Written by Newton Masuku and Trevor Shaku
In what is considered the normalisation of the policy rates to the pre Covid-19 levels, the chairman of the US central bank (The Federal Reserve) Jerome Powell has increased US interest rates for the seventh time this year (November 2022) and has indicated the possibility of yet another increase in the future. The Fed is raising rates to fight a burst of inflation that has engulfed the global economy as countries opened their economies following Covid-induced lockdowns and accelerated with Russia’s invasion of Ukraine.
Following Powell’s recent rate increase, global currencies are decreasing in value as speculators and those who profit from bonds, shares, stocks, etc ditch other currencies in favour of the US dollar. The US dollar is up by more than 20% to date against both the British Pound and the Japanese Yen. This is a record low for the British Pound against the dollar. In addition to the Pound, the Euro, the Chinese Yuan, the Indian Rupee, and many others have all declined in relation to the US dollar.
In response, the central banks of South Korea, Chile, India, and Japan have tried to defend their currencies without raising rates – for fear of triggering a recession. These central banks have instead tapped into their dollar reserves and bought back their respective currencies on the forex market in a desperate effort to prevent devaluation. In the most dramatic expression of this defence mechanism, The People’s Bank of China instructed all state-run banks to prepare to ditch their dollar holdings in favour of the Yuan. Other central banks, like the South African Reserve Bank (the SARB), have simply raised rates in tandem with The Fed.
This situation has flipped the logic of currency wars on its head. Throughout the history of capitalism, countries have always sought to devalue their currencies to cheapen exports, but now they are scrambling to infuse their currencies with value as they struggle to keep pace with the now buoyant dollar.
When Covid- 19 finally hit South Africa, the South African government imposed a hard lockdown, carried out with sheer brutality, to curb the spread of the then unknown Coronavirus. And as it was clear that the economy would be mostly shut for the duration of the lockdown, the South African government hurriedly assembled makeshift policies to prevent businesses from going bankrupt. In defence of the banking sector, the makeshift policies took the form of massive bond-buying and the cutting of interest rates by the SARB.
However, as Covid-19 subsides, most countries – including South Africa – have completely opened their economies. But as world economies open, they’re confronted with inflation, which the orthodoxy attributes to supply chain bottlenecks and excessive liquidity caused by both covid -19 lockdowns and Russia’s invasion of Ukraine.
Given how the international monetary system is organised, and the Fed’s continuous rate hikes, the SARB has certain demands imposed on it. That is, with the dollar as the base currency of world trade, and the liberalization of the financial and capital markets as prescribed by neo liberal theory, the SARB finds itself with little choice but to tail the Federal Reserve and hike rates.
THE SARB TAILS THE FED
It is important to note why most central banks around the world, including the SARB, are using rates to fight inflation. The use of interest rates to fight inflation is premised on monetarism – the bedrock of neo-liberalism. This theory was best captured by one of its fathers, Milton Friedman, when he quipped “inflation is always and everywhere a monetary phenomenon.” By this he meant inflation always and everywhere results from excessive money supply. Hence, the commonly accepted but misleading explanation of inflation as “too much money chasing too few goods”. So, the use of interest rate hikes to fight inflation is underpinned by this logic: the need to reduce the money supply in circulation.
The transmission mechanism supposedly works by deterring the extension of credit. By raising interest rates, the central bank increases the price of money and thus discourages borrowing. The consequence is reduced extension of credit and hence the money supply.
But capitalism runs mostly on credit. So, central banks raise rates induce defaults, bankruptcies, and retrenchments to diminish purchasing power in the economy. That rate increases result in defaults and retrenchments is not an unintended consequence but the aim of the neoliberals. It’s how they fight inflation. Their method rests on NAIRU – the non-accelerating inflation rate of unemployment. In differing with the Keynesians, who basing their analysis on Phillips Curve believe there could be trade-offs between employment and inflation; the neoliberals believe there is a certain level of unemployment that cannot and should be eliminated if inflation is to be avoided. Put differently, a certain level of unemployment is necessary if the economy is to avoid inflation. So, to keep prices within the “acceptable” level, the SARB, in the South African case, must use high interest rates to induce unemployment. In other words, central banks intentionally cause credit defaults and bankruptcies leading to retrenchments and unemployment to reduce inflation.
That is how the SARB proposes to fight inflation: by impoverishing the working class. Unemployment, and even a possible recession, is deemed a necessary evil if the economy is return to full health. Hence the SARB’s Lesetja Kganyago and his US counterpart, Jerome Powell, urge the working class to endure the “necessary pains of fighting inflation”.
Few mainstream analysts have decried the SARB’s interest rates increases. Others have argued that high rates spell trouble for the already struggling South African economy. Rate hikes, they cautioned, will lead to defaults and bankruptcies, retrenchments and loss of purchasing power and, ultimately, a recession. All of which South Africa can ill-afford. The analysts further argue that the current burst of global inflation results not from the demand side, but the supply side and it is therefore senseless to fight it by raising rates.
While the arguments of the analysts appear sound, they however downplay how the international monetary system is organised and the ANC-led government’s commitment to neoliberal capitalism. That the international monetary system is conducted mainly in dollars, coupled with liberalisation of the capital markets per the neo-liberal doctrine, imposes certain conditions on the SARB if it is to fulfil its mandate of price stability. For instance, South Africa is a net importer of goods and, with the dollar as the base currency of global trade, a weak rand implies expensive imports. It then becomes necessary for the central bank to maintain an exchange parity with the dollar within a certain predetermined band.
Through its army of analysts, experts, and the megaphones of capital, the bourgeois media reports daily on the Rand’s exchange rate with other currencies. But for all its daily reportage, the media hides the forces that drive the value of the rand in relation to other currencies. Instead, we are treated to “the markets have reacted positively to this or that, or negatively to that and the other factor in the economy”, as the case may be. The language used frames the market as the law of nature to whose whims the working class can only helplessly submit. It therefore becomes necessary to zoom in on the forces that drive the foreign exchange market to understand the SARB’s successive rate hikes.
AT THE MERCY OF THE FOREX TRADERS, SWINDLERS AND SPECULATORS
The market is a place, physical or virtual, where articles of commerce are bought and sold. In another sense, however, the market is the outcome of collective buying and selling – hence the saying, “the market responded in this way or that” to goods and assets being sold. With respect to currencies, the market is the buying and selling of money itself — the foreign exchange market (i.e., the forex market). This market is possible and necessary because global capitalism consists of nation states each of which has a currency of its own. When trading with other countries, each country only accepts its own currency for its goods and services. For example, if country A wishes to buy oil from country B, A must use its own currency to buy country B’s currency before it can buy B’s oil. This is the social basis for the forex market. The outcome is an international monetary system based on national currencies whose values fluctuate relative to one another.
According to bourgeois economics, national currencies derive their values from imports and exports of goods and services, and investment in production. Put differently, the strength of a currency is a function of the productive economy’s performance. That is, those abroad who wish to buy South African produce will have to convert their currencies to the rand in order to buy SA goods. This drives up the demand for the rand on the forex market and thus the value of the rand in relation to other currencies. But this simple explanation by bourgeois economics does not hold. Instead, it is currency speculation that accounts for 95% of the foreign exchange market. That is, it is the currency traders that determine the exchange rate of currencies. These are institutions and individuals that profit from buying and selling money itself.
Moreover, if mainstream story were true, then speculative attack on a currency – that is, short selling – could not be explained. This is a process in which a speculator borrows money, say in rands, converts it to another currency, say the dollar, on the forex market. The result is an increase in the supply of rands, while reducing the supply of dollars, on the forex market and thus devaluing the rand in relation to the dollar. The speculator then buys back the devalued rand with the dollar, pays back the lender, and pockets the difference. Easy profit. It is for fear of this that central banks hoard huge sums of dollar reserves to defend their currencies against such speculative attacks. For instance, Japan has dollar reserves to the tune of $1,17 trillion; while China is the biggest holder of US treasuries ($3 trillion) – which is but Chinese Savings Account at the Fed. The SARB, on the other hand, holds $58 billion of US dollar reserves for this purpose.
