In this videoclip, Seeraj Mohamed, the director of the Corporate Strategy and Industrial Development Research Programme in the School of Economic and Business Sciences at the University of the Witwatersrand, speaks to Polity's Brindaveni Naidoo about the appointment of Gill Marcus as Reserve Bank governor and the future of South Africa's economic policy.
Below is the original opinion piece on which this discussion was based.
South Africa will have a new central bank governor before the end of the year. Gill Marcus Chairperson of ABSA Group and ABSA Bank will replace the current governor, Tito Mboweni. The financiers supported Mboweni because he strictly implemented economic policies they liked and the trade unionists deplored him because they saw his actions as causing economic hardship and against investment and employment creation. Now we have a new governor that was a former Deputy Governor of the South African Reserve Bank (SARB) and is currently Chairperson of the largest South African Banking Group. It seems that the financiers have one of their own to replace Mboweni. It remains to be seen whether the appointment of Marcus is a pyrrhic victory for the unionists that wanted Mboweni replaced. The African National Congress has made it clear that Marcus will implement existing monetary policy when she takes over at the SARB. Therefore, it seems that the new ANC government has once again chosen a strategy of macroeconomic policy continuity that is focused on maintaining credibility with South African and foreign financiers. Unfortunately, economic policy debates in South Africa about monetary policy and finance remain shallow.
The South African economic policy debate is centered on inflation targeting. Given the reality of the current global financial and economic crisis, the current debate about inflation targeting is like the medieval debate about the number of angels that could sit on a pinhead. It does not matter whether you manage to maintain very low levels of inflation over long periods of time. The stability of your economy depends on the stability of your financial sector. The long-term performance of your economy depends on how your financial sector allocates capital. The US had long periods of low inflation but they had a huge financial collapse. The cause of the collapse was inadequate financial regulation and control. The lack of regulation allowed profligate behaviour of financiers. While the financiers were enriching themselves there was a huge misallocation of capital towards speculation and consumption away from long-term productive investment. There was de-industrialisation and loss of productive jobs. The fixation on low levels of inflation could not stop the profligacy, unnecessary risk taking and economic disaster that started in the US and grew into a global financial and economic crisis.
The ultimate job of South African economic policymakers and the SARB is to ensure that we achieve our economic development goals. Our discussion about economic stability has to move beyond the distraction of inflation targeting. The most important question we have to ask ourselves is how do we regulate and control our financial sector to ensure not only that there is financial and economic stability but also that capital is allocated towards long-term productive investment and employment creation. Therefore, we have to reorient the South African financial system to ensure that it serves the long-term economic developmental goals of the country. We have to protect the economy from the possibility that financiers will destabilise the economy and misallocate capital. Every government that has had successful economic and industrial development over the past half century has done so by ensuring that the power of financiers was curbed and that finance serves the economy.
The new ANC government and the new governor of the SARB must realize that it is necessary to change macroeconomic policy and that the current debate about inflation targeting is superfluous. Their job now is to consider how to reorient the financial system away from short-term speculation towards financing investment in South Africa's economic and industrial development. One hopes that Gill Marcus as current chairperson of the largest financial group in the country and new SARB governor will play an important, constructive role in this economic development project.
Written by: Seeraj Mohamed