13 APRIL 2015 – 07:50

AS THE nation’s current, intermediate, and perhaps long-term economic growth trajectories have recently ratcheted significantly lower, parliamentarians need to explore the extent to which they should hold the South African Reserve Bank accountable.

This seems unfair as the Bank is arguably the least culpable, most professional and most capable among SA’s public-sector economic actors. Yet, contrary to fairness considerations, its competencies dictate that it should not be allowed to stand above the fray. While central banking being politicised is a universal fear, in SA such risks are minor relative to policy lapses provoking one lost generation after another.

For decades the chair of the Federal Reserve Bank in Washington has been required to report to, and take questions from, both houses of Congress twice a year. Such testimonies have become important “market events” for investors….

WOULD SA’s MPs be willing and able to formulate similarly challenging queries? The objective of a “televised audit” would be to put MPs under pressure to raise the quality of SA’s economic debates and thus upgrade its policy making. Self-interest would motivate MPs to better understand the economic complexities which, through mismanagement, are fomenting voter discontent.

SA’s economic dialogue vacillates from being inadequate, ill-conceived, or both. As socio-political pressures mount, MPs should seek to distinguish themselves by showing that they grasp how economic elements are misaligned.

It is not easy to ask — or answer — the right questions. When former Federal Reserve chairman Alan Greenspan gave his last report to Congress, he mostly encountered lavish praise. Shortly thereafter, the subprime crisis, which had been percolating during his reign, would rattle the foundations of the US and many other economies.

Economic discussions among SA’s decision makers and central bankers focus on capital-market metrics, which are often misleading, while political pressures arise from food-on-the-table realities, which do not lie.

Other disconnects include time and distance. A short-term, inward focus prevails when a long-term mindset, along with much greater integration within the global economy, are required.

A meaningful dialogue cannot begin without identifying suitable goals and metrics. Even at this base level, SA’s discussions are impoverished. There is a broadly held belief that the country just needs to maintain at least 5% growth before the sub issues will resolve themselves. The high growth period of a decade ago evidenced the opposite….

PERHAPS in an ideal world, a country’s central bankers would operate below the public’s radar as anonymous technocrats. Economists will never agree on the degree to which the Fed rescued the US economy from its subprime crisis but there is no denying that the US central bankers put their reputations on the line.

The point here is not that the Reserve Bank should control SA’s economic policy making, but rather that it is entirely too aloof given the nation’s lack of a functioning politics-meets-economics dialogue.

Prior to the Great Recession, economic discussions in SA focused obsessively on interest rates. This reflected how SA has always relied excessively on domestic consumption along with exporting commodities.

China’s leadership is diligently focused on restructuring its economy to place much greater emphasis on domestic consumption while reducing reliance on manufactured exports and investments in productive assets.

SA must rebalance in the opposite direction. Importantly, China got the order right: first, save and invest while growing manufactured exports; then shift to focusing on consumption.

SA’s historic regime change provoked the challenge of correcting profound historic imbalances while restructuring the economy towards much greater global integration.

Accommodating the soft and hard investments necessary to sustain the integration of the majority of the population into the formal economy required tame consumption growth. Blending the politics and the economics was never going to be easy but the costs of getting it wrong is today’s economic and political malaise.

Pretoria’s policy making remained inward-looking while the globalisation of commerce steadily intensified. The South African Reserve Bank should not be dragged into the cesspool of political patronage debates. Its mandate is to fight inflation….

THE Reserve Bank is failing to fulfil this mandate due to the nation’s broad array of economic policies being ill-conceived which, in turn, trace back to political pressures and processes. Thus, there should be regularly televised exchanges debating such issues between the Bank and MPs from all political parties.

Both restructuring and transformation need to succeed for SA to meaningfully broaden and deepen prosperity.

Sadly however, the nation’s political-economic dialogue remains insufficiently developed to inform decision making on how best to pursue these twin objectives given their frequently competing demands.

The necessary dialogue is nowhere in sight despite more than 20 years of all-race political clamouring. High on the list of explanatory factors is that SA generates a great deal of capital-markets conjecturing amid a dearth of economic development expertise.

China’s great successes reflect a mirror image of SA’s balance of abilities as Beijing achieved economic-development expertise well ahead of its adoption of capital market tools and institutions. Chinese success strategies highlight how SA’s economy suffers from deep, structural inversions that exist unchallenged as they lie beyond the country’s disturbingly narrow economic debates.

As commercial and family prospects slip into a prolonged funk, the boundaries of the economic dialogue remain static while the political discourse is deteriorating towards a dangerous populist-versus-business battlefield. Forcing MPs to think of how best to quiz the Reserve Bank’s governor must be worth a try.

• Hagedorn is an independent strategy adviser….

What MPs may want to ask

SOME questions MPs could consider asking the South African Reserve Bank:

• Is the Bank’s mandate another example of SA’s policy making being out of touch with domestic and global realities? That is, how does keeping inflation under, say 6%, help families get ahead in a world where leading central banks and governments are battling against deflation while waging wars to depreciate their currencies?

• In a world where so many central banks have reinvented their role in pursuit of more meaningful growth, how can the Bank justify a narrow, 1970s approach to monetary policy?

• If SA’s policies have sprung a poverty trap that is likely to endure for many years, is it reasonable for the Bank to reference its mandate and, in effect, say “it is not my job” to address this in today’s age of central bank activism?

• Have superb credit management by the banks and competent monetary policy had the insidious effect of triggering a poverty trap made more severe by SA’s growing reliance on paying high rates to attract foreign capital?

• How valuable can the Bank’s performance be if SA’s economic policies are inadequate?

• If inflation was managed ideally over the next decade instead of only reasonably well, would the benefits even be noticeable, particularly if other key policies remain deeply problematic?

•What is the likely growth rate for per capita income over the next two, five and 10 years?

• Which is a greater threat to SA’s economy and household-level advancements: loan sharks or authorised formal sector lenders? Why?

• Is it correct to use income data to calculate middle-class growth when so many so-called middle-class households are credit and cash starved by month end?

Published by Business Day