Therefore, Kganyago’s aggressive rate hikes in line with the Fed, aim not only to combat inflation but to also avert unfavourable flow of capital. Because currency traders are sensitive to and profit from interest rate differentials between different currencies, if after the Fed has raised rates, the SARB does not raise SA’s rates in tandem with the Fed, then capital will flow from SA to the US where there is maximum return. That is, speculators will simply borrow money in South Africa at a low rate and invest in the US where returns are higher and pocket the difference. The result will be the devaluation of the rand in relation to the dollar. And since South Africa is net importer, and, moreover, since global trade is conducted in dollars, the devaluation of the rand in relation to the dollar will result in expensive imports.
In addition to incentivising the traders to retain the rand, the SARB traces and tails the interest rate moves of the Fed to attract and retain Foreign Direct Investment (FDI). South Africa has always kept interest rates high and has deregulated capital and financial markets to court FDI – i.e., investment in stocks, bonds and other forms of fictious capital.
SPECULATION AS ACCUMULATION: A SOCIAL BASIS
The capitalists now prefer speculation as the method for money-making under the current neoliberal capitalism. This is partly because of low profitability in the productive economy and partly because of the incredible developments in communication technology. Advances in information technology enable money capital to move through the globe at incredible speed in pursuit of maximum profits. Moreover, through information technology, currency values in relation to one another are known in real time, enabling speculators to profit from their fluctuations. However, information technology did not create speculation. Rather, the seeds for hyper speculation were always latent within the fabric of capitalism awaiting technological development to set them free. To see this, it is necessary to make a slight detour and summon Karl Marx to our aid.
In the first volume of Capital, Marx presents the formula for capital as M-C-M’. That is, the capitalist begins with a sum of money, money capital, goes out to the market, purchases labour power and the means of production (machines, raw materials, etc), productive capital, and retreats from the market into the realm of production. Once there, he produces a commodity imbued with surplus value, commodity capital, and then returns to the market to sell it and realise surplus value in the money form. The important take away here, is that capital takes on different forms as it journeys to the realisation of surplus value created in production. That is, money capital, productive capital, and commodity capital.
It must be noted that the capitalist has no interest in the production of goods and services as such. Neither does she engage in the production of commodities as an end in itself. Nor does she engage in production to provision society with goods and services for use. Rather, the capitalist engages in the production of commodities as an inconvenient means to the realisation of profit. But, as Marx points out in the second volume of Capital, the path to profit making is fraught with difficulties that the capitalist would rather avoid. The capitalist may arrive on the market, for instance, to find that there is no labour power and or the means of production requisite for the commodity he wishes to produce. Or he may successfully produce his commodities only to arrive on the market and find no buyers.
It is for the above reason that appeals to the capitalists by the ANC-led government (through investment summits, etc) to invest in the productive economy are naïve and futile. For instance, an argument is often advanced that if only capitalists invested in the productive economy instead of speculative activities, then all would be well. Goods and services would be produced, people would be employed, the economy would grow, and we would all be prosperous. This argument, unfortunately, is misguided. It misses the guiding rationale of profit-making – i.e., the path of least resistance. That is, capitalists will choose the path of least resistance to profit making. The much complained about “investment strike in the productive economy” (the much cried for R 1.4 trillion hoarded by capitalists in SA) can only be explained by this logic. Since the essence of capitalism is not only to make profit but to also maximize it, then it can only mean it is currently more profitable to hoard capital in the money form than to have it as productive capital. No amount of pleading, begging or condemnation will get capitalists to invest in a less profitable, riskier and more uncertain sector of the economy when the path of least resistance in the form of finance presents itself.
