The South African Civil Society Information Service

Beyond Malema: Neoliberalism and Corruption

By Leonard Gentle · 6 Mar 2010

Picture: Infomatique & Davius Sanctex

The ongoing saga around Julius Malema and his millions achieved through state tenders has rightfully generated public disgust. Bobby Godsell, ex-Anglo American and now Business Unity South Africa, has gone on to refer to these “tenderpreneurs” as “economic terrorists.” Zwelinzima Vavi has called for a “lifestyle audit” of public officials -- clearly a device to “name and shame” the new wabenzi and through this, embarrass them into being more public-spirited and less greedy. 

But, as always, the general disgust merges very different perspectives concerning the sources of this possible corruption and can have very different implications for public policy. At the one end of the spectrum are views, which too easily embrace comparisons with failed African states. These ideas are rooted in racism. And at the other end, are views that want to withdraw from any expectations of the state, either because, “there is nothing anyone can do about it,” or because the solution lies in just getting “the right person for the job,” regardless of their politics.

The implication is that if there were only a more transparent and objective basis for these contracts, if they were ‘clean’, then things would be okay. 

The real question that should be posed is not so much why tender processing is so easily abused and can so easily become “jobs for pals,” but why there is such an abundance of opportunities for tenders, for profiteering at the public expense and for making business out of what should be public services?

The reason this question is not asked is because all the parliamentary parties and many in the media, essentially agree with the ANC’s neoliberal programme of privatisation and commercialisation. They just want it to happen without corruption.

But corruption, at least in respect to the state and the public sector, has a long history. Possibly as long as the history of politicians saying they are committed to “weeding out corruption.”

Looking across the world for much of the 20th century, there existed a kind of varying expectation with respect to corruption. The rich industrialised countries with a long history of democracy were the standards of transparency and due process, while the countries of the Third World were the one’s associated with the need to bribe officials, with the raiding of the public coffers, with nepotism in making appointments and with corruption in awarding tenders. Much of these perceptions were underpinned by ideological constructions of racism and paternalism towards the developing world and served as a justification for the continuation of colonial control on the grounds that “they were not ready yet” -- and that the institutions of colonialism like the civil service and the rule of law needed to first take root before there could be independence.

Many of these prejudices continue today in the form of Afro-pessimism, the “when-we’s” and the “I-told-you-so’s” of the ex-Rhodesians and the White fears that South Africa is about to go “the way of Mugabe.”

But if we cut away the racist verbiage, then there is a very different explanation for the differing expectations of corruption, and this has to do with the degrees of separation of state institutions from private business.

The relative autonomy of the state and its institutions from the rough and tumble of business was one of the defining features of the mature capitalist countries. This separation arose over, sometimes, hundreds of years of state formation. These matters of the institutions of the state and their functioning - from parliaments, to the judiciary, to the civil service - were settled over the long evolution of capitalist development, dating from the 17th century in the case of Britain and France, and in the 19th century construction of the USA, out of its wars of liberation, the civil war, and so on. 

These countries established their traditions and institutions as an outcome of popular struggles waged at home, leading to formations in which the separation of powers, the functionability and neutrality of the civil service, etc. were publicly internalised and became tradition. Of course, the power of the ruling class was entrenched and extended over the working class and the middle classes, but these power relations were entrenched within traditions associated with the “rule of law.” 

Violence and corruption actually became dysfunctional to capital accumulation, to the extent that when violence and corruption emerged in the older capitalist countries such as Nazi Germany and fascist Italy, they were expressions of the weaknesses of their ruling classes and of their inability to rule within the traditions of the rule of law and due process.

Countries of the Third World were late state developers, from most of Latin America at the turn of the century, to India and the countries of the East after World War II, to Africa up to and including the 1970s. And state formation, like capitalism itself, was a project they inherited rather than forged themselves over long periods. In these countries the separation of the institutions of the state from business did not and could not occur. In countries with little or no private capital, dominated by foreign trans national corporations (TNCs), the state and its institutions were frequently the only way to make business. 

Tanzanian writer, Issa Shivjy, went on to call the class of business people who were so directly dependant on the state for tenders, for loans and for patronage, the “bureaucratic bourgeoisie.” Beyond the bureaucratic bourgeoisie could be found the civil servant topping a small salary with a little extra on the side, the custom’s official who waved things through, if a few dollars were dropped in an outstretched hand and the traffic officer who took speeding fine payments up front. 

From the side of Big Business these top-ups were simply added to their budgets as a necessary cost of doing business.

