Mandela and his economics

In the days when Mikhail Gorbachev was president of the Soviet Union, engaged in his policy of glasnost and disarmament, for which he won the Nobel Peace Prize, he used to have a feisty press secretary who, asked about the deteriorating economic situation, replied that his boss didn’t win the Nobel for economics.

Could he have said the same about Nelson Mandela? Yes and no. Yes, when Mandela first came out of jail when he talked of the need for massive nationalisation and forcible wealth re-distribution. No, when president, having learnt a thing or two about what had been going on in Africa, he began to preach another message. He saw that most of black Africa had adapted “African socialism”. This, together with dictatorships and maladministration, had led to decades of rising poverty. Even in Tanzania, where the benign leadership of the sage-like, incorruptible, Julius Nyerere, gave the country a spirited sense of emancipation, the economy eventually lost momentum as Nyerere pushed socialist shibboleths.

Mandela told the African Union that “the fault lay not in our stars but in ourselves”.Now president of a multiracial state, he realized that old-school, top-down, socialism could not work if his country was to progress.

Round about the same time other African countries got the message too. Today Africa has some of the fastest growing economies in the world. Mobile phone sales, a useful indicator, are growing much faster than in any other continent.

When Mandela became president he took over a country that had been battered by sanctions. The rate of economic growth for years under white rule had been mediocre and inflation was a high 14% a year, the budget deficit was 8% and interest rates were 16% – businesses could not afford to borrow.

Quite quickly he and his economic advisors got the economy going. Inflation fell to 5% over the next decade. The deficit fell to to 1.5% and interest rates dropped to under 9%. Foreign investment rushed in.

Under apartheid exports had been a very modest 10% of total output. They are now up to 25%. The economy has doubled in size since the onset of black rule, growing at an average of 3.2% a year compared with 1.6% a year in the last eighteen years of white government.

Thanks to the pace of economic growth tax revenues have doubled and the Mandela government knew where to spend it. The government went into high gear to bring electricity, drinking water, sewerage, primary schools and health clinics to much of the massive shanty town population. The proportion of Africans living on the UN minimum income of $2 a day fell from 12% to 5%.

But there were a number of important things that Mandela and his successors have failed to make much progress on. A majority of workers in jobs have seen their incomes and spending power rise but workers in the most menial and unskilled jobs have done badly. High youth unemployment is the most worrying failure.

A country that long has had one of the world’s worst distributions of equality has seen no improvement. Indeed, some economists say it has worsened. A black elite has been created, partly because of Mandela’s policy of “black empowerment”, when the white business sector was pressured to give a few thousand blacks a cut of its pie, putting them on the board of companies and giving them shares at knock down prices. Besides that, many blacks, pulling at their own bootstraps, have heaved themselves into a comfortable middle class life, joining the whites in their posh, well-protected suburbs and driving the same luxury cars. Is it surprising that among the poor there has developed a “culture of envy”?

Growing income disparities have worked to justify crime. Seeing or at least knowing about the lifestyle of the white and black middle class, young men in particular work to grab what they cannot earn. The murder rate shot up. (It is now coming steadily down.)

At the same time, to Mandela’s dismay, corruption spread its tentacles – too raw a capitalism engenders this. Top office holders in the ruling party, the African National Congress, have a finger in all sorts of scams and deals.

Last but not least of the problems is the paucity of progress in land reform. Given the right backup- as was done in Taiwan and South Korea- this could transform the livelihood of large numbers of rural poor.

The South African economy is work in progress. It is not doing as well as other African countries, like Tanzania and Nigeria. It has been hit by troubles in the mining industry- declining metals’ prices and severe labour unrest. Today the political leadership is not good. Nevertheless, compared with the pre-Mandela days, an enormous amount of progress has been made. That is a part of his extraordinary legacy.