By Saliem Fakir · 24 Jan 2014
Economic crises always present opportunities to rethink the conventional economic model whatever hue it may take. Some of these debates are raging at the World Economic Forum at present.
South African debates on economic policy matters are out of touch with the emergence of fresh thinking amongst mainstream economists in different parts of the world.
Those who follow John Maynard Keynes examine his ideas with a fresh pair of eyes and those that defend the tradition of the trio of neo-liberal economists such as Ludwig von Mises, Friedrich Hayek and Milton Friedman want to maintain the status quo believing that the state is the problem and that the market is the only solution.
In South Africa followers of this neo-liberal trio often add to their list the thinking of the extreme individualist, Ayn Rand. Here, admirers of Rand’s simplistic tropes and often-silly propositions are many. Despite the fact that her views don’t amount to serious economics but proselytising, her voice is prominent in our business media.
The dominance of neo-liberal ideas was forged during the Cold War period, particularly in the US, where an ideological battle was being waged between the US and USSR over different models of economic organisation.
Recent scholarship on neo-liberal history paints a firm lineage and evolution of ideas from Walter Lippman’s book, The Good Society (1938), to the first neo-liberal congregation in 1947, which drew on thinkers from across the North-Atlantic. The members called themselves the Mont Pelerin Society. This is where the term neo-liberalism was first debated and later adopted as a defining feature of this group’s agenda.
During this period, more extremist views on free market capitalism were underpinned by fears of communism and statist policies. Economic policy failures in China and Russia also added weight in favour of neo-liberal thinking despite some of the extremism overplaying its hand during the McCarthy era when an aggressive witch-hunt sifted out people with communist leanings and sympathies.
The anti-communist purge of Hollywood’s film industry is a case in point. When Ronald Reagan headed the Screen Actors Guild in 1940 he was recruited by notorious head of the FBI, J. Edgar Hoover, to identify communists in Hollywood and hand over information to the government agency. This formative period of anti-communism was to influence Reagan’s subsequent preference for neo-liberal economic policies.
It is clear that neo-liberal ideas would not have flourished without an enabling political environment, especially during the Thatcher-Reagan era, along with generous corporate financial backing and a favourable press.
British environmentalist and public intellectual George Monbiot once pointed out that “the philosophy developed at Mont Pelerin (was) little but an elaborate disguise for a wealth grab.” Core to their ideas was a political and economic philosophy of unfettered individualism, which later had a distinct influence on economic theory. The other tenet being that economic co-ordination is more efficient through a market price mechanism than regulation or state intervention.
It is not only leftist thought, but also neo-Keynesianism that faced the neo-liberal guillotine. Any form of sane discussion on the role of the state in the economy continues to be the subject of irrational howling from neo-liberal camps predominantly in the US, but also here in South Africa.
Here in South Africa, mainstream economists have a tendency to demand and defend neo-liberal positions such as removing the minimum wage, lowering taxes for the private sector and privatising state-corporations. They also seek as minimum a role as possible for the state in public life while adopting a conservative stance on inflation targeting, accusing labour of unproductivity and taking a strong anti-industrial position. A central thesis is to assert notions of efficiency above broad social welfare and inclusiveness.
While leftist debates of varying quality have surged in the Zuma era, South African neo-liberals appear be well co-ordinated and, are taking courage from their assertiveness at attempting to control the debate as well as instil doubt into new ideas that seek to challenge this orthodoxy.
In truth, realist economic positions are always context driven. The context being how to remove constraints on growth, dealing with the legacy of inequality, debates about redistribution, the problem of market dominance, dependency on foreign capital, levels of unemployment and so on.
It’s clear that context determines the balance of weight distributed between efficiency and public interest/social welfare preferences. Rhetorically, both left and right are concerned about the same issues but they differ on theory, method and what the outcomes should be.
In any case, knee-jerk assertions and canonical statements have to be judged for their relevance in relation to how economic power and decision-making in the economy is distributed and co-ordinated. Economic policy preferences are an outcome of political power and often not the merit of economic theory.
We have also to recognise that the state too has limited capacity and resources to deliver on all the demands for goods and services in the country. How private resources are used should be debated not on ideological grounds, but on how to achieve desired economic outcomes.
Private and social entrepreneurship should be a vital component of how economic policy is framed and planned. South African economic thinking has a stronger preference for both “big state” and “big corporations”. This is largely an effect of the fact that large firms, the finance sector and state institutions have greater policy influence and the ability to capture state economic thinking.
