Shut­ting de­bate over Re­serve Bank is so­cially harm­ful

The New Age (KwaZulu-Natal) - - Opinion & Analysis - Steven Fried­man is pro­fes­sor of po­lit­i­cal stud­ies at the Univer­sity of Jo­han­nes­burg. This ar­ti­cle first ap­peared on the­con­ver­sa­tion.com

STEVEN FRIED­MAN

WHAT kind of fi­nan­cial sys­tem is sure to col­lapse if the cen­tral bank cares about peo­ple’s well-be­ing?

The rec­om­men­da­tion by the pub­lic pro­tec­tor that the Re­serve Bank’s man­date change, says much about Bu­sisiwe Mkhwe­bane, none of it flat­ter­ing. It says just as much about main­stream eco­nomic de­bate – and none of that is flat­ter­ing ei­ther. Mkhwe­bane rec­om­mended that the cen­tral bank’s con­sti­tu­tional man­date, which makes pro­tect­ing the cur­rency its pri­mary goal, be changed to one which re­quires it to “pro­mote bal­anced and sus­tain­able eco­nomic growth while en­sur­ing that the so­cio-eco­nomic well-be­ing of the cit­i­zens are pro­tected”.

She also said the Con­sti­tu­tion should re­quire the bank “to achieve mean­ing­ful so­cio-eco­nomic trans­for­ma­tion”. This trig­gered a wave of protests, as well as an an­nounce­ment from the South African Re­serve Bank that it would take the mat­ter to court. It has no op­tion. The Con­sti­tu­tional Court has ruled that the pub­lic pro­tec­tor’s find­ings are bind­ing un­less they are chal­lenged in court. Her rec­om­men­da­tion wildly ex­ceeded what she is al­lowed to do by the Con­sti­tu­tion – or demo­cratic good sense – and the Re­serve Bank could not al­low it to stand.

Demo­cratic con­sti­tu­tions are changed by large ma­jori­ties of the peo­ple or their elected rep­re­sen­ta­tives – not by in­di­vid­u­als. By mak­ing a bind­ing rec­om­men­da­tion that the Con­sti­tu­tion be changed, Mkhwe­bane sig­nalled that she ei­ther doesn’t un­der­stand – or does not care – for democ­racy.

Her re­port is also use­ful to a fac­tion of the gov­ern­ing party which wants to de­flect charges of state cap­ture by claim­ing that white mo­nop­oly cap­i­tal al­ready con­trols the state. There are real ques­tions about the fit­ness for of­fice of a pub­lic pro­tec­tor whose re­port seems more in­ter­ested in pro­tect­ing con­nected politi­cians and busi­ness peo­ple than with tak­ing the peo­ple’s will se­ri­ously.

But the re­ac­tion did not stop at in­sist­ing that Mkhwe­bane has no busi­ness telling the peo­ple what the Con­sti­tu­tion should say. Much of it ob­jected not only to her say­ing what the Re­serve Bank’s man­date should be, but to any­one at all do­ing that.

An im­por­tant de­bate

The prize for the wildest re­ac­tion went to the commentator who de­clared that Mkhwe­bane’s ideas on the Bank’s man­date were in­spired by some­one who de­nied that the Nazi geno­cide hap­pened. Oth­ers stopped short of tar­ring con­sti­tu­tional change with the same brush as mass mur­der but were united in claim­ing that to sug­gest that the Re­serve Bank’s man­date be broad­ened is “eco­nom­i­cally il­lit­er­ate” and deeply dam­ag­ing.

Absa, which was the sub­ject of a sep­a­rate find­ing by the pub­lic pro­tec­tor on the is­sue of a con­tro­ver­sial bailout, asked a court to rule that her pro­posed change posed a “se­ri­ous risk to the fi­nan­cial sys­tem”.

For its part the rat­ing agency Stan­dard & Poor’s, happy as ever to po­lice the bound­aries of eco­nomic cor­rect­ness, warned that any in­ter­fer­ence with the Re­serve Bank’s in­de­pen­dence could trig­ger new down­grades.

To in­sist that any­one who pro­poses chang­ing the Re­serve Bank’s man­date is eco­nom­i­cally dam­ag­ing and stupid is as con­temp­tu­ous of democ­racy and dan­ger­ous to the econ­omy as Mkhwe­bane’s ex­cess.

It is un­demo­cratic be­cause it seeks to shut out pol­icy de­bate by declar­ing that only one view of the Re­serve Bank’s man­date can en­sure a healthy econ­omy. It is dan­ger­ous be­cause it blocks the search for eco­nomic reme­dies by seek­ing to bully even those who pro­pose only mild changes to what the coun­try now has.

