A warning by Redge Nkosi: Reform macro-economic policy or face a revolution of an unprecedented scale….He’s the Executive Director and Research Head at Firstsource Money. Twitter Handle @redgenkosi
The national narrative around South Africa’s poor growth and low growth trajectory is that it is ordained by some confluence of forces of globalisation alongside the lack of domestic microeconomic reforms. Circumscribed by such forces, the nation state is thus incapable of any real policy space to grow the economy, save for the deployment of monetary policy and structural reforms, supported by a thin base of fiscal space.
As a consequence of such circumscription, most people, including government through the Presidency, have opined that slow growth is the new normal for South Africa, citing secular stagnation: a reference to long-term future of low growth and elevated levels of unemployment. As our economy requires to grow at a clip of 6% or more to cut into the developmental challenges, this then suggests that our economy’s intractable quintuple challenges of unemployment, poverty, inequality, high cost of living and high cost of doing business are on a permanent growth trajectory.
If this narrative is indeed true, then doubtlessly, the country should also accept that it is headed for a revolution of an unprecedented scale, unless saved by an act of God.
I proffer a contrarian view to this well received but false narrative. The notion of secular stagnation is not only misguided but stale and sterile, at least from the perspective of monetary system in which we operate in. And ascribing the curtailment of policy space to forces of globalisation is to conflate globalisation with what is commonly referred to as economic neo-liberalism, which sadly is the culprit we have ignoramusly embraced, overtly or covertly..
What has brought South Africa to this current economic frailty is nothing but a flawed national development model. It is based on a quaint macroeconomic regime that not only promotes the financialisation and de-industrialisation of the economy, but is inherently anti-developmental, highly incompatible and permanently at tension with the need for sustained industrial and social development at a mass scale. It is further inconsistent with the need to create a viable, progressive and more egalitarian society that can underwrite social stability, hence the unprecedented citizen disquiet and ever increasing economic hopelessness in the country. It is itself a source of macroeconomic instability, thus eroding the very prerequisite for investment and inclusive growth.
Had our fiscal and monetary authorities understood the flawed nature of our macroeconomic framework and how to redesign it, which clearly they don’t, they should have used the financial crisis of 2007/8 as a provocation to redesign it instead of waiting for national calamitous events sufficiently threatening to produce consensus on the need for deep policy changes. Aren’t they there on the horizons already anyway: fees must fall, dangerous levels of poverty and unemployment, e-tolls and broad societal disquiet. The cost of inaction, vacuity and confusion has been humongous and continues to escalate.
The reasons for the deliberate silence on the flawed macroeconomic regime are two fold. Firstly, most economists including our fiscal and monetary authorities, let alone the wider public, show scant understanding of the intricacies surrounding macroeconomic policies. The interaction between monetary and fiscal policies to produce growth is equally least understood.
Secondly, by deliberately deviating attention away from macro policies to structural reforms, it serves the original policy designers well, for any such discussion would unravel their design objective of these policies. It may well be appropriate to indicate that our macroeconomic policy framework was the work of the IMF, World Bank and their supporting institutions.
Inherent in any design of a robust macroeconomic framework is the deep but clear understanding of money and banking and how these interact and can be engineered to produce a durable productive growth model for a nation. Unfortunately, these two do not form part of our models both at Treasury and Reserve Bank and are perhaps the worst understood and known elements of macroeconomics globally, yet so central to any policy design if we are to reap sustainable economic growth, easy inflation management, macroeconomic stability and a competitive economy.
Therefore talks about low growth as the new normal, murmurs about secular stagnation and similar sweeping fads are a reflection of our national deficiency in grasping profoundly critical elements of macroeconomics.
Our macroeconomic framework is so colonially weaved that it even fails to recognise that we operate in a fiat monetary system, with all its macroeconomic freedoms. As succinctly observed by Her Majesty’s former Treasury official, Professor Wynne Godley “The power to issue its own money, to make drafts on its central bank, is the main thing which defines national independence. If a country gives up or loses this power, it acquires the status of a local authority or a colony”. Just like a colony, we don’t draw on our Reserve Bank.
South Africa stands at a crossroads. It either resets its macroeconomic policy so as to positively respond to the ever threatening social and economic situation, or remains wedded to the ill-conceived macroeconomic regime and thus reap the rewards of the rather ominous clouds gathering on the nation’s horizon.