In addition, the incentive to speculate in currencies and the reliance on returns from financial instruments for profits by the capitalists, makes more sense when one considers that of the three forms of capital, money capital is the most mobile. And since capital is value in motion and, moreover, since capital accumulation must proceed at an ever-accelerating rate without interruption, money capital is the most preferred form of capital. That is, money capital is more mobile than commodity capital and productive capital. For instance, goods are usually produced in one corner of the world and consumed in another, and this whole process takes time and requires transportation. The movement of labour power, too, embodied in people, is subject to delays, impediments or outright blockages by the logic and requirements of the nation states such as passports and visas. Money capital, on the other hand, aided by the astonishing advances in information technology, requires a mere push of a button.
Most crucially, money is the universal equivalent and therefore all commodities exchange for it. Thus, the movement from money to more money (M – M’, to use Marx’s notation) without the intervention of value production is less risky and thus preferable to assembling production for value creation. All these characteristics combine to make money capital the most dynamic and convenient of all forms of capital. Hence the innovation of complex derivatives which denotes a claim on future value production, or fictitious capital as Marx calls it, has increasingly become the means through which capital accumulation proceeds. It is this logic of capitalism, coupled with the low profitability and the greater risks associated with the productive economy, that makes speculation in currencies attractive for the capitalist.
THE NEOLIBERAL COUNTER-REFORM: PAVING THE WAY FOR SPECULATORS AND SWINDLERS
The neo-liberal revolution followed on the heels of the crisis of Keynesianism, when Keynesian ideas which had been the orthodoxy since the end of World War Two, were discredited by the capitalist crisis which took the form of stagflation in the late 1970s. The neo-liberals moved to dismantle the relics of the regulatory framework that had since been erected by former president of the US, Franklin D. Roosevelt, to prevent the repeat of the Great Depression. The welfare state was attacked. And the new mantra became – deregulate, liberalise and privatise. In addition, the collapse of the Bretton Woods agreement, heralded when Richard Nixon took America, and with it, the world, off the gold standard, opened the door for hyper speculation in currency trading. Money was unmoored from a physical commodity, Gold, and currencies began floating against each other.
Through the international financial institutions – the IMF, the World Bank and the WTO – the new orthodoxy was spread throughout the world. But as profit-making through the productive economy was barred, capitalists sought other means to quench their insatiable lust for profits. It was at this point that banks, aided by developments in the means of communication, began innovating exotic financial instruments for profit making. It was the era of Asset Backed Securities, Collateralized Debt Obligations, Commodities Index Funds, etc. Investment banks and Hedge Funds marketed and sold these exotic products to pension funds, sovereign wealth funds, trade union investment arms and even ordinary non-financial corporations that sought to pack their money at a profitable return. These were beginnings of what was to be the great financial crisis of 2008/09.
To be sure, financial instruments have been a constant feature of the historical evolution of capitalism. Some instruments, like forward contracts, even predate capitalism. Thus Marx, in his third volume of Capital, deals extensively with the bill of exchange – a form of financial instrument then in vogue. These instruments are made necessary by how capitalism as a mode of production functions. Because capitalism is a socially unplanned, for-profit system, in which what is produced is not guaranteed consumption, uncertainty and risk are built into it. Stocks and bonds, and all other exotic financial instruments – futures, forwards, options, Credit Default Swaps, Collateralized Debt Obligations etc – have as their basis to hedge against risk and uncertainty inherent in capitalism. But the proliferation of financial instruments as the preferred means to capital accumulation is uniquely neoliberal.
But this form of profit making needed a good story to sell it. And there is indeed a good and enticing story sold to the ANC- led government. The story goes:
capital, in both its money and commodity form, must be allowed to roam the planet freely. This increases efficiency, and hence growth, as capital is not impeded in its movement to areas that are profit maximizing. (As an aside: efficiency under capitalism does not refer to high quality goods or services but profitability). Thus, with respect to money capital, the proponents of the neoliberal doctrine further argued that the swift and easy movement of money in and out of a country facilitates investment and thus growth. Foreign direct investors (those who invest in bonds, equity, stocks and other forms of fictious capital) would find it easier to invest and this would lead to growth. Foreign direct investment in government bonds, for example, would enable the state to develop infrastructure, while FDI in corporate bonds, equity and stocks would enable private companies to improve productive capacity, hire more people, be more competitive and thus lead to economic growth.
