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On facing The Big Stick
South Africa as geopolitical victim of the US hegemon
In 1901 President Theodore Roosevelt, established a new foreign policy approach, allegedly and ironically, based on a favorite African proverb, “speak softly, and carry a big stick, and you will go far.” At the crux of his foreign policy was a thinly veiled threat. Roosevelt believed that in light of the country’s recent military successes, it was unnecessary to use force to achieve foreign policy goals, so long as the military could threaten force.
Ironic, because as an African by birth, I am watching as Uncle Sam waves a very big stick at South Africa’s African National Congress. While I have lived in the UK for more than fifty years, I have family there and take a keen interest in South Africa’s (SA) economic indicators; its obscene levels of inequality – amongst the highest in the world; the appalling rates of black youth unemployment; its poor governance and rising levels of corruption; the insecurity of its energy system, and its accelerating political and economic crises.
I am also well aware of South Africa’s extraordinary mineral riches. According to Mining Review Africa SA’s “Bushveld Complex”
… is the richest deposit on Earth for a crucial range of rare metals.
The Bushveld Complex hosts the majority of global platinum-group element, chromium, and vanadium resources, in addition to major deposits of copper, nickel, gold, tin, iron, fluorite and dimension stone….At current rates of extraction, the complex will likely not be mined out within the next 700 years, with much of the ore deeper than 1 km still left intact.
Last week South Africa, despite its mineral wealth, was once again cornered by The System – by which I mean the international financial and geo-political order.
The immediate cause was the country’s attempts at sovereign autonomy, as it shaped its foreign policy of non-alignment on the Ukraine war. The US was angered by the snub, and annoyed at SA president Cyril Ramphosa’s decision to visit Moscow to meet Presidents Putin and Xi in Moscow in March
The hegemon bided its time. Until that is, last week.
In a major diplomatic incident, the US ambassador to SA accused the country of breaking US sanctions against Russia in December, 2022 by covertly loading arms on to a vessel owned by a Russian fleet company, Lady R – that later returned to Russia.
Confusion reigned. The SA Foreign Ministry dithered, then failed to deny the accusation. Instead it limply announced an inquiry.
The US ambassador later “spoke softly” but carried the Rooseveltian “big stick” that would deny South Africa preferential access to US markets through the African Growth and Opportunity Act.
The economic impact of the diplomatic spat was almost instantaneous. Speculators in the mobile, global market in currencies took fright – and flight. The SA currency fell from a rate that exchanged 18.92 rands to the US dollar to 19.32 rands – a record low for the volatile currency.
A falling currency relative to the world’s dominant currency, the US dollar, is inflationary as it raises the cost of imports, as most commodities are traded in US dollars. The devalued rand increases pressure on SA to boost exports – to earn the precious US dollars needed to pay for commodity imports, and to repay foreign debt.
In other words, a geopolitical incident has further undermined SA’s economic autonomy, and led to increased dependence on the hegemon’s currency.
Such volatility is not confined to SA. Currencies as varied as those of China, Uganda, Argentina and Turkey are equally exposed to the global, speculative market in currencies. But for South Africans dependent on imports for up to 60% of fuel demand, and with the expectation that petroleum product imports may triple by next year from pre-pandemic levels – a fall in the currency will inflict significant economic pain. My family members, like millions of South Africans, will face even higher fuel prices (in a country with limited public transport), rocketing food prices (consumer food price inflation accelerated briskly over the past year, to 14.0% in February 2023, despite the marked moderation in global food price inflation) and stagnant wages. And thanks to the global market in capital – higher interest rates are inevitable.
But then, as I will explain in a presentation to the European parliament this week – that is largely because the governing African National Congress has adopted the dominant economic model of globalisation– the de-regulated, debt-fuelled export-led ‘growth’ model that depresses wages at home while boosting the profits of exporters (the 1%).
The model works like this: SA’s wealthy – like the 1% everywhere – make a lot of money, but spend only a percentage of their income. The poor by contrast spend almost everything they have, which in SA is a shrinking amount, as real wages (relative to inflation) fell in 2022, according to Labour Research Service in its February, 2023 Review.
