What do we do in such a crisis?

Last weekend the head of the South African Reserve Bank, Lesetja Kganyago, warned against what he termed “populist” responses to the current economic crisis. Instead, he called for greater responsibility, accountability and restated firmly his commitment to the rigors of inflation targeting and admiration for “fiscal discipline.”

While we always want to apply a critical lens to new policy offerings, Kganyago’s neat populist/sensible binary serves, in my view, to undermine the range and depth of our thinking on economic issues.

The dichotomy juxtaposes a supposedly moderate, sensible, and considered orthodoxy with a reckless and morally righteous but intellectually bankrupt alternative. Any deviation from orthodoxy is made coterminous with the most extreme cases, like Zimbabwe and Venezuela.

What is populism anyway?

I have always been skeptical of the analytic value of the term “populism.” Indeed, what is termed “common sense,” and what is termed “populism” varies across time and space and politics. “Common sense” is something that is socially generated, a function of some mixture of intellectual ingenuity, practical need and, crucially, material backing by interest groups in society. It is the latter that is often the decisive factor in producing a seemingly general conventional wisdom which is in fact an ideology designed to serve particular interests. What constitutes the exact mix of the former makes for an interesting empirical and historical question.

Turning to the character of economic discourse in recent memory, we know that “common sense”—at least in the Global North—during the immediate post-World War II era was based largely on Keynesian economics, although a number of countries went beyond Keynes’s more narrow prescripts, as was the case in Sweden in the form of the Meidner Plan. The conventional policy blueprint of the era, implemented to varying degrees, included the welfare state and other ingredients of social democracy i.e. stable and high wages, social provision of basic services including health and education, strong collective bargaining mechanisms etc.

The economic thinking of the time held that an active state was necessary to smooth over the consequences of capitalism’s inherent tendency to market failure and responded to a real need for social reconstruction after the economic collapse resulting from World War II. There was widespread determination to ensure that the social conditions that generated fascism—high unemployment being primary—would not return to disturb the peace. In addition, as Eric Hobsbawn reminds us, in the context of the Cold War, “Western” elites were somewhat forced to accept a more equitable capitalism, not only due to pressure from local labor, but also as their economic model faced, if only for a brief moment, a challenge of legitimacy in the face of Soviet-style socialism.

This had profound consequences for countries in the Global South, many of whom were in the midst of independence struggles at the time. As Thandika Mkandawire has pointed out, the early “development” discourse coming from donor countries in the West followed a Keynesian bent.

Yet the so-called “golden” age of social democracy—“golden” due to high growth rates, relative social equality and stability achieved in the Global North in that era—collapsed in the 1970s in the wake of a crisis of profitability. The Thatcher and Reagan regimes in the UK and US consolidated a shift to a new orthodoxy. “Common sense” transformed into an unbridled faith in the virtues of the free-market, conceived to be welfare maximizing and naturally stable. We were now in the age of neoliberalism, backed by a corporate elite interested in securing more favorable terms for accumulation.

In the Global South, the dominant development thinking changed gear in-sync and was crystalized in the “Washington Consensus” and Structural Adjustment Programs imposed by the World Bank and IMF. South Africa had its own structural adjustment some years later with the introduction of GEAR in 1996. The collapse of the Soviet socialist experiment certainly supported the conviction that free markets were the thing of the future.

The free market “common sense” has, however, not lived up to its promises. Today, we are witnessing widening global inequality and economic instability. The market system seems incapable of dealing with the challenges posed by climate change, by technological change and automation. Financial deregulation has led to growing financialization and financial instability, threatening another global financial crisis. Economies that have modeled themselves on neoliberal orthodoxy have stagnated and the structural adjustment programs imposed on countries in the Global South were an outright failure. In pure economic terms, China, hardly a country that subscribes to liberal orthodoxy, is one of the most dynamic economies of the modern era. The development experience of East Asian countries did not follow the script of the Washington Consensus either.

“Common sense”, in short, is proving to be nonsensical. Global politics is making this abundantly clear: the rise of Trump, Brexit, the crisis of the EU, and the rise of far-right, racial nationalism and xenophobia across the globe from Brazil to South Africa all point to the fragility of global liberal democracy. We are living in anxious and dangerous times and there can be no return to the “common sense” that has governed global economic discourse in the neoliberal era.

