The price of populism
“What few populist regimes realise is that redistributing wealth doesn’t mean that it can be rebuilt once it is gone,” adds Kganyago. “The wealth of a country doesn’t lie in its soul, but in the minds of its people. If the state declares war on market mechanisms and condemns rich people it breaks down the machine that generates wealth, kills off investment and scares skilled people away. There are countries with limited natural resources that are prosperous and countries with significant natural resources that are poor. There is more to wealth than winning the commodities lottery.”
The populist does not what to hear how a resource like oil is difficult to extract and requires both skill and infrastructure. They are not interested in the hard work of development and the patient progress of growing incomes year-on-year until the country is developed. This reality doesn’t work when the sales pitch says that the country is already rich and someone else is stealing the wealth.
“Unfortunately, people fall for get rich schemes all the time and countries can fall for them too,” says Kganyago. “There is abundant evidence that the economic strategy of populism leaves people worse off than before and yet the same ideas show up time and again. However, some countries have constructed defences against these errors, building constraints into their policy frameworks and ensuring that their microeconomics have brakes and airbags, not just accelerators.”
As South Africa sits within the risk framework for the rise of the populist leader and already bears the brunt of much of the issues highlighted in Kganyago’s analysis, it is worth paying attention to how the country can shift from poverty to growth.
Kganyago presented four clear principles that are designed to confront populist economic policies and highlight the gaps in long-term growth and development. The first is that rich countries do not make rich people — if the development strategy returns the wealth of the country to the people it won’t work, as lasting wealth is citizen knowhow. The second is to ensure that there are serious answers to questions around macroeconomic constraints and plans for inflation. South Africa has recently developed a stimulus and recover package that answers these questions to ensure sustainable growth. The third is to be aware that redressing the acute challenges of inequality, poverty and unemployment should not see the government gamble with macroeconomic stability. The system has to be managed with extra care to ensure it doesn’t implode.
“Finally, don’t ignore the populist complaint,” concludes Kganyago. “The populist is a very good benchmark of social frustration and can detect where society hurts the most. They aren’t very good economists so their ideas routinely end in disaster, but that doesn’t mean they are foolish.”