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The Reserve Bank’s mandate of pursuing inflation as a solution to economic problems only benefits those with resources, writes Bheki Ntshalintshali.
Workers’ federation Cosatu has recently welcomed Public Protector Busisiwe Mkhwebane’s call for Parliament to consider changing the mandate of the South African Reserve Bank from only focusing on price stability, as pursued through inflation targeting, to considering broader economic development issues.
This emotive topic has elicited a flurry of reaction from many quarters, condemning her for overstepping the mark. The question of whether or not the Public Protector has the power to instruct Parliament to change the mandate of the Reserve Bank from price stability to broader socioeconomic issues is a valid one, but it should not be used to censor the debate about the role and mandate of the Reserve Bank.
Our own perspective of a South African economic growth path includes issues of social equity, redistribution and environmental sustainability, and goes beyond the narrow definition of economic growth, which is based on GDP growth rate and per capita income growth.
We subscribe to the view that no policy measure can be neutral. The reaction to the Public Protector’s recommendation clearly shows that within the ruling elite there are those who are benefiting from the current mandate of pursuing inflation as a solution to South Africa’s economic problems. This policy issue should not be treated as taboo because it is not natural law. It is our considered view that narrowly targeting inflation ignores the long-term impact of colonialism and apartheid in favour of satisfying the narrow interests of those already with resources, including foreign investors.
It is true that inflation erodes the buying power of money and, without diluting the dangers of high inflation rates, we argue that most workers would prefer jobs over low inflation. When interest rates are increased to reduce inflation, people who rely on wages as a form of income suffer the most because they find it difficult to afford paying back instalments on credit cards and house bonds, and small businesses find it difficult to obtain credit to build factories.
If companies cannot service their debts because of high-interest payments, they usually cut down on the costs of doing business by cutting wages and laying off workers, in the process weakening the collective power of unions. While the policy of inflation targeting looks innocent and neutral, in practice it has serious consequences for the right of workers to fair labour practices and for their survival in society.
As workers, we favour an approach that incorporates both the developmental imperatives and also protects the currency. These are mutually reinforcing rather than contradictory. If an external investor were to consider investing R1 billion in local manufacturing, they would not if they thought that in terms of the inflation projection that R1 billion would effectively amount to a third of its value in the following year.
Unfortunately in the current reality that is dominated by finance capital, a higher inflation rate suggests structural imbalance and becomes an impediment for investors, including our own, who become hesitant to invest if they are sure that the value of that investment will plummet.
We acknowledge that price stability is important even from a radical socioeconomic transformation point of view – as long as we depend on capitalists for job creation and growth.
The mandate of the US and other global north countries includes employment creation. The New Growth Path that has been virtually replaced by the neoliberal National Development Plan has called for a loose monetary policy but a tighter fiscal policy in order to create 5 million jobs.
We need a central bank that will pursue an inclusive monetary policy and that will regulate the finance sector with a view to ensuring that there is redistribution of income and wealth to all South Africans as mandated by the Freedom Charter.
As argued by Joseph Stiglitz in his book The Price of Inequality, focusing on inflation is wrong when a large part of the cause of inflation is imported in the form of oil prices and food prices and when the only beneficiaries of this policy are bondholders. The current policy of low inflation has entrenched the apartheid-era economic policy of separate development, income and asset inequalities. An ordinary person without a job would prefer a job over inflation. Better a job whose pay has declined in real terms by a few percent than no job. Low inflation has resulted in financial instability, recession, layoffs and loss of job security.
In addition to targeting employment the Reserve Bank should align its policy with industrial development, introduce foreign exchange controls, and impose quantitative controls on commercial banks to ensure that a quarter of their loans go to priority sectors that drive the growth path and create jobs on a larger scale.
It is also not lost on us that our Reserve Bank is currently only notionally independent as it generally subscribes to the dominant and conventional but failing policies received from finance capital – even at the expense of real producers of wealth in mining and manufacturing.
The Reserve Bank is too beholden to the interests of finance capital to have an impact on the broader economy, which is why the biggest noise in defence of the status quo comes from finance capital. The independence of the Reserve Bank in a multiparty bourgeois system is indispensable, but we want the bank to be independent from both private interests and a reckless or captured government. Otherwise the value of the rand can easily plummet if it’s up to populist politicians when there is an economic crisis, as we have seen in Zimbabwe.
The policies of the Reserve Bank currently reflect the neoliberal posture of Treasury, meaning that a captured government cannot be entrusted with the Reserve Bank. Cosatu proposes a fully publicly owned Reserve Bank that will account to the public through their representatives in Parliament on the implementation of this broad mandate we are calling for. This also means that the appointments to the bank must be subject to the same parliamentary processes.
The Reserve Bank should be taken from the banks and restored to the people to whom it belongs.