However, the long-term sustainability of the economy has to be more inclusive and create enabling conditions for all levels of society to contribute to economic activity and wealth creation. Unlike some of the biases of conventional thinking, enterprising endeavours can be found at all levels of society, not just in the realm of large private firms.
In this regard, given some of the protracted structural problems in our economy, heterodox economics is ideally suited for a country like South Africa. Heterodox economics refers to a diverse range of economic traditions and schools of thought, including but not limited to socialist, Marxian, feminist, ecological and post-Keynesian economics. A well-known contemporary heterodox economist is South Korean-born Ha-Joon Chang.
Despite all the other problems associated with the Zuma term, if one considers attempts to implement an industrial policy strategy, changes to our investment trade agreements and attempts to establish a national health system, some heterodox options have emerged. Yet, we can’t tell whether they will succeed. Only time will determine this.
However, the intellectual presence of heterodox thinking remains weak and marginal to mainstream debates in South Africa. Meanwhile, heterodox views and solutions are receiving a better hearing amongst mainstream economists in developed economies. These views vary from debates about inflation targeting, deficit spending versus austerity measures, industrial development, the impacts of automation and ideas such as limited banking.
Heterodox thinking will not easily find a foothold in the current hostile climate in South Africa. Heterodox views, though, will enhance economic policy debates, their richness and diversity. Where we have been politically egalitarian, we have been less so on economic policy.
It is important at our current historical juncture to create an enabling environment for more economic policy diversity. We also have to accept that heterodox economics is unlikely to address all our economic problems. However, the insertion of some of these ideas in a receptive political party that has an interest in changing things is an avenue that should be considered.
Globally, the growing industry of heterodox ideas can only gain a presence through an international forum that involves an alliance of different types of heterodox thinking, irrespective of ideological affiliations.
A network of heterodox economics that goes beyond the current polarised debates can evolve in South Africa. Thought must be given to the proper organizing of a network of economists to focus on different parts of the economic challenge and take on different parts of the puzzle through theory and case study. Progressive unions, government departments, NGOs, business and the press can all play an important role in this. Heterodox ideas should also appeal to ordinary citizens who ought to participate in this debate.
Politics and economics must be focused on realistic solutions to deal with poverty and inequality. Often economic common sense tells us one thing, but the tactics to achieve the end goal may have to be less dogmatic, practical and appealing.
The fundamental economic act is the completed voluntary exchange of goods and/or services between two parties. Without such acts there is no economy. Thus the provision of conditions which facilitate the completion of such acts should be the sole aim and purpose of any economic policy. Sadly, it seems to me, the connection with this fact is lost sight of in much of the economic debate that occurs. People become pre-occupied solely with monetary issues losing sight of the reality that money is just a convenient external representation of the perceived intrinsic values of exchanged goods and/or services. This oversight matters but it would not matter so much if each unit of currency was guaranteed to represent some, or all, of the intrinsic value inherent in a particular good or service. If that was the case then manipulations of money rather than the real goods and/or services, the inherent values of which the money represents, would be grounded in reality not in delusion.
Sadly under our current monetary system there is no guaranteed connection between the intrinsic value inherent in goods and services and the intrinsic value that is accorded to a unit of currency. This means that the amount of money needed to exchange for a good or service can literally vary from moment to moment, and it does, just look at the Rand/Dollar or Rand/Pound exchange rates. This happens because more money is put into circulation than the intrinsic value of the total of actual exchangeable goods and services available in the economy. This debases the currency and naturally leads to inflation in monetary prices with consequent social dislocation evident in strikes for higher wages for example.
The debasement of the currency is not a natural phenomenon, even though those responsible for it would like others to think it is, it is a humanly created condition by those responsible for causing it. Basically anybody who issues currency which has no unique link to the intrinsic value inherent in particular real goods and services is debasing the currency. Counterfeiters do it but they are recognised as criminals and rightly gaoled. The banks do it when they issue unsecured loans to borrowers. That however is legal so the banks are not gaoled but rewarded by their shareholders for increasing the bank's monetary profits, at the expense of the whole community because the purchasing power of money falls across the board as a result of these actions by the banks.
The first step in any economic policy should be reform of the monetary system in order to stabilise the value of the currency otherwise any other suggestions that the policy makes are equivalent to trying to perform the ballet Swan Lake on a trampoline.
I really appreciate Saliem's work.
He's right on the money (pun intended) here. Neo-liberalism dominates the public debate and while there is a vociferous left, it's mostly dogmatic, intolerant and anything from 50 to a hundred years out of date. The left in South Africa really needs to up its game if it wants to be effective.