Were it not for our economic malaise and the negative growth numbers that came out of Statistics SA the day before, the “quantity easing” part of the ANC’s post-lekgotla statement might have been dismissed as a typo. However, the debate, for all its faults and status as cannon fodder in the narrow factional stand-off within the party, has again placed this issue at the centre of the public conversation.
Even the governor of the Reserve Bank accepts that there is a tradeoff between higher interest rates and output. He said as much in a lecture in Stellenbosch in March: “Inflation has not really been sufficiently low to get our high long-term interest rates lower, and this creates an economic cost that weighs more heavily on job creation as time goes on”.
The governor accepts, unlike some of the missionaries of orthodoxy, that there is a “jobs cost” of using the main tool at his disposal — prime lending rates. As ANC policy lead Enoch Godongwana reminded us, Pravin Gordhan was also aware of the trade-off and articulated it in his 2010 letter to then governor Gill Marcus.
What changes will be made to fiscal, trade, labour and industrial policy alongside whatever instrument choice is made on monetary policy?
However, when debates on monetary policy become a proxy for factional contestation, resolutions are read in interesting ways, with little reference to policy-related institutional memory. This memory is not only lost to either those in the world of orthodoxy or the warring factions in the ANC, but they still make it appear to be an entirely novel debate. It isn’t.
It is the government, and not some shareholders of the central bank that makes policy. That is why the ANC resolutions are framed the way they are. The deployees of the ANC in government are charged with changing the mandate — if they agree. It is agreement internally that has been elusive.
Last week’s faux pas is an example of the internal incoherence of the governing alliance on economic policy, and the inability to converge on a common message to disseminate to an external audience, because of this divergence in views.
It is clear that SA not only has a growth problem, as the figures released last week indicate, but that we also have a demand problem considering the financial results of many consumer-facing firms in retail and elsewhere. All of this in the context of a globally linked economy faced with supply-side cost risks that we can’t control. These include rising administered costs such as electricity, and the rand-dollar exchange rate breaking through the R15 threshold in a significantly import-reliant economy.
Any extension of money supply in this context, as implied by the “easing” suggested by Ace Magashule, may (in a context of weak production) lead to import-fuelled aggregate demand with adverse exchange rate and price implications. It’s complicated. The literature is not unanimous on this issue. Those who try to convince us that it is, and that there are universal “facts” about this, are misleading us. Just like those who raise “Zimbabwe hyperinflation” at the slightest suggestion of alternatives.
It is also unhelpful for people to suggest that lowering interest rates will miraculously build factories to employ the unemployed, make us consume less imports or lead to jobs at the scale necessary to fix our social crisis. Monetary policy doesn’t have that kind of power, but it has some power — alongside other reinforcing policy. It is this policy mix that has been notably absent from this debate. What changes will be made to fiscal, trade, labour and industrial policy alongside whatever instrument choice is made on monetary policy?
It is not enough to suggest that even inflation targeting pioneers such as New Zealand are moving away from the policy. Nor is it sufficient to suggest that nations such as India, which shows us up on the cricket pitch and in growth numbers, are also shifting away from a price focus in their policy.
What is required is an ability to speak in one clear voice about the focus of our entire policy mix, rather than one element. That way, any instrument will be selected on its ability to align to a constellation of other policy instruments in pursuit of a common goal — to get our people busy and our economy moving.
• Cawe (@aycawe), a development economist, is MD of Xesibe Holdings and hosts MetroFMTalk on Metro FM.
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