SA’s economic fundamentals are always up for debate
‘Economic fundamentals’ are not, as presented by some of our country’s commentariat, uncontroversial laws of nature
Stats SA recently announced that the official unemployment rate had increased by 0.3 of a percentage point to 27.5%. The expanded unemployment rate also rose to 37.3% from 37.2% in the previous quarter.
While these developments are disturbing, in many ways they are to be expected from a highly concentrated, capital- and resource-based economy that has struggled to bring about fundamental socioeconomic change for the majority of South Africans.
It is within this context that we must consider recent comments by SA Reserve Bank governor Lesetja Kganyago and others who have decried so-called “populist” solutions to resolve the current crisis. In this view, we should reject “emotive” calls for change and recommit to the well-worn path of inflation targeting, “fiscal discipline” and a free-market economy.
A similar perspective was echoed by Khaya Sithole who argued that the call for the Reserve Bank to abandon inflation targeting, “betrays a lack of appreciation of the fundamentals of economics”.
Yet what exactly are those fundamentals, and according to who are they devised? Narrow inflation targeting, to take one example, is not universally accepted as a “fundamental” ingredient for good economic policy.
Joseph Stiglitz has argued that inflation is rarely solely, or even primarily, a domestically manufactured problem that can be fixed by adjustments to interests rates, something South Africans reeling under the effects of the increased oil price should know. How narrow the band should be and how high inflation can go before it is detrimental are contested in global economic discourse.
“Economic fundamentals” have always been, and remain, up for debate. They are not, as presented by some of our country’s commentariat, uncontroversial laws of nature. Indeed, in times of crisis we need to think clearly what “the fundamentals” are and whether they should be challenged.
During the immediate post-World War 2 era, for example, economic discourse, at least in the global north, was dominated by Keynesian policy prescripts. These included stable and high wages, social provision of basic services including health and education and robust collective bargaining mechanisms; in other words, a welfare state and social democracy.
The Keynesian motto, what one might call the “fundamental” motto of the time, was to stimulate aggregate demand and eradicate unemployment. Keynesian thinking held that an active, investment-oriented state was necessary to cushion inevitable market failure under capitalism.
The economic crisis of the 1970s challenged these ideas and a new orthodoxy was ushered in based on the ideas of Milton Friedman and the Chicago School. The age of neoliberalism, now under strain, has involved an unbridled faith in the virtues of the free market, which its intellectual supporters promote as welfare maximising and naturally stable. The “Washington Consensus” and structural adjustment programmes imposed by the World Bank and IMF were a product of this orthodoxy, as was the shift in ANC economic policy from the Reconstruction and Development Programme (RDP) to the Growth, Employment and Redistribution (Gear) strategy in 1996.
This faith in the virtue of the market is now facing its own crisis of legitimacy. Economies that have followed this orthodoxy have stagnated. Financial deregulation led to the global financial crisis of 2008 and is now, according to the IMF's Christine Lagarde, threatening another, possibly more severe, crisis. Inequality has worsened globally, and it is clear that the structural adjustment programmes imposed on countries in the global south failed to realise their mandate.
The development experience of East Asian countries also contradicts the promises made by free market development theorists. These experiences are notably absent from those warning us against about the dangers of “economic populism”.
In this fervent and fertile intellectual context, where even the IMF and World Bank have questioned neoliberal orthodoxy, presenting one particular ideological position as unequivocally true and assuming that any deviation from it is tantamount to flirting with the policies that necessarily lead to economic collapse (such as. Zimbabwe), is to engage in bad faith.
There is no doubt that the legitimacy and capacity of the state in SA has been seriously undermined in the last decade. However, this is not in and of itself an argument in favour of the “free market” or for big business leading “development”. The extreme levels of corporate corruption exposed in SA in recent times — related and unrelated to “state capture” — are enough to dispel the myth of the inherent virtue and self-regulatory capacity of capital.
We need to go beyond needless framing of the “populists” against the “sensible”. A crisis as profound as ours demands that the so-called “fundamentals” are called into question. Among those, good places to start would be “inflation targeting” and “fiscal discipline”.
• Osborne and Nassen Smith work at the Institute for African Alternatives, publisher of New Agenda: SA Journal of Social and Economic Policy.