Madibanomics – Assessing the economic legacy of Nelson Mandela

Reading Time: 10 minutes

Nelson Mandela’s conversion from
socialism to capitalism was a dramatic ‘road to Damascus’ moment, and it is
perhaps a strong testament to his leadership that – as a man in his 70s – he
was willing to change his mind. He walked out of prison preaching
nationalisation. In case there was any confusion about his policy after his
release from prison, he released a statement insisting “the nationalisation of
the mines, banks and monopoly industries is the policy of the ANC, and a change
or modification of our views in this regard is inconceivable.” Political
leaders like Margaret Thatcher thought he was stuck in a socialist time warp
and tried to change his mind. However, it took a meeting of business leaders in
Davos at the World Economic Forum in 1992 to make the penny drop. This is how
he described it to journalist Peter Sullivan:

“I came to Davos convinced I would explain to these rich business people
why it was essential for South Africa to nationalise the mines. They had a
dinner where they listened to me very politely, before explaining to me exactly
what would happen if we carried out the plans we made in prison. I went to bed
thinking while I had been out of the real world for 27 years, things had
changed. Nobody told me I was stupid. But I could see that they thought I was
not very clever. I woke up the next day and realised nationalisation would be
the wrong policy for my country.”

Mandela’s legacy as a
visionary leader, reconciler and nation builder will be undisputed for years to
come – but because of this history his economics has always been more contested
and contradictory ground. Some would love to highlight the radical vision he
began with that would see the mass redistribution of land, business and wealth,
but they can’t hide that his final choice was free market policies that, for
many, were promises that never delivered. The fact is that South Africa remains
one of the most unequal societies in the world. Others could argue that his
economic liberalism set the country on the right path, but was held back by
labour protections right from the start. So he will continue to thwart those
who want to harness his economic legacy for any specific cause.

His original vision was
of an interventionist state that would redistribute wealth to black people who
had been excluded from the economy for decades. The ANC also thought that
business should play ball, but by the time Mandela was elected, it had softened
its stance on foreign investment. Rhetoric around ‘conditions’ for investment
were dropped in favour of a vague suggestion that there would be special
arrangements for companies that helped South Africa achieve its development

Mandela had emerged
in a new globalised world where the Washington consensus held sway and the fear
of capital flight was strong. He felt his hands were tied. Local investment had
been declining and the ANC wanted to encourage the influx of foreign capital to
aid reconstruction, to strengthen the manufacturing sector and spur economic
growth. It also recognised in the Reconstruction and Development Program (RDP)
that the growth of exports, especially manufactured goods, was going to be
crucial to the country’s success.

The ANC was handed a
pile of debt which certainly limited Mandela’s room to manoeuvre, but the
question that’s been posed is did he go too far to appease the ‘neoliberal’
rulers of the world, at the expense of development. In 2000 academics Adam
Habib and Vishnu Padayachee argued that, to repair the economic ravages of
apartheid, he actually had more weapons arsenal than he chose to use,
especially because South Africa was not beholden to the IMF or World Bank.

On paper the RDP
advocated growth ‘through’ redistribution. There were attempts to guide capital
towards greater inclusivity with new labour legislation and the setting of
minimum wages. However, most of the early economic moves courted capital, such
as the slashing of import tariffs and exchange controls.

The Coup de

1996 was the year the
government outlined its economic stance in a report titled ‘Growth, Employment
and Redistribution (GEAR), and many believe the year that marked the death of
the vision of a ‘developmental’ state. A program of privatisation, deregulation
and budget restraint was accelerated. A target was set to bring down the budget
deficit to a mere 3% by 1999, which clearly put a cap on social spending for
the poor. The hope behind GEAR was that, if government allowed the
private sector to take the reins of the economy, the wealth effects would
naturally ‘trickle down’ to the poor masses.

Deputy President
Thabo Mbeki championed GEAR although he maintained that the redistribution
program had not been abandoned. Scholars ever since have been arguing whether
GEAR was a radical departure from the RDP or simply the next instalment.
Workers were still protected by legislation and government passed new laws to
break racial inequality through Affirmative Action and Black Economic
Empowerment. However, many maintain that the state was now confined to creating
a few black elites.

Mbeki’s agenda, which
was further advanced during his presidency, had been endorsed by Mandela. By
the time Mandela stepped down the policy of the ANC – as he insisted in 1997 –
was privatisation. His legacy therefore was to almost completely hand over the
reins of the economy to business.