That is the neo liberal rationale for the liberalisation of the capital and financial markets. And the ANC-led government bought into this story wholesale. It has since been its most ardent evangel and has implemented it to the letter. Regulations that had checked speculation in currencies were loosened and, in some cases, removed, unleashing the forex traders onto not only South Africa but most of the colonial world. The deregulation of the financial markets, which allows the swift movement of money capital in and out of a country, is one of the many pillars of the neo liberal framework. It has brought misery to the working class while delivering massive profits to the financiers.
BANKERS’ PARADISE: HEADS THEY WIN, TAILS WE LOSE
Chairman Powell stated that interest rate hikes are a necessary pain for all to go through. He further said he wished there was a painless way to fight inflation but there isn’t. His counterpart in SA, SARB Governor, Lesetja Kganyago, echoed the same view. He argued that the mandate of the SARB, as codified in the constitution, is to protect the value of the rand and to ensure price stability in the interest of balanced and sustainable growth. Moreover, and this the media analysts parrot daily, these supposedly unavoidable pains, which the working class is urged to patiently endure, are necessary to protect the purchasing power of what little money there is in the pockets of the workers and the poor. Interest rate hikes are purported to be undertaken in the name of protecting the working class. The argument is: not only does inflation diminish the value of workers’ wages, but it also stunts growth – for the protection of the rand’s value, the governor reminds us, is “in the interest balanced and sustainable growth”. As the neo liberal chant goes, “without growth, there is no employment,” and this spells trouble for the working class.
Contrary to the claims by Kganyago and his Monetary Policy Committee, we are not in this together. The “we’’ he refers to is fictional. His actions are not class neutral but in service of the financiers. Indeed, the working class has shouldered this crisis long before his bout of rate hikes started. The profits already accrued to the banks since Kganyago started with rate increases last November, on the one hand, and the continued privation of the working class, on the other, testifies to the class warfare the SARB wages on behalf of Finance Capital against the working class. The SARB has not gone rogue, nor is it acting of its own accord, rather its actions are in line with the neo-liberal path the ANC has pursued in earnest and explicitly since 1996 with adoption of GEAR. In other words, the SARB operationalises the overall onslaught on the working class from the perspective of finance.
The interest rate hikes are a means to transfer wealth from the working class to the bankers. They are also a source of impoverishment. Since the SARB started raising rates in November 2021, the number of homebuyers has diminished, while clothes purchases, long financialized as retailers assumed the role of microlenders, has also declined. Without any sense of irony, the First National Bank (FNB) recently revealed that 80% of the middle-income earners exhaust their monthly earnings within five days of being paid, with 65% of the earnings servicing debt.
Banks, on the other hand, have seen their profits soar as wealth is siphoned off from the working class and middle classes to the financiers. In its interim results between Feb and August 2022, Capitec Bank registered 17% increase in profits. While in June 2022, Standard Bank saw its profits rise by 34%. Profits for First National Bank (FNB) increased by 23% for the financial year ending June 2022, and ABSA group generated a 27% increase to its headline earning in its interim financial reports for the first half of 2022. The profits of these banks began rising as the government eased the terms of the lockdown to gradually open the economy.
But even during the hard lockdown, when the working class and the poor were struggling, it was not all doom and gloom for the banks. Instead, just days after the lockdown was announced, the government moved swiftly to inoculate them against any possible harm that would have been caused by the virtual closure of the economy. Through the Loan Guarantee Scheme (LGS), underwritten by the Treasury and the SARB, the State promised to carry up to 94% of the risk on the loans the banks would issue during the lockdown. The total value of the LGS was R200 billion. Although by the time the scheme was discontinued the banks had issued only R18.4 billion worth of loans (constituting only 9%), prompting the then finance minister, Tito Mboweni, to complain that the banks were “not playing ball”, they were nonetheless guaranteed huge profits from the repayment of the R18,4 billion. Here we see a classic case of the socialization of costs and the privatization of profits that is the hallmark of the so-called public-private partnerships (PPP). The state carries the risk of the R18.4 billion worth of the dispersed loans, while the banks rake in the profits accruing from the repayment of the loans by the public.
