Reserve Bank’s mandate does indeed include balanced and sustainable growth
The exact wording of the relevant provision in the constitution is clear: to protect the value of the currency in the interest of balanced and sustainable economic growth
Human history does not make itself. It is made by people, and so are its repeats. This holds true for this week’s major battle of ideas regarding the SA Reserve Bank mandate.
In a way the ANC and its alliance partners, the SA Communist Part (SACP) and Cosatu, as well as other South Africans outside the alliance, were back to the week of the ANC’s 107th founding anniversary on January 8, especially after the launch of the ANC’s sixth general election manifesto in Durban on January 12. The characters on the stage this week, including the media, were also the same, vehemently repeating, and others reinforcing, what they said and did then.
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The contending forces went head to head over whether the Bank’s mandate should explicitly target employment creation. A major weakness confronting all participants is their inability to frame perspectives in a way that leads to consensus and therefore contributes to national unity around the issue. So what does our country’s constitution, which should be our common premise, say about the Bank’s mandate?
In the US, the epicentre of the prevailing world capitalist system, the mandate of the Federal Reserve explicitly includes maximum sustainable employment in addition to price stability and long-term moderate interest rates.
Posing and answering the question is one way in which we can attempt to build consensus. In addition, on the part of the tripartite alliance as well as the electorate that supported the ANC on the ballot, the second most important question is what its manifesto says on the question. It is important that the way forward be anchored in the economic and consequent social realities of our people.
The exact wording of the relevant provision in the constitution regarding the central bank’s mandate is: “The primary object of the SA Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the republic.” Underline the phrase “in the interest of balanced and sustainable economic growth”. Then assess, in relation to the principle, the history of SA’s economy. If you are not embedded in a disregard for the constitution you will acknowledge that the Bank cannot stand aloof from the fact that SA, both before and after the adoption of the constitution, has not realised balanced and sustainable economic growth.
Statistics SA revealed a shock — even to the experts — contraction of the economy of 3.2% in the first quarter of 2019. The economy has yet to recover from the 2008 global economic crisis. The so-called high growth rates the economy achieved in the 2000s, prior to the crisis, did not prove sustainable. Almost 10-million South Africans are unemployed, in terms of the expanded definition of unemployment, which covers discouraged work-seekers. Class inequalities, including their race, gender and spatial articulations, remain persistently high. Poverty is entrenched.
There can be no doubt that, contrary to what the constitution prescribes, particularly in relation to the Bank’s mandate, there is no balanced and sustainable economic growth in the republic. There can also be no doubt that a structural fault remains. It would be senseless to exclude what prevails in the sphere of macroeconomic policy in searching for answers and the way forward. To argue that this important sphere of economic policy should not play an explicit role towards the reduction of unemployment is absurd.
In the US, the epicentre of the prevailing world capitalist system, the mandate of the Federal Reserve explicitly includes maximum sustainable employment in addition to price stability and long-term moderate interest rates. This is important to appreciate, especially as South Africans, having experienced a jobless growth scenario for the whole of our post-apartheid trajectory. No compelling motivation has been given to justify why it would be wrong to explicitly prescribe the same functions in the Bank’s mandate in addition to price stability. The US is used here as an example because certain quarters take their cue from that country.
Related to this subject, I have had the privilege of participating in research in which the main question centred on whether economic upgrading generates social upgrading. Economic upgrading includes process, product, functional and value chain upgrading, while social upgrading includes decent work indicators as adopted by the International Labour Organisation.
The answer was that it is not automatic that economic growth generates social upgrading. A firm can produce more output with fewer workers based on a combination of production technology, technical organisation of work and co-ordination of production, including process engineering, plant layout and process flows.
It is therefore possible to produce a higher output in value terms without increasing the employed workforce. In fact, certain firms even retrench workers as they realise the production of increased output.
For example, research I conducted showed that 388,442 cars were produced in the SA automotive assembly sector in 1995. At that time the sector had a workforce of 38,600. In 2008, before the economic crisis, the sector reached a peak of 652,965 cars with a reduced workforce of 35,900. The output decreased, as a result of the crisis, but later recovered and reached 592,145 cars in 2017 while the workforce was further reduced, to 30,000.
The production dynamics of the automotive assembly sector are important both in SA and globally. They are a useful indicator of the overall direction capitalists in other sectors aspire to and are working hard to achieve.
The ANC manifesto correctly underlines the importance of price stability and further stresses the equal importance of the principle of balanced and sustainable economic growth — the objective for which the constitution prescribes the protection of the value of our currency as the Bank’s primary goal. The constitution further states that the powers and functions of the Bank — its mandate — must be determined by an act of parliament and exercised according to the terms set in that act. There is therefore no need to amend the constitution to give effect to what it already provides for.
In addition, the constitution states that in exercising the powers and functions assigned to it the Bank must regularly consult with the minister of finance. This is another important channel that government can use to make its policy priorities clear without tampering with the Bank’s operational independence.
In January, finance minister Tito Mboweni argued that in its conduct of monetary policy the Bank has always taken employment into account. While this is debatable, there would be nothing wrong, in principle, in making explicit what is implicit in the interest of ensuring transparency and accountability.
In his intervention this week Reserve Bank governor Lesetja Kganyago did not rule out the purchase of government securities by the Bank but explained the conditions under which this should be done. While the conditions are debatable, this stance is helpful — depending on how you look at it.
• Mashilo is SACP national spokesperson and head of communications.