The 1994 victory of Nelson Mandela and the African National Congress (ANC) marked an end to the legalized racism of apartheid, ushering in what was to be a golden era of democracy and economic prosperity. Yet rampant unemployment, growing crime, and medical crises have replaced the joy and hope of 1994 with a sense of disillusionment among South Africans. As Stella Orakwue writes in the June 2003 issue of New African, “It still doesn’t pay to be black in South Africa.”

Much of this despair can be attributed to the collapse of what were perhaps unreasonably high expectations since 1994. Indeed, South Africa remains an economic and political bright spot in a continent rife with warfare and poverty. The ANC government remains popular and stable. Since 1999, growth has hovered around three percent per year, the deficit has slowly eroded, public debt has decreased, and the government has turned a trade deficit into a slight surplus.

Despite these rosy figures, the socioeconomic crisis facing South Africa is very real. Unemployment has increased to an official rate of 30 percent, but is probably much higher in reality. Furthermore, the economic transition promised by the ANC government under Thabo Mbeki’s presidency has not materialized. South Africa remains heavily dependent on its natural resource exports, foreign investment has not responded to government incentives, and inequality has increased dramatically between South Africa’s rich and poor, urban and rural.

At the center of this socioeconomic crisis is the government’s economic policy, a traditional neoliberal regime centered on the Growth, Employment, and Redistribution (GEAR) policy. GEAR promotes economic growth over infrastructure development and redistribution, reducing government spending, cutting corporate taxes, and privatizing state industries in the hopes of attracting foreign investors. Upon GEAR’s inception in 1996, the ANC government believed that a rise in foreign investor confidence would result in more foreign direct investment (FDI) and create new export sectors, jobs, and vital funds for poverty alleviation programs. Unfortunately, despite the praises of the International Monetary Fund and the hopes of the ANC government, GEAR has failed to generate economic growth and development in South Africa.

GEAR faltered because the linchpin of the economic strategy—the attraction of new FDI—failed to materialize. As University of Vermont Professor Padraig Carmady writes, GEAR viewed FDI as a “development deus ex machina,” believing that the investment would automatically flow in. Certainly there have been some high profile successes, notably the establishment of BMW and Mercedes automobile manufacturing plants in South Africa. However, a closer look reveals that FDI did not increase under GEAR, and what money did flow in focused on acquiring existing assets rather than building new plants or creating new jobs. At the same time, the influx of FDI and foreign ownership of South African plants have resulted in the competitive displacement of other domestic machine component manufacturers. Under GEAR, the South African economy has reinforced its dependence on natural resources such as metals, diamonds, and gold. Capital goods and machinery have become South Africa’s highest imports, displacing its budding manufacturing sector, further contributing to job losses. South Africa’s experience with GEAR shows that neoliberalism alone is at best an inadequate policy tool for achieving a dynamic and competitive economy, creating jobs, alleviating poverty, and addressing inequality—which are precisely the four biggest challenges for Mbeki and the ANC.

What South Africa needs is an entirely new policy paradigm, one that treats neoliberalism as but one tool among many in the battle for prosperity. One cannot simply blame the ANC government for South Africa’s economic woes. The GEAR program represented a difficult decision to mediate between the conflicting demands of globalization and socioeconomic development. These twin pressures are often at odds, with development and poverty alleviation requiring levels of funding and investment impossible without tapping into global financial flows, while such integration into the global economic system limits the ability of the state to pursue social improvement programs. Furthermore, GEAR relies on volatile foreign capital flows to solve these deeper issues, without specifying a direct policy mechanism for addressing the deeper crises South Africa faces, such as crime, unemployment, inequality, and public health. Carmady has suggested that stable capital flows have eluded South Africa precisely because these deeper structural worries have scared away long-term investors, leaving only short-term speculative interest. Thus, for GEAR to succeed as the ANC envisioned, South Africa would have had to address these structural shortcomings.

Such a restructuring is possible, but only if the South African state takes an activist approach in addressing social concerns. Hope is already on the horizon: Thabo Mbeki created the 2001 Millenium African Recovery Programme as a new way to address some of these issues; now, Mbeki and the ANC government must help South Africa by boosting spending and devising solutions that draw not on fickle foreign capital, but on domestic labor and government resources. Neoliberalism may have done all it can for South Africa by opening the country to global markets. It is time for the government to capitalize on that achievement.