Former central bank governor and now finance minister Tito Mboweni was in story-telling mood on Friday, from how much he lost in the Steinhoff collapse to how he was “bullied” in an 8.30am call to accede to the presidential “request” that he take up his latest assignment.
It was vintage Mboweni, some suggested, and for the younger finance professionals in the audience it was a glimpse into the character of a man who until a few weeks ago they’d known as Cassper Nyovest’s muse.
Current central bank governor Lesetja Kganyago arrived armed with a speech that was scathing in its criticism of populism and the “failure to understand [macroeconomic] constraints”. The populist solution is to start spending, Kganyago observed, and “push … demand in the economy without consideration of constraints”.
These constraints, he suggested, are runaway inflation, balance of payment crises and “know-how” issues.
Kganyago is correct that for societies in transition like ours, with deep structural concerns, the social fallout of runaway inflation and a balance of payment crisis can require decades, even centuries, of reconstruction.
However, what Kganyago dismisses as “populism” has an intellectual history in economic literature, much like the “policy tripod” he suggests ought to be the only way. This reading of the literature and historical experience (especially in Latin America) requires engagement.
One doesn’t need to have written a PhD on Milton Friedman’s monetarism to understand that two sets of populists were the target of Kganyago’s critique.
The first is certain “left voices” within the ANC, Kganyago’s former employer, and the alliance broadly, who have for a long time called for a relaxation of the inflation target, nationalisation of the central bank and strong intervention in the currency markets to “smooth” exchange rate fluctuations.
The latter call will resonate with consumers desperate for reprieve from petrol price increases. The second is those in the EFF who have called for similar interventions.
That these “alternative” ideas receive political attention should be welcomed, as pluralistic approaches – rather than the “there is no alternative” approach – are what we need.
To be fair, Kganyago did suggest there were times when “policy stimulus is appropriate”, but only as a tool for smoothing output over the cycle. What this approach overlooks is that the challenges our domestic economy faces are more structural than cyclical.
We are not in a period of stagnant growth because of the business cycle, but because the structure of past growth cycles and the accumulation path followed by our economy makes any future growth difficult to sustain in the absence of radical change to the underlying structure.
However, to suggest that those who hold ideas on responding to these issues that don’t fit the monetarist playbook are, as Vishnu Padayachee observed, “macroeconomic populists and madmen” is alarmist and unfair.
There is a view that for a future sustainable economic path to materialise, we need to confront not only macroeconomic concerns (inflation, balance of payments and “learning”) but also micro-level constraints that increase transaction costs, squeeze disposable incomes and prevent economic actors from collectively creating value. These constraints include the spatial design of SA. As former statistician-general Pali Lehohla suggested last week, “poverty is a costly exercise”.
It is to these long-term challenges that political and policy responses must respond.
But spending has to be the kind of infrastructure or “overhead capital”, as some economists have suggested, that confronts the historic and social constraints mentioned above.
To justify a rise in the debt-to-GDP ratio it must also be the kind of investment that crowds in investment and boosts incomes, production and employment. This kind of exogenous injection has the potential to increase employment and demand in sectors such as construction, with high employment multipliers.
However, Kganyago is right about the burden of expectation we ought to be placing on the economic policy proposals of politicians.
As elections loom, we ought to ask of our politicians difficult questions about what the “transmission mechanisms” of their respective decisions will be – in the short, medium and long terms.
Of course, they might not know, and to be frank none of us do with any certainty, but political organisations deserving of our votes ought to show in their pronouncements and policy decisions approaches informed by evidence and deep thought.
Cawe (@aycawe), a development economist, is MD of Xesibe Holdings and hosts Power Business on Power FM. This piece appeared in Business Day...