The end of the ‘End of History’

Ironically, the man who famously proclaimed that the neoliberal age would constitute “The End of History,” is one of those leading calls to abandon current orthodoxy. Fukuyama has gone so far as to call for a “return to socialism” and has admitted that Karl Marx was right about capitalism’s inherent tendency toward crisis. In Fukuyama’s words, if socialism means:

…redistributive programmes that try to redress this big imbalance in both incomes and wealth that has emerged then, yes, I think not only can it come back, it ought to come back. This extended period, which started with Reagan and Thatcher, in which a certain set of ideas about the benefits of unregulated markets took hold, in many ways it’s had a disastrous effect.

And further:  

At this juncture, it seems to me that certain things Karl Marx said are turning out to be true. He talked about the crisis of overproduction… that workers would be impoverished and there would be insufficient demand.

These are remarkable admissions from a man who was once considered to be part of the intellectual vanguard of free-market capitalism. His words are a sign that the liberal consensus that has governed our thinking since the 1980s has disintegrated. Indeed, both the IMF and World Bank have also distanced themselves from their “Washington Consensus” past, the former even going so far as to publish a critique of neoliberalism itself.  

To be fair to Fukuyama, he was never as rosy-eyed about the fortunes of liberal democracy as his admirers and detractors let on. In his “End of History” he bemoans the spiritual dearth of neoliberalism, an ideology, he argued (and with hindsight rightly so), that is ripe for tribalism, narrow identity politics, and fundamentalisms. Nonetheless, he and his fellow travelers played an important role in entrenching today’s orthodox “common sense.” And it is to that “common sense” that conservative economists in South Africa still appeal to justify their hesitancy to embrace alternative policy solutions. This deserves to be challenged.

Imagining alternatives in South Africa

Given the depth of South Africa’s social and economic crisis, we need to be bold about forcing through an urgent conversation about economic policy alternatives. Such open conversation is necessary precisely to avoid the recklessness that the Kganyago rightly worries about.

The persistent legacy of colonialism and apartheid in South Africa makes our current crisis particularly combustible. And we have already experienced a startling turn to the politics of indigeneity and racial nationalism, sometimes, and worryingly, wrapped in pseudo-progressive garb. The rise of xenophobia and tribalism also highlights the fragility and anxiety that define our present-day reality. In this context, it is imperative that those economists and political economists who have been exiled by “common sense” should find a voice.

I am hopeful and excited, therefore, about the potential of the student-led Rethinking Economics for Africa (REFA) movement, launched this year in Johannesburg at the same time as the launch of the Institute for Economic Justice (IEJ). REFA joins an international movement with several chapters that emerged as a direct response to the global crisis of 2008 and the failure of mainstream neoclassical thought to account for the largest slump since the Great Depression.

There is certainly a need for a pluralist approach to economic problems as students need a wide theoretical vocabulary to confront the vast economic challenges confronting our national and global societies. It will take time but early signs suggest that future curricula may include a diversity of perspectives—Post-Keynesian, Marxist, feminist, ecological—not as mere peripheral electives, like economic history has for so long been treated, but as a central component of a rounded economics education.

A broader shift in economics discourse in South Africa must also involve discussions on alternative forms of accumulation and distribution. We certainly cannot go back and attempt to neatly copy welfare state models of old, let alone should we return to a totalitarian planned economy. Modern times need modern thinking, but something must give on the current orthodoxy.

In my view, concrete programs to mitigate the current economic crisis must include an end to austerity, a state-led productive investment program, concerted effort to attack obscene wage inequality, a wealth tax, efforts to curb illicit financial flows, and the reorganization of SOEs as agents of social transformation. These should all be articulated within a broader and more ambitious industrial policy, building on, but moving beyond, the DTI’s Industrial Policy Action Plans. This is not an exhaustive list. Other more creative solutions include a Universal Basic Income (UBI), sovereign wealth funds, cooperatives and solidarity economies. Surely one of the central priorities must be thinking through a “just transition” to avert the looming threat of climate change. These solutions should be debated and discussed as part of our everyday economic policy discourse.

So, let us listen to Fukuyama, imagine alternatives and escape the current grip of economic orthodoxy. Doing so requires, as a first step, a recognition that things simply cannot continue as they are. This is the time for creativity. If things don’t change in a conscious way, governed by democratic principles and a commitment to the empowerment and self-empowerment of the poor and marginalized in our society, then, indeed, history will repeat itself farcically once more.