The problems the
economy faces right now are startlingly similar to those at the dawn of
democracy. While the different strains of economic thought within the ANC will
continue to confuse business, there does seem to be a trend that veers away
from Madiba’s legacy, whereby the state is asserting its clout by making
decisions that defy international rating agencies and financial organisations
to a degree.

Instead of seeking
buyers for SAA as Mbeki did, the government drones on about SAA being a
‘strategic asset.’ It’s also been assertive and used its majority stake in
Telkom to pull the plug on a deal with Korea’s KT Corporation. Government has
suggested that it could become more assertive in land redistribution and, while
the nationalisation debate has died down, at Mangaung the ANC still asserted
the right of the state to ‘increase ownership in strategic sectors where it
deemed it appropriate.’

GEAR set very low
targets for budget deficits. Now, however, despite the concerns of rating
agencies, the state is also asserting its right to take on more debt and extend
grants to the poor. It’s also pushed for conditions attached to foreign
investment like the Walmart purchase of Massmart.

The new South African
state is hands on. .

The justification for
greater state intervention is easy to find. Years of tight budgets made South
Africa more resilient to the financial crisis, but growth has not ‘trickled
down’ and social grants are a lifeline for millions. The country has attracted
investment but some of its best companies have also re-orientated overseas and
listed in London. The Rand is buffeted by the whims of global investors. Export
led growth is a chimera in the face of rising imports and a growing current
account deficit. The decline of the manufacturing sector has been lamented as

Since 1994 the
financial, retail and services sector has grown much faster than manufacturing,
but these sectors cannot absorb the multitude of unemployed, unskilled South
Africans; the problem of so-called ‘jobless growth.’ Government is worried
about the vulnerability of an economy that doesn’t make ‘things’ any more, and
the Minister of Trade has cited the case of Cyprus that was built up over years
on the back of financial services, and seemed to collapse overnight.

Confusingly, while
Minister Rob Davies has launched a series of plans to stimulate manufacturing,
the ANC has adopted the National Development Plan, that isn’t focused on labour
intensive manufacturing at all, and seems to reject a protectionist stance for
the sector. It focuses rather on services where South Africa is competitive
already and stimulating small business. The plan is in line with the ‘third
way’ that Mbeki (and Mandela in practice) adhered to, which attempts to harness
the power of the private sector to redistribute wealth. However, the NDP calls
for a stronger state and recognises that the hands-off approach after GEAR
means that opportunities to support business, to ‘crowd in’ private investment
with infrastructure development, were lost. There is a sense of sadness as it
reads ‘South Africa has missed a generation of capital investment in roads,
rail, ports, electricity, water, sanitation, public transport and housing.’

There are many who
are dismayed with the current trajectory and who desperately want NDP
recommendations to be implemented. They aren’t as worried about state intervention
(which has become more common everywhere) as a lack of practical
considerations. The welfare states of the Nordic region have enhanced equality
with high taxes and spending on health and education, but they have also helped
to incubate some of the freest markets and innovative businesses. South Africa
has done the opposite; it has increased the burden for business and created
restrictive labour laws, has dismayed investors with policy flip flops, and its
failure in healthcare and education is keeping the poor in chains.

There are still
polarised debates in South Africa about private versus public ownership which
are in fact outdated. For a long time economists have rather been assessing on
who is best equipped to run companies and public services (even Norway and
Denmark, the traditional models of ‘welfare’ states use private firms to run
public hospitals). This simplifies the debate in South Africa because there is
no doubt that this is the wrong kind of state to be trying to expand
ownership. Corruption has been rising. Government cannot be relied government
cannot be relied upon to deliver textbooks and even worse, it can be
relied upon to play a blame game that leaves no one accountable for massive
failures. The ANC leadership itself has recognised that the ‘politicisation’ of
the public service is hurting delivery. In the face of all these challenges
surely the private sector should be controlling the mines and arguably SAA,
Eskom and Telkom too.

The National
Development Plan is a return to the vision of the state that Mandela originally
held close to his heart. The rhetoric is around a ‘developmental’ and
‘transformative’ state that upholds the dignity of all South Africans. However
it now recognises that a true developmental state needs to be run by skilled
administrators who don’t just seek to expand their influence, but carefully
target their intervention to unleash, rather than bind, business. If it’s
implemented carefully perhaps we can once again embrace a form of madibanomics
– just better.




/* Style Definitions */
{mso-style-name:”Table Normal”;
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-bidi-font-family:”Times New Roman”;

Tuesday 28 January 2014 18:53