Some lessons I have learned from reporting on economic crises:
* Don’t fixate on any one cause. Economies are complex webs of interrelated phenomena. Interest-rate changes are not the whim of the central bank, ie the Reserve Bank. They depend on a range of other economic actors, including our government and other economies in the world, crucially the US and China.
* Fixing the economy, especially when it has been badly skewed by previous policies, is not simple. The economic terrain is full of “unknown unknowns” and if policy were easy no country would be poor.
* Economic policy choices are informed by ideology, and in a democracy competing ideologies and competing vested interests make economic policy a tightrope walk.
* The South African economy has moved from an exceptionalist economic policy, forced on government by apartheid-induced isolation, to mirroring the rest of the world.
To take the first point. Our democratically elected president and his party cannot entirely be blamed for the present low economic growth. We are caught in a global economic storm not of our own making.
That storm is caused by plunging commodity prices, which means lower income from our mining exports, and the prospect of rising interest rates in the US, which threatens to suck money from the developing world. Our own problems, such as the electricity crisis, poor performance of state-owned companies, unemployment, inequality and corruption don’t help. But then neither does domestic pessimism, nor the racism that assumes incompetence of all in the ANC government and in the parastatals.
Secondly, seven years ago, before the global financial crisis threatened the world economy and upset financiers’ assumptions, business experts obsessed over the permanently high oil price and environmentalists over peak oil. Turns out there’s too much oil and experts now obsess over how low the oil price can go.
The bigger blindness, however, was that mainstream, orthodox economics and financial wizardry had somehow solved the problem of prosperity in the developed world with the developing world soon to catch up. The global financial crisis itself and its fallout in the continuing crisis of countries within European Union have surely disproved that idea. Developing-world economies, particularly the Bric countries, don’t seem such sure-fire growth bets any more.
Thirdly, there is always a tendency to believe some other country somewhere has found a solution. I have lived long enough to see a succession of “model economies” falling off catwalks.
Not that long ago, while Japan was threatening to overtake the US as the world’s largest economy, foreigners were rushing to imitate the Japanese answer to productivity, quality and economic growth. The lessons were just-in-time manufacturing, fanatical devotion to the firm, tight co-operation between business and government, and passionate devotion to customer satisfaction.
All those ideas were good, but didn’t save Japan from its continuing battle with deflation when its property bubble popped.
Then it was the turn of the Little Tigers. The lesson there seemed to be similar to Japan, but with export-led growth, greater government intervention to steer the economy and clamping down on unions.
This contradicted earlier adulation of the German model, with unions represented on boards for more labour stability.
The Chinese model has been the latest to look to for tips. The Chinese lesson, again, seemed to be, even more than elsewhere, state intervention, especially in investment, and export-led growth. As I write this grave doubts have surfaced about the ability of China to grow at the rates needed to rescue the world.
Fourthly, while the parade of economic models has come and gone, South Africa has cautiously aligned its macro-economic policies with other countries, letting the currency float as a shock absorber of international economic changes, focusing on keeping inflation in check, lowering tariffs, and avoiding politically capricious fiscal and monetary policy.
The result has been economic growth that moves in tandem with the world economy.
Is that a good thing? During apartheid the South African economy was on a roller-coaster ride of booms and bust (see the graph comparing SA growth with world growth). This was surely good for business reporters: it gave us a lot to write about. I doubt it was good for anyone else.