Additionally, the state indirectly carried the risk on already existing loans on behalf of the banks through its money creating powers. This concealed defence of the banks is exposed once one considers that loans are assets on the balance sheet of the banks and thus huge defaults by the public would have rendered the banks insolvent. However, this defence of the banks against insolvency through complicated balance sheet manoeuvrings was cloaked in technical jargon. The defence was presented not as it was, but as “debt relief for the public” and “measures to manage liquidity”.
US IMPERIALIST MONETARY POLICY AND NEO-COLONIALISM
In 2015, Nhlanhla Nene was sucked as head of the South African Treasury. The rand immediately lost value, prompting a notable member of the Democratic Alliance (DA), a liberal opposition party in South Africa, to remark “the dollar was [sending] South Africa a message”. The rand again devalued against the dollar in March 2017 after Jacob Zuma, then president of South Africa, reshuffled his cabinet replacing Pravin Gordhan as head of Treasury with Malusi Gigaba. In Nene’s case, the Rand declined by 5%, while it crushed by 9,7% in the second Gordhan case. This was the dramatic expression of the power of the global financiers over the South African government.
The DA member’s remark, like the bourgeois media’s daily reportage on exchange rates, attributes to the dollar a life of its own and thus hides the real actors. The profiteers behind speculative trading on the forex market are not planetary citizens with earthly citizenship. Instead, they belong to nation states – they are institutions and individuals with ideologies and interests. They belong to modern history and its traditions i.e., traditions of empires and imperialism. Moreover, not only are they profiteers, but they also have an interest in reproducing and maintaining the conditions for their own dominance and accumulation of capital and wealth. And it is the role of global financial institutions – the World Bank, the IMF and of course Rating Agencies – to reproduce the said conditions.
The dollar’s hegemony over the international monetary system enables the US to bully and dictate to the neo-colonial world policies beneficial to US corporations. Neo-colonial countries, characterised by their weaker economies and low dollar reserves, have surrendered control over their interest rate policy for fear of speculative swindlers (big banks from the west). Hence, these countries are compelled to follow the US Federal Reserve interest rate path. South Africa, for instance, has increased interest rates 7 times since November 2021 to date, following the Fed. South Africa is not fighting a demand-induced inflation, yet the SARB increases rates even at the risk of a recession to dissuade the currency traders from dumping the rand in favour of the dollar.
Even more intentional and deliberate in directing the affairs of South Africa, the speculative swindlers orchestrated an attack on the Rand in retaliation to Zuma’s decision to replace Nene with Des van Rooyen. This was a direct intervention to influence a political decision and by extension, an economic policy. For fear of the Rand plunging further, Zuma submitted to the dictates of the western capitalists and appointed someone of their liking, Pravin Gordhan.
Further, the devaluation of world currencies against the dollar advantages the US and its corporations as its imports become cheaper for them. In other words, the Fed can orchestrate devaluation of world currencies by just hiking rates to cheapen imports. And the cheap imports would guarantee its manufacturers lower input costs, competitive advantage and profits.
And then there is question of third world debt. Jerome Powell has indicated that he will do all it takes to bring inflation down. His determination is reminiscent of Paul Volcker in the late 1970, when he raised rates until he triggered a third world debt crisis. Currently, most countries in the neo colonial world are burdened by dollar denominated debt as most of them have borrowed in dollars from international financial institutions to battle Covid – 19. Therefore, the rate increases that Powell has resolved on, even at the risk of plunging the world economy into a recession, may unleash a wave of defaults, repayment plans and more austerity imposed by the global financial institutions intent on getting their money back. Here we see another method of wealth transfer from the neo colonial world to imperialist countries. In this way, debt and usurious interest repayment imposed by the Fed at the behest of US capital keeps the neo colonial world in perpetual bondage.
