Umsebenzi Online, Volume 18, No. 11, 3 October 2019
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Volume 18, No. 11, 3 October 2019 |
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Don't choke progress, build national production, create employment: A friendly clarification on media reportage |
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Caiphus Kgosana set himself a great task. He looked at one of the SACP forthcoming Special National Congress discussion papers titled 'Once more neo-liberal macro-economic measures are choking transformation' (Bua Komanisi, Vol. 12, No. 1, September 2019). He produced a story with the headline 'SACP proposal set to stir policy pot', carried by Tiso Blackstar Group print titles and online outlets (e.g., the Sunday Times; Business Times; Businesslive; Times-e-edition; TimesLIVE, 29 September 2019). This important focus Kgosana chose is about our country's' development and transformation as well as appropriate policy choices and the role key institutions such as the South African Reserve Bank (SARB) should be playing. A correction or a few clarifications are necessary, however.
National production development, employment creation and the role of the Reserve Bank
Kgosana writes that the SACP wants the mandate of the Reserve Bank to be expanded '…to make it possible for the Bank to print money'. This is not in the SACP discussion paper. The exact wording in the document is:
'Many developed capitalist economies in the past decade have responded to the Great Recession through various forms of "quantitative easing". This refers to central banks actively loosening money supply, typically through dropping interest rates to close to zero (and in some cases to zero). This encourages public, private and household spending and discourages saving. It therefore acts, in theory, as a stimulus to growth and job creation.
'For various reasons, this form of quantitative easing is probably not feasible in South Africa.'
The document further states:
'However, there are various forms of more targeted "quantitative easing" and other forms of SARB intervention that should be urgently considered in South Africa. These include:
'The Reserve Bank directing concessional credit to specific sectors (SMMEs, local co-operative banks). This directed "quantitative easing" could be done directly while working with Treasury and DTI (Department of Trade and Industry), or through industrial financing institutions, e.g. the IDC (Industrial Development Corporation).'
The SACP discussion paper then refers to central bank in inverted commas and brackets as '(the "printer" of money)'. The double inverted commas in the brackets tell a story. The punctuation cautions against literal interpretation. Nevertheless the reference is to the legislated powers and functions of the SARB as legally provided for in the South African Reserve Bank Act. These powers and functions should be exercised in terms of economically sound parameters in line with the primary object of the Bank as enshrined in our Constitution and repeated almost verbatim in the SARB Act. We return to this question below, under the Reserve Bank independence.
The SACP discussion paper concludes this section by proposing that the Reserve Bank 'could "monetise" Rand-denominated debt'. The document explains what it means by this: 'For instance, the SARB could purchase public debt held by the PIC (Pubic Investment Corporation), on condition that the PIC then invests the new cash in key productive areas'. This can go a long way in supporting national production development and employment creation.
A related policy discussion taking place in the SACP is that of dual interest rates regime in favour of national production development and employment creation as opposed to the ideology of fuelling consumerism.
Reserve Bank Independence
Kgosana writes that the SACP 'has launched a blistering attack on the central bank's governors for aggressively protecting its independence'. Quite the contrary, the SACP discussion paper asserts and defends the operational independence of the Reserve Bank. The SACP discussion paper places emphasis on adherence to the Constitution with regard to how the powers and functions of the Reserve Bank must be determined and exercised. According to the Constitution, it is our democratically elected Parliament - and not the Reserve Bank - that must determine its powers and functions through an Act of Parliament.
In no way does the Constitution give the Reserve Bank independence to determine its own mandate. The authority to determine the Bank's mandate is vested in our democratically elected Parliament by the Constitution and accordingly rests with our democratically elected Parliament. The Constitution further requires Parliament to set the terms under which the Reserve Bank must perform its functions or exercise its powers. In doing so, the Bank must engage in regular consultation with the minister responsible for finance - so states the Constitution.
The above explains the constitutional context within which the SACP discussion paper is calling for the mandate of the Reserve Bank to not be narrowed but expanded to explicitly target employment growth. Employment creation is a national imperative that all institutions of our democracy must explicitly play a role to achieve and grow. South Africa is currently in the midst of a massive unemployment crisis. A population of approximately 10.3 million South Africans of working age is presently unemployed in terms of the expanded definition of unemployment which takes into account discouraged work seekers, according to the latest Statistics South Africa's Quarterly Labour Survey. The Reserve Bank as a key economic institution included, no reasonable public economic institution can ever refuse to explicitly play a role in employment creation and growth.