The idea that the Re­serve Bank should have a broader man­date is nei­ther rad­i­cal nor dan­ger­ous. The most fa­mous cen­tral bank, the US Fed­eral Re­serve, has a broader man­date. Its dual man­date re­quires it to seek max­i­mum em­ploy­ment as well as price sta­bil­ity. The Aus­tralian equiv­a­lent’s man­date in­cludes “main­te­nance of full em­ploy­ment and eco­nomic pros­per­ity and wel­fare of the peo­ple”. The Euro­pean Cen­tral Bank, famed for its love of aus­ter­ity, has a man­date to seek “sus­tain­able growth”. And the Bank of Eng­land’s web­site says that, sub­ject to its goal of price sta­bil­ity, it aims to sup­port the gov­ern­ment’s eco­nomic ob­jec­tives.

In South Africa, not only has the view that the cen­tral bank’s man­date is too re­stric­tive been re­peated pe­ri­od­i­cally but it may well have been im­ple­mented for a while.

In 2010, then fi­nance min­is­ter Pravin Gord­han wrote to then Re­serve Bank governor, Gill Mar­cus, propos­ing a man­date which in­cluded growth and em­ploy­ment. Mar­cus re­acted pos­i­tively, which sug­gests that the bank acted on Gord­han’s let­ter. The fi­nan­cial sys­tem sur­vived.

The US, Euro­pean and Aus­tralian fi­nan­cial sys­tems have also not col­lapsed. Their man­dates have not trig­gered a down­grade and no one has ac­cused th­ese so­ci­eties of eco­nomic il­lit­er­acy.

So ei­ther dou­ble stan­dards are be­ing ap­plied or we are be­ing told that re­stric­tive cen­tral bank man­dates are es­sen­tial only if coun­tries are in par­tic­u­lar parts of the world (such as Africa) and gov­erned by par­tic­u­lar types of peo­ple (Africans).

And why does a change in the Bank’s man­date un­der­mine its in­de­pen­dence? A cen­tral bank loses its in­de­pen­dence if politi­cians (or any­one else) can tell it what to do, not if its man­date changes.

For all its flaws, the pub­lic pro­tec­tor’s pro­posal would re­tain the Re­serve Bank’s in­de­pen­dence, leav­ing it to the bank to de­cide what pro­motes the “well-be­ing” of the peo­ple or “trans­for­ma­tion”.

Clos­ing down de­bate is com­mon

None of this means that the Re­serve Bank’s man­date must change or that cen­tral bank in­de­pen­dence must go. But it does mean that no one should be dis­cour­aged from de­bat­ing the is­sue, as peo­ple rou­tinely do in other democ­ra­cies and mar­ket economies. What, be­sides that prej­u­dice which we pret­tify by the term Afropes­simism, ex­plains the in­sis­tence that we may not de­bate what is freely dis­cussed in most other places?

Clos­ing down de­bate in this way is com­mon in South Africa. It also lies be­hind com­plaints of pol­icy un­cer­tainty which does not mean, as it does elsewhere, that the gov­ern­ment keeps chang­ing its mind and send­ing mixed mes­sages – the macro-eco­nomic frame­work has been sta­ble for more than two decades. It means, rather, that some peo­ple – who some oth­ers may take se­ri­ously – raise pol­icy ideas the eco­nomic main­stream does not like.

This de­mand that peo­ple can say any­thing they like about eco­nomic pol­icy as long as the main­stream likes it too of­fers a mis­lead­ing view of the econ­omy.

It says that there is noth­ing wrong with it ex­cept po­lit­i­cal in­ter­fer­ence and that it will flour­ish if politi­cians sim­ply leave alone what is done now.

The con­trary ev­i­dence is of­fered by main­stream or­gan­i­sa­tions such as the IMF and the South African Re­serve Bank it­self which have shown that the eco­nomic rut is a prod­uct of prob­lems in the pri­vate econ­omy as well as what the gov­ern­ment does.

This means that the econ­omy must change. This, in turn, re­quires new ideas. They will not emerge un­less ev­ery­thing is up for de­bate and ideas are not silenced be­cause they trig­ger the fears and prej­u­dices of a few.

PIC­TURE: GETTY IMAGES

MAN­DATE: Pro­pos­als by the pub­lic pro­tec­tor that the man­date of the South African Re­serve Bank be changed has trig­gered strong crit­i­cism, with the writer be­liev­ing this is aimed at clos­ing down de­bate and dis­cour­ag­ing pol­icy changes.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.