A BARELY CONCEALED ATTACK ON THE WORKING CLASS
It is crucial to note that interest rate hikes are an indirect way to discipline labour. It is a way to attain by stealth the reserve army of the unemployed and thus drive down the wages of those still in employment through retrenchments. Further, it is way to break the bargaining power of the trade unions. The weakening of workers power through rate increases has historical precedence: when Paul Volcker took office as the chairman of the Federal Reserve in the late 70s, he vowed to rout inflation that had then been ravaging the US economy. He pointed out that inflation was eating into profits, thereby undermining investment. This reflected, Volcker went to argue, the disproportionate power labour wielded relative to capital and the situation called for an immediate remedy. Volker then went on to work, raising the US rates up to 20%, triggering large-scale defaults, bankruptcies and retrenchments.
In the current crisis, the Governor of the Reserve Bank of New Zealand (RSNZ), Adrian Orr has openly argued that New Zealand needs some recession to contain a current surge in inflation. Reading the Monetary Policy Statement of the RSNZ on 23 November 2022, Orr argued that “inflation was no-one’s friend and that a small recession might be needed to get it down”.
Kganyago is intent on pursuing Volcker’s path, which is echoed by his counterpart in New Zealand, Governor Orr. Waxing nostalgic in a speech at the Centre for Education in Economics on the 20th of September 2022, Kganyago lauded Volcker’s ‘heroism and pragmatism’ when he (Volcker) fought to slay the dragon of inflation, employing methods which were then unpopular.
The need for the SARB to use Volcker-style monetary policy to break what minimal power organized labour has, is clear when one considers that, while weak by the standards of the 80s, the South African labour movement is not impotent. It instead resembles a wounded lion that can still inflict a lasting damage on its adversary. This point is evident from the recent protracted, five-month long Clover Strike led by GIWUSA and FAWU and the recent mining strike which saw the two major unions in that sector – NUM and AMCU – collating and uniting on the same wage demands. Even worse, the ANC-led government is haunted by the spectre of a public sector strike, after majority of public sector unions rejected the 3% wage offer tabled by the government.
Moreover, the government’s refusal to accede to the public sector wage demands partly tallies SARB’s so-called war on inflation. Since the SARB’s aim is to control inflation by reducing the money supply, then granting public sector workers increases above inflation would undermine that goal. This point is significant when it is considered that the SARB and the Treasury are two pockets of the same pair of pants – namely, the state. Coordination between the two institutions is therefore necessary. Thus, in addition to the path of austerity to which the ANC government is wholly committed, is the question of how the SARB conceives of inflation and how it intends to fight it. To be sure, the issue of public sector wage demands is not institutional nor is it administrative, rather it is in the last instance a question of the class struggle. It is however important to note how austerity and inflation targeting reinforce each other.
Finally, it is true that the SARB is compelled by the objective forces of international finance and by the structure global monetary system to raise rates. However, its actions are not class neutral. Nor are they merely technical, implemented by impartial technocrats. No, the SARB is instead a bulwark of Finance Capital.
WHITHER THE WORKING CLASS?
The working class cannot free itself by appealing to the moral conscience of the capitalists. Nor can ‘humane capitalism” free the working class from the misery produced by the ruthless pursuit of profits by the capitalists. It is the pursuit of profits that produces inflation, interest rate hikes, fiscal austerity and suppressed wages.
The interest rate policy pursued by the central banks and the actions of the traders on the forex market follows the logic of capitalism – the pursuit of profits. The wagon of profiteering tramples on the rights enshrined in liberal bourgeois constitutions that guarantee the working-class decent shelter, quality healthcare, sound education, political freedoms, national sovereignty, etc. Thus, the working class cannot realise these rights concretely unless it overthrows capitalism and thereby dispenses with profit as the guiding principle of society.
