At the intersection where economics meets economic policy we traditionally speak of prices, cyclical or countercyclical policies, business cycles and so forth. While South Africans may have become inured to state capture, the concept of capture and its attendant methods are highly nuanced. There are, however, several forms of capture that can, and indeed do, influence policies, that we have to discuss.
Institutional capture as part of the larger process of state capture has been attempted at the National Treasury (with Des van Rooyen and Malusi Gigaba). Nevertheless, the Treasury has remained relatively free from institutional capture by rent-seeking miscreants and malcontents. It, and the SA Reserve Bank, have stuck to their mandates and, whether you like it and agree with it or not, the country’s finances have been handled prudently.
With institutional capture having now in effect been stopped (hopefully) and attempts under way to roll back the worst of the damage, the appointment of Enoch Godongwana as finance minister may spark attempts at cognitive capture. The radical economic transformation (RET) and EFF axis may be salivating at what they think is a weak spot.
Godongwana is a nice, approachable guy, whereas his predecessors tended to be more aloof, focused and disciplined, achieving varying degrees of stability and expansion and exercising prudence. Yet they could not prevent the raiding of other government departments. In fairness, that was not their job. You can get the engine to run smoothly, but the car will go nowhere if the wheels, headlights, windscreen, seats and steering wheel have all been stolen.
Godongwana is no fool. However, he appears to be amenable to arguments and ideas that might open a path for cognitive capture, by means of which the political machinations of the RET-EFF axis could secure a foothold in the Treasury.
In a different ideological context, cognitive capture was evident in the revolving doors between Wall Street and Washington during the presidencies of George Bush and Barack Obama. To paraphrase Raghuram Rajan on matters relating to the 2008 global financial crisis: when the RET-EFF axis get access to fiscal and financial policy they may appear to do what’s right for the country, but what they think accords with their old-school Soviet training.
That’s not hyperbole. The EFF is explicitly (and unabashedly) a Marxist-Leninist movement. Its constitution is clear about that. The RET faction, on the other hand, still believes it’s their turn to eat. They are at best bait and switch activists who put up pretences of being motivated by “economic justice”, but once they get power there is nothing stopping them from changing tack.
One of the arguments that emanates from the RET-EFF axis and its kind face, the Institute for Economic Justice (IEJ), is that printing money is the silver bullet for everything that ails the SA political economy. Things are actually not that simple. (Much against my will I am digging into the old orthodox economics coursework that I find so problematic.)
There is a strong position in economic theory that hyperinflation is caused by an excessive expansion of money supply. Zimbabwe and Venezuela have certainly provided sufficient evidence of this. There is also evidence (from research on the former Yugoslavia) that mechanisms behind hyperinflation are primarily related to state-subsidised credit financing of excessive wage increases at state-owned firms, and that money supply was accommodating wage inflation, instead of the other way around. So the actual causes of hyperinflation may not be different from those associated with the conventional thinking that came to prominence in the mid-1950s.
This brings us to public policy-making. Current conditions in SA make it irresponsible to simply print more money to throw at a rotting corpse in the hope of bringing it to life. We have also not reached the required threshold for quantitative easing. “A big quantitative easing operation wouldn’t lift the budget constraint. Instead, it would end up saddling Treasury with yet another bankrupt government enterprise asking for a bailout,” Reserve Bank governor Lesetja Kganyago has said.
Evidence — not economic theory or ideological dogma — demonstrates that corruption has debilitating effects on growth and public finances. The rate at which alliance cadres can embezzle tax revenues may push the government to turn to seigniorage to cover ever-expanding expenditure. This raises inflation, which in turn depresses investment by virtue of the cash-in-advance constraint — the requirement that each consumer or firm has to have sufficient cash available before they can buy goods. One outcome we can rely on is a decrease in capital accumulation and growth.
It may be unfair to Godongwana, but he seems to be more accessible, as a person, than his predecessors, and may be more easily seduced by cognitive capture. While the Reserve Bank’s mandate remains in place for the next year or two, and we can expect Kganyago to hold firm against the RET-EFF axis, it is going to be difficult for Godongwana to hold out. In the meantime, someone should remind the RET-EFF axis and IEJ of the devastating impact high inflation can have on the price of the basic foodstuffs consumed by the poor.
• Lagardien, a visiting professor at the Wits University School of Governance, has worked in the office of the chief economist of the World Bank, as well as the secretariat of the National Planning Commission.
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