We need to embrace new thinking
Reserve Bank can no longer be a spectator to gross inequality
About a year ago, a dear friend graciously bought me Walter Scheidel’s book titled The Great Leveler, which peruses inequality throughout the ages and asks an unsettling question: can equality be achieved in a non-violent manner?
Scheidel, an Austrian historian, answers this question in the negative. He argues that history has shown that the only things that can reduce inequality are mass-mobilisation warfare, transformative revolutions, state collapse and deadly pandemics.
This is because, he argues, such events he colloquially refers to as the “Four Horsemen” have historically destroyed the fortunes of the rich.
Scheidel’s assertion is disquieting – that inequality reduces when strife and revolution strike and increases when peace and stability return.
He points to a rapid decline in inequality in the aftermath of World War 2, which saw new opportunities come forth until income inequality surfaced again globally in the 1980s as one example.
Inequality in South Africa is something we know too well. It is as if we have become comfortable living in “two economies”, as former president Thabo Mbeki aptly described the wealth inequality in the country. And ours has a special characteristic, it has a strong race dynamic.
When Covid-19 visited our shores in March 2020, President Cyril Ramaphosa promised to rebuild a new economy that will be transformed.
This is yet to happen and might yet be another deferred dawn. Nothing the Ramaphosa administration has done seeks to suggest it is ready to reduce inequality. And yes, the pitiful R350 “relief grants” don’t make the cut.
This simply means that one leg of Scheidel’s thesis of deadly pandemics being a great leveller will not be the panacea to South Africa’s inequality conundrum.
However, the outbreak of violence in Gauteng and Kwazulu-natal in July last year was the clearest warning sign that the environment is ripe for masses to embark on an unled revolution if tangible change doesn’t take place.
Mass corruption in the public sector is also the biggest threat that might lead to state collapse instead of the elusive developmental state the ANC has been pursing for decades. These are possibilities we must avoid to have prosperity and equality in times of tranquility – even as cosmetic as ours is.
Reducing inequality and poverty in the country will require a new type of leadership willing to embrace new thinking.
One of the proposals some in society including the SACP have put forward is for the review of the South African Reserve Bank (SARB) mandate to include job creation. The central bank’s boss, Lesetja Kganyago, famously warned in 2019 that calls for the bank to expand its mandate were akin to “barbarians” being at the gate of his institution.
Central bankers pretend to care about inequality when, in fact, they don’t. The trickle-down economics, which are expected to miraculously benefit the poor, is one of the biggest lies of our time. It is folly to keep on expecting the Reserve Bank to have a narrow focus, restricted to managing a small set of macroeconomic variables like inflation targeting or price stability, as Kganyago and his peers like to refer to their mandate.
Make no mistake, I am not advocating that monetary policy alone can reduce inequality. But elected public officials cannot continue to kowtow to their unelected Reserve Bank counterparts.
The stakes are too high.
One of the successes of the Bank of Japan was the Window Guidance policy after World War 2. This tool of monetary policy saw the bank request commercial banks to finance a specific company, industry, good or service. This saw Japan become the world’s second-largest economy in the 1980s, behind the US.
The South African government has identified small businesses, tourism and reindustrialisation and key policy positions to grow jobs and the economy. What monetary tools is the SARB deploying to ensure these objectives are met? Nothing.
Banks are allowed to lend to whoever they want using their strict criteria. This cannot be the case in a country with high inequality and employment.
Politicians must be able to ensure we have a system where fiscal policy and monetary policy are in tandem. This cannot happen when the central bank only cares about price stability.
The “barbarians” Kganyago warned about might not be politicians but masses of South Africans reduced to spectators in the economy and whose anger is becoming tangible.