LESETJA KGANYAGO: Surviving the dangerous and pervasive charge of populism

Populism has become widespread in the world in recent years.

It was once seen as a developing-country phenomenon — something rooted in places like Argentina — and not much of an issue in mature democracies. But no-one believes that now, especially not since 2016, with the surprise outcomes of the Brexit referendum and the US election.

Last year — the year of elections — made that point even clearer. Whether we are talking about rich countries or poorer ones, there is no denying that we are in an age of populism. We need to reflect on why populist ideas have this appeal, and how we can respond.

Populists have long been defined, in part, by their hostility towards institutions. The standard attack is that existing institutions are controlled by elites, who treat ordinary people with contempt and ignore their interests.

Institutions claim to have expertise, but populists are suspicious of experts. They do not like the idea that policy choices require specialist knowledge and therefore cannot be left to ordinary people. And they unfairly target experts who they claim abuse their status to exclude regular people, for instance by using big, technical terms instead of speaking plainly.

Populist leaders also typically promise to wage war on institutions, to clean out what they claim as the corrupt intermediaries so that they can take charge themselves.

Unfortunately, when populists come into power, they usually fare badly. It is hard to run a modern country without a lot of help and technical expertise. It is hard to stay honest without the necessary checks and balances. This is precisely why institutions are established in the first place. Dismantling them typically results in chaos, incompetence and corruption. These adverse outcomes make it easy to condemn populism.

But just because populism has a record of failure does not mean that established institutions are doing well. The duty we have as leaders of institutions is not only to push back against populist attacks but also to ensure our institutions are above these criticisms. This is not an easy task.

Probably one of the most difficult for us was in 2017, when the Reserve Bank came under attack from the Public Protector (PP) — an independent institution established by the constitution to uphold constitutional democracy and to investigate claims of abuse of power.

The PP had investigated a case for which we believed she did not have jurisdiction. Despite this, we still assisted and co-operated fully with the investigation. We were shocked when we found that one of her recommendations was that the mandate of the Bank be changed.

In essence, a key recommendation would have taken away the SARB’s mandate of price stability without assigning it to another entity. We felt duty-bound to defend the independence of the SARB as a key institution of our democracy and challenged the report in court. The court ruled emphatically in our favour.

The fact is that institutions do not always perform well. How to address this is a major problem, and arguably an under-studied one. And it is especially challenging in the public sector.

In the private sector, as the scholar Albert Hirschman famously argued, if businesses do not perform, they lose customers. This prompts business leaders to make changes. If they fail to do so, they may go bankrupt, and other firms will take their market share.

Economists love this mechanism. Not only does it punish bad performers and reward reformers, but it also drives innovation as firms come up with better products than their rivals and lure away their customers.

An Intel CEO, Andy Grove, wrote a famous book about this process, titled Only the Paranoid Survive. His key insight was that when you are on top, there is an overpowering temptation to focus on the thing that got you there. But then you fail to innovate, and someone else comes along with something better and takes your market.

The challenge for big firms is to innovate before their competitors do. But this is incredibly hard to do. Fortunately for society, however, the combination of innovation and exit ensures the market stays dynamic. Some firms fall while others rise. The economy moves forward.

A key theme of the current populist surge, particularly from its backers in the technology industry, is that the public sector is much less dynamic. It is painted as being sheltered, inefficient and guilty of strangling the rest of the economy through excessive regulation. It turns out that many people agree with this view.

How should public sector institutions respond to these criticisms? One defence is to say that a “move fast and break things” philosophy, which may work well in some parts of the private sector, is not appropriate for the public sector, which needs to deliver stability and predictability. Indeed, you could even say that creative destruction works better in a stable institutional setting, supported by safety nets.

Institutional reform

This argument is sometimes persuasive, but not always. After all, not all public sector institutions perform well. There is a valid question about how to get public sector institutions to pursue their missions with urgency and to behave like they are truly servants of the public, not their masters.

Hirschman also argues that market mechanisms are not the only option for addressing institutional failings. In his most famous book − Exit, Voice, and Loyalty — he makes a case that staying loyal to institutions and demanding reform, rather than leaving them, could drive better results.

The case for having a voice is inspiring, and there is little doubt in my mind that community involvement and activism play an important role in holding institutions to account. But we also need to recognise that decay is usually quite advanced by the time civil society mobilises. It is rarely a pre-emptive solution. 

We also need to recognise that “voice”, when it is a howl of outrage, can easily take the form of a populist rebellion, with its own dangerous consequences.

My conclusion is that leaders have a vital role in proactively addressing institutional decay. And this is where we need to take inspiration from the book I cited earlier: Only The Paranoid Survive.

Leaders need to feel the urgency about doing better, and they need to feel it well before the populists show up. In this age of populism, institutions are not going to get the benefit of the doubt. They have to perform, and they have to be transparent and communicate effectively.

Let me now turn to how this applies to the SARB. The fact is, we have no competition: there is only one central bank in the country. We also have the power to create money. This privileged position means we have a greater responsibility to be disciplined to resist complacency. There is a famous saying in economics that “the best of all monopoly profits is a quiet life”. But I can tell you, even if we tried to live that quiet life, we would be inviting populist attacks.

To deal with this, we try to foster a culture of innovation, accountability and transparency. This means we take satisfaction in getting things done, and we make a point of communicating clearly and extensively. Let me give some concrete examples of this philosophy in action.

My first example is about transparency. We recently volunteered for an independent review of our transparency practices, undertaken by the IMF. We did this because we believe central bank independence is only tenable if there is also accountability, which demands easy access to information.

The review provided some positive comments as well as suggestions and criticisms on areas for improvement. Compliments are always nice, and the review affirmed that our transparency practices could serve as a model for other central banks. But criticisms are equally important and certainly welcomed, especially when offered in good faith. They are mainly suggestions for innovation, some of which may work for us.

My second example is our inflation target. Since 2000, the Bank has had a target range of 3−6%. It was meant to be lowered to 3−5%, but that adjustment was postponed when the rand depreciated in 2001, and it was never reinstated. The result is that we have used a higher and wider target than most other countries ever since.

During this time, the Bank has developed a reasonably good inflation-fighting reputation. We could get away with leaving the target unchanged. But the research has been done, and we are convinced that South Africans would be better off with lower inflation, and thus a lower target. We champion this idea because we believe deeply in excellence in price stability, not just in doing the least we can get away with.

My third example is about payments. Payment infrastructure is often viewed as important but unexciting, like plumbing. However, payments are currently a major strategic priority for the Bank, and one of the most interesting things we are working on. As you may have seen, we have recently acquired a 50% stake in BankservAfrica, and we will be using this investment to drive a major modernisation of SA’s payment ecosystem.

Together with government and the industry, we plan to provide cheap, safe and fast digital payments, delivered at a retail level to our whole society to complement banknotes and coin. This is an innovation that will create significant benefits for ordinary people, and we are proud to be leading it.

To conclude, the populist charge is dangerous and pervasive. Complacent institutions that do not engage the public effectively are going to be vulnerable. Our best defences are honesty with the public and excellence in pursuing our mandates. It is up to leaders of institutions to make this happen.

• This article is based on the edited speech delivered by Lesetja Kganyago, governor of the SA Reserve Bank, at the Arbitration Foundation of Southern Africa on February 13 2025.