So, for most of the past 150 years, the activities and institutions of the state in the advanced capitalist countries were notable for their separation from business. To that extent it was possible for a whole range of institutions within the state - the civil service, the police, public enterprises, public works departments and local authorities - to establish levels of neutrality and autonomy from personal advancement and cronyism.

Countries in which the state was a source of doing business were notable for the greater integration of private interest into public services and were more prone to corruption as a systemic problem rather than the practices of a few bad apples.

Neoliberal capitalism from the 1980s onwards has changed all this in both the industrialised and developing countries. Globalisation and its institutions like the World Bank and the International Monetary Fund have seen to it that all countries now obey the same rules.    

Under neoliberal prescriptions, epitomised by the World Bank, the relative separation between the state and business has been consciously and deliberately broken down. Obsessed with the idea of free markets and the superiority of markets in all matters, neoliberals of the Thatcher period went for the “big bang” privatisation of state enterprises -- a key feature of 1980s Britain. But that kind of privatisation largely ran its course with respect to the “jewels in the state crown” of telecommunications, energy and so on.

Since then, in the 1990s, privatisation has moved on to embrace a whole range of reforms in the public sector. These reforms involve introducing market mechanisms into public enterprises and into the state itself. These go under a range of names from corporatisation, to public-private partnerships (PPPs), to private finance initiatives (PFIs), to what the World Bank called in 1997, “New Public Sector Management” (NPSM). 

According to the World Bank’s 1997 World Development Report, “The NPSM is concerned with injecting business-like practices into public agencies with the expectation that efforts to implement change will be easier, more effective and more permanent, as a result. NPSM has evolved in response to perceived differences in public versus private performance, especially the perception that weak incentive structures undermine performance of public sector managers.”

The state, particularly its functions of public services and infrastructure development, has been made to function as a business with private entrepreneurs directly responsible for carrying out public sector functions through outsourcing.              

Trinidadian writer, Mary King, summed this up as, “In essence, this NPSM is the transfer of business and market principles and management processes from the private sector into the public service itself, or outsourcing government activities to the special-purpose companies owned by a government or even to the private sector.” 

There is ample evidence of the failure of these initiatives. What some writers have called “the market state.”  

In Britain, one of the more notorious examples is the case of the privatisation of water and gas in the 1980s. A Rowntree Commission report of 1997 found that financial managers in the ex-public utilities had directly profited from moving across to or setting up private companies, which then secured tenders for water and gas services.

More recently under the PFIs, private companies build hospitals and then lease them to the state’s National Health Service. Studies have shown that the savings of the state in year one of the scheme are more than canceled out by the money spent on long contracts. NHS hospitals now operate as trusts and manage their own affairs, including tendering processes for private services. NHS hospitals now have widely varying levels of service and cases of corruption. 

In 2009, responding to inquiries from the new National Party government, the Treasury of New Zealand released a report on PPP schemes, which came to the conclusion that "there is little reliable empirical evidence about the costs and benefits of PPPs" and that there "are other ways of obtaining private sector finance" as well as that "the advantages of PPPs must be weighed against the contractual complexities and rigidities they entail."

Be that as it may, the point is that the plethora of business opportunities opened up by the market state is what makes the Malema’s of this world possible.

Of course, there are two processes happening here simultaneously, which makes South Africa a special example of this international phenomenon. On the one hand, the Zuma coalition based on patronage rather than programmatic agreement - which is why it was always absurd to see the Mbeki-Zuma split in left/right terms - has to be fed. So tenders go to the pals and there must be rewards for championing the winning faction.  

But a deeper reason is that there is so much more to feed off and to have patronage about. Every function of the public sector is now a business opportunity for someone. Every service is now a multiple range of opportunities for small and sometimes not so small enterprises. Every bit of lip service paid to black economic empowerment and transformation finds its ready “tenderpreneur” with the right connections.

If one were to go on media accounts and letter to editors, many people in South Africa have bought into the notions of the market state, of PPPs, of new public sector management, of cost-centres, of a lean, mean and business-like state. But this has also meant the downsizing of state functions. In fact, in the past 10 years, the biggest sector for job losses has been public sector employees in the parastatals like Spoornet and various public works departments. This means that everything from building schools to bridges, from the maintenance and supply of water and sewerage to the cleaning of streets, is outsourced to private companies.

This is the trough that creates spaces for “tenderpreneurs.” The trough is big enough to include ‘clean’ examples of an Eskom finance officer moving on to set up his own resources company, Xstrata and government proclaiming the need for independent power producers -- and then the ruling party, via Chancellor House, buying an interest in one such power company. And it includes ‘dirty’ examples of building bridges in Limpopo.

If we are fans of the market state and PPPs, then we are all Malema’s. 

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