By Redge Nkosi
THERE are growing fears among careful economists that South Africa’s descent into a cesspit of neoliberal ideals such as the current development by dispossession may have now crossed an inflection point. The consequences, both economic and social, could be unfathomably dire.
Development by dispossession is a route through which accumulation by dispossession is first achieved using the parliamentary money bills process.
Interested politicians and aligned bureaucrats seek to enfeeble the state and the population at large in a static and monolithic logic of subsidising profit accumulation by private firms of the local elite and their connected foreign counterparts.
The rest of the private sector (majority) is fed on an ever-slimming diet of credit, chokingly high interest rates and drying state support.
South Africa’s dispossession is attained by encoding in economic policies, a supposed development agenda laden with philosophies of austerity, derisking, deregulation, dismemberment of state enterprises and the securitisation of development.
This is done on the pretext that the government lacks the financial wherewithal (fiscally constrained) to undertake social and economic development at the scale and pace sufficient to dislodge the country’s chronic and now worsening developmental challenges.
Through the parliamentary money bill process, therefore, the macroeconomic institutions of the state continually embed in the national psyche these grotesque neoliberal philosophies through social and juridical expectations.
Expectedly, both the voting and non-voting public are thus predisposed to thinking of their social and economic problems in the neoliberal framing of privatisations, structural reforms, derisking and belt-tightening (deficit reductions) as solutions.
Aided by a cacophony of noise from neoclassical (read neoliberal) economists, compliant media and big business groupings, their contrived gospel “the fiscus is constrained” becomes the Moses delivered tablet.
As judicial discourse cannot deviate from such embedded expectations, the court system, ostensibly the bulwark against inequity, inequality and unfairness end up incorporating such deliberate neoliberal dispossessory wailings of “fiscus is constrained” in their rulings.
Indeed, the judiciary, through their doctrine of judicial precedent (stare decisis) cement neoliberalism and what is immanent in it: endless crushing poverty, grand dispossession as we see in South Africa, shocking inequality, world ranking unemployment, securitisation of development, climate finance and similar licensed larceny.
In 2020, the coronavirus pandemic provided the best cover and banner to accelerate the cultural shift in macrofinance towards greater austerity and derisking philosophies through which dispossession would be further masked under the “state has no money” ruse, sanitised through unnecessary borrowings from International Monetary Fund, World Bank, etc.
Expectations and purpose of loans are that South Africa should stay the course of the derided structural reforms of state-owned enterprises (SOEs), Eskom et al, dismemberment and related dispossessions.
This seismic shift to this development by dispossession is not without its macroeconomic foundations, however.
At the core is the primitive understanding of money and indeed banking by the neoclassical economists.
Here is how grand dispossession is justified in macroeconomic theory.
Some of the most powerful and influential economic models rest on the assumption that the amount of funds (money) available in an economy is limited.
As such, the government’s development agenda is circumscribed not by the lack of biophysical resources, but by the limited pool of financial resources (savings) available in government, and in some instances, the country.
What is implied by this logic is that savings are critical for investment and thus economic growth and that government and its SOEs can only borrow from local and international markets if they are to augment their limited financial resources.
Out of this “limited funds” notion surfaces an authoritative model borrowed from orthodox academic economics called “inter-temporal government budget constraint”.
This relates to how the state can solve matters of budget deficits, national debt, interest payments, poverty alleviation, development, and others all under the rubric of a concept called fiscal sustainability, also frequently addressed as debt sustainability.
As South Africa’s public policy debates and political noises attest, there are rare issues of such weighty theoretical and political interest as fiscal sustainability.
The theory that governs fiscal sustainability (budget constraint) and a phalanx of issues does not stop at the unavailability of money in the kitty and disbursements (fiscal), it goes right into the workings of the interest rate policy, termed monetary policy here.
It is so pervasive that freedom and democracy as a whole hangs on its assumptions and application.
Indeed, behind all the hysteria from the Treasury, the South African Reserve Bank and the cheering neoliberal economists on deficit, debt, inflation, foreign loans, external loans for SOEs and interest rates on bond markets, is the theory called “loanable funds”.
It is under this theory’s guise that neoliberalism undermines the critical economic role of the state, broadly grounds its appeal while bolstering its exploitational reach.
Even though pervasive, this theory was repudiated by no other than the father of modern macroeconomics, Lord J M Keynes almost 100 years ago.
Keynes, aware of who creates money, went further to show that any country with a reserve bank, where money is a creature of the state, the interest rate on national debt (long rate) is a policy variable, not market determined as commonly misguidedly held among many economists under this theory.
This crucial economic fact was later to be amplified by Dr Beardsley Ruml, the father of modern income taxes, dean at Chicago University and later governor (president) of the New York Federal Reserve Bank.
Delivering his seminal work to the American Bar Association, governor Ruml informed the lawyers and the world at large that for as long as a country had a sovereign currency, which was not convertible into gold or some other commodity (exactly as the rand is), the government’s wherewithal to meet its financial requirements was not constrained by what is in the kitty and is free from dependence on capital markets.
To be sure, all the economic development we now see before us (East Asia, Germany, US, and China) today was delivered not on the basis of this theory’s application.
What is more, all notable reserve banks, including those of Britain, Germany, the US, Australia, EU (ECB) and many more have since 2014 repudiated the ubiquitous loanable funds theory and its money multiplier myth behind which the South African government and reserve bank apparatchiks continually shelter.
To be exact, this discredited theory through its budget constraint model is the basis upon which the first leaked Presidential Economic Advisory Council’s (mis)advice to the president, citing “risks” to the fiscus in regard to basic income grant is grounded.
There are numerous negative macroeconomic consequences of labouring under this theory than scope of this article permits.
Careful economists also known as heterodox economists had long known about the theory’s naivety.
The challenge for SA is that neoliberal economists know no alternative to this discredited theory.
Why governor Ruml had chosen to make known a profoundly crucial financial and economic reality to lawyers is not clear.
However, given the “lawmaking power” the judiciary holds, his silence would have been interpreted as giving veneer of respectability to the grand dispossession the neoliberal contrived “fiscal constraint” generates by being incorporated in court rulings.
Court rulings where this neoliberal myth has been observed as an economic fact have been seen in South Africa.
@redgenkosi: Redge Nkosi is an executive director of Firstsource Money and founding executive board member of the London-based Monetary Reform International.
*The views expressed here are not necessarily those of IOL or of title sites.
BUSINESS REPORT ONLINE