The Creation of GEAR

That was the global economic environment South Africa faced after two decades of economic isolation under the apartheid government. Nelson Mandela and the ANC leadership believed the country had to move in this globalized neo-liberal direction to meet its economic growth and development objectives. As stated in an ANC discussion document, “South Africa must resist the illusion that it can elaborate solutions that are in discord with the rest of the world.”36 The document goes on to say that South Africa should abandon “command economics and take on board the globalization of trade and financial markets”.37

It was that conceptual framework that informed the government’s macroeconomic policy—Growth, Employment and Redistribution (GEAR)—which became the macroeconomic plan of the South African government in 1996 and represented a significant shift from the RDP.

This change to lower government expenditures, smaller deficits, deregulation, privatization, and minimum state intervention was seen as a clear move toward more neo liberal economic policies with an emphasis on a market-based economy with little government intervention.38

Unlike the RDP and other previous documents, GEAR did not mention reducing inequality as a policy goal. Its focus was on cutting back government expenditures, maintaining private and public sector wages, implementing tariff reform, and increasing the country’s economic growth rate by an average of 4.2 percent between 1996 and 2000.39 The shift to a neo-liberal approach led to the creation of a new Department of Finance and the formation of policies that tended more toward fiscal austerity and less toward the redistribution policies originally stated in the RDP. Those fiscal austerity policies were accomplished through deficit reduction, expenditure restraint, and tight monetary policies, along with trade liberalization. The transition from RDP to GEAR took approximately two

40

years.

Why did the government move from a redistribution and equity approach, as found in the RDP, to the neo-liberal economic approach? Once in power, the ANC had to move from the policies of a resistance movement to those of a government. That required an open dialogue with other interest groups within and outside the county, including international organizations and the governments of major industrialized nations. Those groups often pressed the new government to acknowledge that the world was operating in a global economy and that South Africa needed economic policies that would appeal to international capital markets.

The government positioned GEAR with policy makers and the public as an integrated strategy for building and restructuring the economy that was ultimately in keeping with the goals set in the RDP. Its main assumption for that integrated strategy was the belief that sustainable growth at a higher level required the country to pursue a competitive outward- oriented economy. In order to accomplish that, the administrators of GEAR proposed an accelerated program of privatization, deregulation, and fiscal restraint to help to attract foreign investors.

Members of the governing party’s alliance partners—COSATU, SACP, and others—criticized the South African government for moving from the original RDP to GEAR, arguing that it was essentially caving in to neo liberal policies at the expense of equity goals. They viewed GEAR an inappropriate policy tool for addressing the country’s socioeconomic and political problems. To such critics, GEAR was a neo-liberal strategy associated with the Washington Consensus—a set of informal rules for instituting structural economic reforms that the International Monetary Fund often uses in developing countries, which, in the critics’ view, limited economic transformation. They advocated for the reversal of GEAR’s restrictive policies and proposed that legislation be passed allowing Parliament to amend the budget to meet the socioeconomic needs of the South African people.41

But, in spite of the strong opposition, the leaders of the new government stood firm in implementing the measures outlined in GEAR. They were able to continue on the neo-liberal path despite such opposition in part because they had insulated the National Treasury from political pressure. In fact, former Minister of Finance Trevor Manuel was a strong advocate of GEAR and former President Thabo Mbeki one of its main architects. Nelson Mandela also offered his continuing support for GEAR.42

By sticking to the fundamentals of GEAR, the South African government was able to bring macroeconomic stability to the country, unlike many of its neighbors on the continent that have struggled in their postcolonial existence. South Africa has avoided some of the pitfalls of some developing countries like Zimbabwe, where an unbalanced spending cycle led to financial collapse. That government’s vastly increased spending on social services in the 1990s created a ballooning budget deficit, which it financed primarily through monetary expansion. The massive inflation that ensued left many Zimbabweans unable to pay for basic goods. In the end, the very people whom the government was trying to help through redistribution policies were hurt.43 In contrast, the South African government has consistently emphasized that sustained economic growth was a necessary and vital condition for its transformation.

 
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