Dictators, hamsters and the economy

Ican imagine that in the years after the great wars of the previous century, a meeting of leading nations carried much weight as to what the world’s direction would be in the coming decades. Pipesmoking gentlemen with their three-piece suits, and certainly no women, would gather in smoke-filled meeting rooms and decide the course, and the most influential papers of the day would spread the word.

In an information age, our policymakers are slowly learning that those days have long gone. The first citizens of some 20 nations who have gathered in Japan this week no longer have the cover of darkness to plot a course for their countries. That their every decision or indecision is scrutinised and laid to shreds by a wide global audience has caused a sort of insecurity among them.

We’ve now reached a stage where no one nation, let alone person, has their hand on the wheel with regards to the shape or form of the global economy, or just what the unintended consequences of their decisions will be on the course of geopolitics.

I chuckled when I watched US President Donald Trump walk into a conference hall at the G20 meeting, trying to stand tallest among his peers with an air of control.

It was great showmanship and nothing else, but one has to say that the countless hours spent on the set of his reality show have borne some fruit.

And I’m not criticising Trump’s intellect. This is an uncertain time for any decisionmaker in the global economy, no matter their credentials or the Ivy League university they may have come from.

Everyone is seeking growth at all costs to maintain employment levels in their domestic economies and to push ahead of

their rivals in this fast-changing age.

Central bankers from Washington, Frankfurt and Tokyo are all tampering with interest rates to ensure they keep the lights on in their respective economies. With borrowing costs already near or at record lows, there’s little they can tamper with, in truth.

Given the success of Ben Bernanke’s experimentation with quantitative easing when he was at the helm of the US Federal Reserve, politicians have pressured the men and women who run monetary policy to do more to bolster their economies and inspire what has been missing throughout this global village of an economy — demand.

Their counterparts in emerging-market countries are reacting to their decisions or indecisions. It’s in no way surprising to me that this month SA’s central bank is likely to cut rates, in the same month that the Federal Reserve under Jerome Powell is set to do the same. The borrowing costs of emerging markets are tied to the fate of the world’s reserve currency — that’s just the reality.

With their tools, they are all searching for the ever-elusive demand that any healthy economy requires. We should come to accept that tampering with monetary policy is much like a hamster in a ferris wheel if the real work of structural reform isn’t undertaken by governments.

In SA’s case, I don’t think our policymakers are anywhere near that realisation, and if you consider what the National Education, Health and Allied Workers’ Union president said this week, we are depressingly quite far from it.

In his opening address to the biggest member of the once-great labour federation, Cosatu, Mzwandile Makwayiba said: “What is wrong about changing the mandate of the Reserve Bank to create jobs for our people? If the ANC resolution says we must nationalise the Reserve Bank, then let that be.”

Basically, he is proposing the lazy solution of simply cheapening the value of the rand to prop up consumption and industry. There are many in this camp who haven’t considered just where interest rates were in this country during the boom years between 2004 and 2007 — they were higher than they are now. On that old argument that a weak rand is good for industry, look no further than the fact that our currency has weakened more than 120% over the past 15 years.

It’s a plunge in value that hasn’t resulted in any strengthening of the industrial complex, and, in turn, growth in jobs.

There are no monetary policy solutions to mend our structural flaws; no printing of currency, dropping of borrowing costs or changing of mandate that will improve this situation. We just have to deepen the economic debate and not dream of a dictator to save us all, as Makwayiba told his delegates this week.

“What is wrong with a dictatorship? This thing of two terms — where have you ever seen a revolution of 10 years? Why were we not complaining and saying ‘Fidel Castro, you cannot lead for so many years, because here in SA we believe in two terms?’ ” That sounds like a unionist losing all his faculties.

Real work of government should be structural reform for growth

Derby, a former Business Times editor, hosts Power Business on Power FM