Reserve Bank governor, Lesetja Kganyago, has warned of the harmful effects of populism and choosing to follow ‘easy solutions’.
Speaking at the Association of Black Securities and Investment Professionals (ABSIP) conference in Johannesburg on Friday (19 October), Kganyago said that populism wins supporters in part because it speaks to ordinary people about real problems – problems other leaders can be too embarrassed or nervous to confront.
“But populism also has a bad side: it pretends there are easy solutions, even where there are none – where the problems are in fact very difficult,” he said.
“Often the easy solutions have unintended effects, impacts that populists ignore or are unaware of. It is these unintended effects that usually end up hurting the people those easy solutions were meant to help.”
Kganyago said that a number of Latin American countries, which have similar economies to South Africa, point to how dangerous these effects can be.
“Of course, every country is different. But the populist experience has been so similar, across so many countries and time periods, that we can pull together a few clear lessons relevant to our times and circumstances,” he said.
As part of his speech, Kganyago set out four principles for confronting populist economic policies.
“First, rich countries don’t make rich people,” he said.
“If your development strategy is to return the wealth of the country to the people, you don’t have a development strategy.
“Real, lasting wealth is about knowhow, not natural resources.”
Second, if you hear someone urging stimulus and going for growth, ask how they plan on dealing with the macroeconomic constraints, said Kganyago.
“What’s the plan for inflation? How are they going to meet the import bill to avoid a balance of payments crisis? If they don’t have a serious answer, they aren’t serious.
“If they do have a serious answer, expect it to include policies like inflation targeting, a floating exchange rate and measures for keeping the fiscus solvent.
“These things cannot be ignored. South Africa’s stimulus and recovery package does take these into account.”
The third factor to consider is that acute challenges of inequality, poverty and unemployment are not reasons to gamble on macroeconomic stability, said Kganyago.
“South Africa’s social challenges mean we need to be extra careful about managing the system carefully so it doesn’t blow up – not that we need to run the system as hot as we can get it and hope for the best.”
Finally, Kganyago said it was important not to ignore populists completely.
“They are very good at tapping into social frustrations – in a way, they are uncannily good instruments for detecting where society is hurting most,” he said.
“They aren’t very good at economics, so their ideas routinely end in disaster, but that doesn’t mean they are altogether foolish.
“Rather, they are a reminder to better informed, more responsible people that things have to change. We cannot just say the populist path will end in disaster. It will. But we still have to point out another path.
“You cannot just be against populism – you need to be for something too. We need to talk about how we are going to get back to real and sustainable growth in South Africa”.
You can read a full transcript of the speech below: