the boss pays R1710; also if the wage is R3000 per month then the state pays R125 per worker while the boss pays R2875, and so on. For wages of R3750 and above the state pays no subsidy to the bosses.

The government argues that this will encourage bosses to raise wages to R1250 per month. But whatever increase in wages take place, in effect will be taken back from the worker by the forced pension contribution. This means that if on paper the workers earns R1200 per month, s/he will take home R1020 and the only party benefiting will be the capitalists. The workers will have an illusion that they are ‘better off’ but many will not even live to see the fruit of their labour. There is also a danger for whoever earns above R1250 per month. The bosses will be inclined to retrench workers and hire others at the R1250 monthly rate. From the past track record of the capitalists a whole new industry of ‘ghost workers’ will be born (the capitalists will lie about how many workers are employed and claim subsidy for these non-existent workers) – how will government check whether the workers actually are employed by the capitalist?

In addition to this, the existing 13 600 private pension funds will continue to function; private pension will be paid in addition to the ‘government pension’, which will encourage workers to increasingly turn to private pension funds as the level of ‘government pension’ is likely to be as inadequate as the current one is. The new compulsory pension scheme amounts to the privatisation of the ‘government pension’. The banks will benefit from holding the individual pension accounts of workers as well as profiting from the private pension schemes that workers will be forced to turn to. This is in line with the state taking less and less responsibility for the needs of the working class.

In addition to the new wage subsidy and compulsory pension scheme amounting to a giant privatization exercise, it also amounts to an ‘empowerment’ deal that gives a section of the black middle class access to Billions of Rand in pension funds at the expense of the broader working class. Before 1994 the National party used their access to the state pension funds to make loans to buy weapons and for other measures to suppress the working class. We are still paying for this today. Now the ANC will build up a state pension fund, using their access to it to fund BEE deals and if need be to also fund the suppression of any working class uprising.  Workers are being forced to contribute to their own exploitation and suppression.

Such a scheme is a result of the black middle class being confined to the crumbs from the table of the monopoly capitalists. With limited opportunities for the black middle class to take up positions as exploiters (there are few new developing industries), the ANC has come with a new scheme to get access to workers’ savings while at the same time delivering the pensions of the working class into the hands of the banks (State funds are held with the 4 major banks and workers will be forced to save on their own to boost their pension).  Their loyalty to big capital is absolute; the working class are being sacrificed in the name of ‘social solidarity’.

Again, the People’s Budget Campaign (PBC) and the Cosatu leadership in particular are not only silent about the dangers of this new attacks on the working class but are actively taking part in discussions to shape it.  They are giving political legitimacy to the coming attacks on the working class. The People’s Budget Campaign (PBC) are indeed ‘focusing on the structures that perpetuate poverty’-  they are strengthening the attack on the working class by giving the state guidance on improved methods of presenting capitalism with a friendly face. No wonder the PBC are funded by imperialism (through the European Union) and state organs that enforce capitalist inequality (the Commission on Gender Equality and the Human Rights Commission).

Other underlying capitalist features

  • Food prices are linked to the dollar (in other words, the prices are artificially increased to raise profit levels for international monopolies- see our  article on Inflation)
  • Land redistribution (30%) will occur on a capitalist basis – in other words the exploitation of farmworkers will continue on the ‘redistributed’ land;
  • Labour costs have dropped by 40% since 2002 (massive profits for the capitalists)
  • From 2002 to 2005 returns on equity investments has increased by 300% (massive increase in capitalist profits)
  • Infant mortality has increased from 45 per 1000 to 53 per 1000 children dying at birth (1990 to 2003)
  • The number of children under 5 dying has also increased from 60 to 66 per 1000
  • From 1995 all non-resident capitalists could freely repatriate dividends and profits (imperialism’s right to profit immediately is absolute but the working class are told to be patient and wait for 2014 for half measures)
  • R32 Bn in loans were taken to finance the arms deal (these loans will have to be repaid over many years and also increase the tax burden on the working and lower middle classes)
  • The poverty line is sure to become another mechanism for the state to hide poverty as well as a means to artificially show ‘progress’. According to StatsSA all people receiving government pensions are living at the upper level of poverty – the aged are kept in poverty while the capitalists are guaranteed profits! (the very poor cannot afford bread but, says the government, a least the pensioners can afford dry bread)
  • An ‘empowerment’ deal for the health sector, similar to the compulsory pension scheme, is also being planned by government and critically supported by the People’s Budget Campaign (another compulsory deduction on the way)
  • More prisons are being built, more courts and police are being planned and judges and magistrates will get an extra R1Billion. Intelligence forces also get increases. This means that the state spying on activists and frame-ups and arrests such as of those of the Kennedy Road 5 are set to continue and become the norm
  • Billions are being set aside for military support to imperialist plans in Africa. The RDP fund is used as a channel for military funds from imperialism for expeditions in Africa ( SA troops for Darfur, DRC, etc)
  • Current debt to big banks stands at R470 Billion and interest payments alone amounts to R56 Billion each year. (further evidence of the open solidarity between the government and the banks)
  • Workers will be worked harder as the government has capped compensation for death at work to R300 000.
  • Direct exploitation of workers at Telkom, Acsa and other parastatals through part ownership by international capital
  • 3.6 million more mzantsi accounts enable the banks to increase their base for exploitation of poorer sections of the working class (in the light of continued high bank fees, the SACP campaign for more bank accounts shows their real alliance with the banks)
  • Tax benefits to the upper middle class and capitalists. These funds (amounting to about R80bn each year)could have been used to create permanent jobs, to build houses , etc.
  • 10% share in the trading of diamonds to a so-called state diamond company shows that the ANC has been bought off by De Beers /Anglo American to continue to trade with Israel (where most of the world’s diamonds are cut and polished). The government is in alliance with Anglo-American to support the artificial division of the working class in the Middle East.


The capitalist nature of the budget, identified in previous articles in Workers International News (2003, 2004, 2005) not only continues but shows an increasingly desperate situation for the working class, while the monopolies and imperialism continue to profit at a level not achieved before in the history of South Africa. What the budget continues to demonstrate that the fight for Socialism in South Africa is an international question, needing the successful struggle of the working class in the imperialist centres as a precondition for sustaining a worker’s state in South Africa.

In the face of the solidarity of the ANC, the SACP and Cosatu leadership, with the banks and the giant monopolies, we need to unite the working class in South Africa, Africa and indeed the world. What we need is a working class party in South Africa as part of a revolutionary international, the rebuilt Fourth International. We call on workers everywhere to resist the capitalist-imperialist budget and the state. Let us unite across union affiliation. Workers of the world unite! We have nothing to lose but our chains!


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