The exact wording in the SACP discussion paper on this question is as follows.
'A myth has developed in South Africa that Reserve Bank independence means not just operational but even policy and mandate independence. Successive Reserve Bank governors have conducted themselves as if they were the Ministers of Finance making macro policy for a democratically elected government. But this interpretation of Reserve Bank independence is increasingly outdated even in most developed capitalist economies.
'We are often told that the Constitution prescribes a narrow focus on inflation-targeting as the mandate of the SARB.
'However, this is not entirely true. The exact wording of the relevant Constitutional clause (224 (1)) is:
'"The primary object of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic."
'The neo-liberal advocates only get as far as the first half of that sentence. But the Constitution is clearly stating that protecting the value of the currency is NOT an end in itself - it must be subordinated to achieving balanced and sustainable economic growth. We manifestly do NOT have balanced and sustainable growth in South Africa. It is therefore entirely legitimate (and Constitutional) to debate whether the rigid application of a 3-6% inflation target band is contributing to the grossly imbalanced, unsustainable and low growth reality into which we are seemingly locked.
'The neo-liberal advocates will argue that this is "populism" and they will further argue that raising questions like this is an interference in the Constitutionally guaranteed "independence" of the Reserve Bank.
'But this, too, is a deliberate misreading of the Constitution. Section 224 (2) of the Constitution reads:
'"The South African Reserve Bank, in the pursuit of its primary object, must perform its functions independently and without fear, favour or prejudice, but there must be regular consultation between the Bank and the Cabinet member responsible for national financial matters."
'And Section 225 of the Constitution reads:
'"The powers and functions of the South African Reserve Bank are those customarily exercised and performed by central banks, which powers and functions must be determined by an Act of Parliament and must be exercised or performed subject to the conditions prescribed in terms of that Act."
'Clearly the Constitution does NOT envisage Reserve Bank "independence" to mean that it is a free-floating power unto itself:
'The requirement that there must be regular consultation with the Minister of Finance means that it is NOT the Reserve Bank that should develop macro-economic or even more narrowly monetary POLICY. That is the responsibility of a democratically elected government acting through a Minister of Finance. What the Constitution requires is that within the framework of government policy there should be no political interference exerted upon the Reserve Bank in deciding at a particular moment whether, for instance, to raise, lower or keep an existing interest rate. But this decision MUST be within the framework of government policy.
'Furthermore, the Reserve Bank is subject to legislation passed by a democratically elected Parliament. While the current Reserve Bank Act simply repeats the wording in the Constitution, there is absolutely no reason why this Act should not be amended to more clearly reflect the developmental responsibilities of the SARB.'
What about inflation?
As Kgosana correctly states, the SACP discussion paper cautions against the rigidity of narrow inflation targeting which is insisted at the expense of national production development and employment creation. Again verbatim, below is what the paper says?
'Under the impact of neo-liberal orthodoxy, the South African Reserve Bank (SARB) has made inflation-targeting virtually its sole mandate with a target-band of between 3 to 6%. Clearly run-away inflation would have an extremely negative impact on workers and the poor in our country.'
In its conclusion on this score, the paper states, as directly quoted below:
'There is no doubt that excessive inflation is liable to impact most severely on the working class and poor. But what is "excessive"? For the globally (and nationally) hegemonic financial capitalist sector (and its ideological adjuncts in the ratings agencies) even moderate inflation is disliked for the simple reason that it devalues rentier profits by eroding the value of interest payments due on credit extended to productive capitalists or to the public and state-owned sectors. For the latter sectors moderate inflation may well be exactly what is needed.'
Flowing from the above and other considerations then the discussion paper recommends to the delegates of the forthcoming SACP Special National Congress to endorse the following recommendation.
'Striking the appropriate balance between staving off excessive inflation while not choking off productive investment in any particular situation requires professional technical modelling - but it also requires a determined ideological and political battle against myopic neo-liberal orthodoxy.'
Umsebenzi Online is an online voice of the South African working class