So those on low incomes aren’t earning enough to buy what the economy is producing. Rather than too much purchasing power chasing too few goods and services, too many goods and services are chasing too little purchasing power. This has led in the UK to what the TUC’s chief economist has argued is a “workers’ doom loop and wealth’s boom loop.” And as Michael Pettis and Matthew Klein have shown in their powerful book, Trade Wars are Class Wars, the dominant economic model leads ultimately to both under-consumption and over-production.
Over-production in turn, degrades the ecosystem’s finite resources. And falling real wages and incomes lead to debt inflation as households take on debt to try to keep up living standards, and firms borrow to compensate for lost sales.
The result in South Africa as elsewhere is the government’s focus on exports and global capital markets, as opposed to a focus on the domestic economy.
A domestic focus would require management of South Africa’s monetary system to mobilise finance for sustainable public investment in skilled, well-paid employment aimed at raising incomes and tackling climate breakdown. In much the same way as President Biden uses the resources of the Federal Reserve as well as the Treasury to protect jobs and incomes in the domestic US economy.
The consequence of South Africa’s skewed approach away from the interests of the home economy is economic, social and political instability.
The dominant model and its associated geopolitics has, unsurprisingly, generated a reaction from below – world-wide. Because as the Financial Times’s Rana Foroohar has argued, it turns out that “free trade is not free”.
Foroohar cites Canada’s deputy prime minister Chrystia Freeland who recently argued at a meeting in Washington that
Workers in our democracies have long understood that global trade without values-based rules to govern it made our people poorer and our countries more vulnerable.
They have long known that it enriched the plutocrats, but not the people….
Autocrats have done well too, often by using trade and commerce as weapons in geopolitical conflicts. With hindsight, it is clear that appointing Gerhard Schroeder to the Rosneft board was as essential an element in Putin’s war planning as any military exercise.
Under the current System, countries as diverse as Canada, Britain and South Africa are stripped of the key levers and powers essential to the democratic management and stabilisation of their economies. These levers and powers - over the central bank, the value of the currency, the rate of interest on all forms of lending, the flow of capital across borders, the price of key commodities - are exercised by the invisible hand of speculators active in global capital markets.
That is no accident. It is after all how The System is designed to operate: to serve the interests of Wealth - the 1%.
Now, thanks to resistance from below, and reactions from those on high to the Ukraine crisis, globalization is in reverse, with the setting up of new Chinese/Russian/Middle Eastern trade blocs, the abandonment of privatisation, the new fashion for industrial strategies, and the turn to inward investment.
Amidst the Ukraine crisis, the US and the Western countries have disregarded international norms by forcibly casting Russia out of the global financial architecture, namely the Society for Worldwide Interbank Financial Telecommunication (SWIFT), confiscating Russian state and personal assets, and freezing the country’s foreign exchange reserves. Such measures go far beyond the typical nonviolent means of confrontation employed by nation states such as trade wars, technology blockades, and oil embargoes, and blatantly contradicts the timeless liberal principles that ‘debts must be paid’ and ‘private property is sacrosanct’, among others. These flagrant violations of the so-called ‘rules-based order’ have laid bare the arbitrary, unlawful, and biased character of the international system and the manner in which it can be manipulated by the US and its allies to violently discipline other countries.
If governments like South Africa are to serve the interests of the 99% - in other words if the economy is once again to be democratised to serve the interests of all, and not just the wealthy - then it will be vital to regain economic and political autonomy - by taking back powers and economic levers that can be used to serve the democratic interests of millions of young unemployed South Africans.
Above all, non-aligned governments should hasten the demise of global dollar hegemony. We welcome the decision by SA to put the creation of an alternative to the current system on the BRICs agenda in Johannesburg, in August. The power to issue the world’s reserve currency is what the US demanded at the 1945 Bretton Woods Conference – against J. M. Keynes’s strong advice for an independent Clearing Union for the world’s currencies. As with the banker in a game of monopoly, the power to issue the global reserve currency empowers the US to use trade and commerce as “weapons in geopolitical conflicts”, to quote Ms Freeland.
The time is more than ripe for an end to the wielding of Big Sticks, and instead to prepare for a peaceful and considered process of System Change.
An independent analyst, I write about the international financial system and its impact on humanity and ecosystem. I do so without fear or favour. This freedom comes at a cost, but is a price worth paying if it helps others learn about 'The System' and why it must be changed. Your support is appreciated.