Malema and Malikane brand of economics has gone Caracas
HUNDREDS of thousands of Venezuelans took to the streets this week to protest against the repressive regime of President Nicolas Maduro, the unpopular successor to the flamboyant Hugo Chavez. Three people died in this round of protests and hundreds were arrested.
Venezuela has been in a recession for three years, its economy shrinking by 18% last year alone. Inflation is expected to skyrocket to 720% this year, eroding what little savings citizens had left.
An acute shortage of medical supplies and, increasingly, of doctors — they flee to greener pastures — has devastated the country in which patients wait months for life-saving medical procedures.
Crime has increased rapidly as the economy worsened, and a picture of stacked, unrefrigerated bodies in a Caracas morgue made world headlines last year.
How could things get so bad in a country with one of the world’s largest known oil reserves? And what can South Africa learn from Venezuela’s mistakes?
There are several answers. But the core of Venezuela’s problems is that Chavez implemented many of the policies propagated by South Africa’s EFF party. “Commander-in-chief” Julius Malema praised Venezuela’s policies of nationalisation and expropriation in his eulogy after Chavez’s death in 2013: “President Hugo Chavez was able to lead Venezuela into an era where the wealth of Venezuela, particularly oil, was returned to the ownership of the people as a whole.”
Malema also said that “the standard of education and health in Venezuela has radically improved and stabilised, with guaranteed access for all people to quality free education and healthcare”.
Well, not anymore. Chavez’s house of cards has crumbled and Malema has become mum on Venezuela. This is why it is so worrying when Christopher Malikane, an associate professor at the University of the Witwatersrand and newly appointed adviser to Finance Minister Malusi Gigaba, advocates the expropriation of banks, insurance companies, mines and other “monopoly” industries, as well as the expropriation of all land without compensation.
These are the very policies Chavez implemented. They have been tried and failed miserably.
Ironically, Malikane and other hard-left economists claim their policies are novel, revolutionary, and that it is the old guard of economists that is standing in the way of true progress.
Well, let’s give them the benefit of the doubt and have a look at the policies proposed by Malikane.
Leaving out the excessive class-struggle rhetoric in the beginning, typical of the post-Keynesian macroeconomic literature Malikane subscribes to, he claims that banks and insurance companies are controlled by “white monopoly capital”. It is true that there is a high level of concentration in the South African financial system. But it’s not a monopoly, and Malikane should know that.
The term “white monopoly capital”, which features 47 times in Malikane’s proposal, was used by the controversial UK-based PR firm Bell Pottinger as part of its strategy for the Gupta family. Bell Pottinger advises a world elite of evil, which includes names like Alexander Lukashenko, the former dictator of Belarus; Asma al-Assad, the wife of Syrian president and war criminal Bashar al-Assad; and a number of repressive governments including Bahrain and Egypt. Malikane apparently did not bother to do the most elementary thing every academic is taught from day one: to go and actually read the primary literature.
It is also wrong to say the financial services industry is owned by whites. The share of black ownership at the JSE is 23% and larger than the share of white ownership. The largest part is foreign ownership, which shows South Africa is highly dependent on international capital flows.
Based on his wrong assessment of the state of the economy, Malikane suggests that a stateowned bank would provide “affordable credit to the progressive class forces”. This is precisely the kind of political meddling that people who, unlike Malikane, actually study stateowned banks, find to be the reason for their inefficiency.
IMF economists Jesus Gonzalez-Garcia and Francesco Grigoli show in a 2013 paper that state-owned banks provide more credit to the public sector, but crowd out credit to the private sector. This leads to higher fiscal deficits and more public debt, but not to more growth.
Other emerging countries, such as India, are desperately trying to rein in their state-owned banks, while China has been battling with excessive debt from stateowned banks and the ruinous real estate investments these banks made to prop up the economy. This, again, shows Malikane’s tendency to not bother with empirical evidence if it suits his political agenda.
This is why David Maynier, the DA’s spokesman on finance, is wrong in saying: “The fact that the minister is in damage control mode is proof enough that . . . Malikane should never have been plucked out of the seminar room, where his mad ideas could do no damage to the economy.”
We will need good economists after Malikane and other ideologists will have put South Africa on a march towards Caracas. After all, someone will have to clean up their mess.