Time again for the finrand?

Patrick Bond

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`It is interesting that at times like this Mr [John Maynard] Keynes is again resurrected,” remarked South African Minister of Finance Trevor Manuel at the meeting with his Commonwealth counterparts in Ottawa at the end of last month.

“There is a recognition that the standard prescription for macroeconomic stability and growth has not worked for everyone.”

Moreover, he observed, “as we attempt to find solutions, a number of common themes are emerging: the need for capital regulation, improved supervision, greater transparency, reform of the Bretton Woods institutions, the need to shift away from the `Washington Consensus’, to name a few”.

Manuel’s sentiments may be sharpening after recent evidence of what might be termed unpatriotic behaviour on the part of white South African capital. His expression of opinion may also be affected by a high-level African National Congress discussion document now opening a few small but portentous cracks in the facade of home-grown structural adjustment.

A change in South Africa’s economic ship’s course would be appropriate, given that the winds of international finance have picked up into an irrational and unpredictable gale that is forcing South Africa towards dangerous, some say fatal, shoals.

Steering us clear will probably require the old navigation instruments of Keynes, the great British economist who in 1936 devised a remedy to Depression-ridden capitalism. From the 1940s his ideas revolutionised economic thinking for a period of more than three relatively high-growth and relatively less unequal decades.

That remedy is famously considered to lie in fiscal populism. But just as crucial, for Keynes, was controlling financial capital that could flow merrily around the world doing enormous damage.

Spoor from the trail of the bankers’ destruction is found in the Third World debt crisis (1980s), international stock (1987) and property markets (1991 to 1993), Mexico (1994 to 1995), Brazil (1995), South Africa (1996), Eastern Europe (early 1997) and South-East Asia (late 1997).

This year it has been found in South Korea in the early part of the year and in Russia and South Africa again in the middle of 1998. The past few weeks have seen indications of movement not only to Brazil, but also to Japan, Northern Europe and the United States.

In the October 9 to 15 Mail & Guardian, Larry Elliot made the case for financial transparency, regulation and a Tobin tax – all of which would cool speculative money (“`Hot money’ needs to be cooled”). A Tobin tax, named after Nobel prize-winner James Tobin, is a small duty imposed on every foreign exchange transaction. But the inability of the Clinton- Rubin-Camdessus-Blair policy-making bloc to embrace any global solution at the International Monetary Fund (IMF)/ World Bank meeting was blatantly obvious.

Is it to the scale of the nation- state, then, that we must now turn for decisive action?

Ironically, one of South Africa’s major banking groups paid for the other side of Elliot’s page by baldly advertising “what you need to get your treasure off the islands”. Great, just what the economy needs, yet more shameless capital flight.

That the four big South African banks spent the early 1990s closing virtually all their township branches and instead went on a spree of branch openings that also included Panama, the Bahamas, Guernsey, Isle of Wight, Zurich and Hong Kong, tells us as much about patriotic instincts as do this year’s announcements of potential headquarter relocations (from South Africa to London) of Old Mutual, Liberty Life and South African Breweries. Not to mention the vanguard chicken run by De Beer’s Centenary operations (now in Switzerland) the same month that Nelson Mandela was released.

Such footloose capital flows, Keynes warned, “assumes that it is right and desirable to have an equalisation of interest rates in all parts of the world. In my view the whole management of the domestic economy depends upon being free to have the appropriate interest rate without reference to the rates prevailing in the rest of the world. Capital controls is a corollary to this.”

Reserve Bank Governor Chris Stals obviously disagrees, and has set South African rates at their highest level in history precisely with reference to rates prevailing elsewhere. Hence the only two targets of the growth employment and redistribution strategy that are being met are inflation and ratio of budget deficit to gross domestic product (to the delight of bankers). Instead of growth, employment and redistribution, South Africa is staring at recession, vast increases in joblessness and polarisation.

Yet, thanks largely to Keynes (arguing in 1944 against the American negotiating team at Bretton Woods), the IMF articles of agreement still allow member countries to “exercise such controls as are necessary to regulate international capital movements” – although the IMF this year attempted (so far unsuccessfully) to undo such a significant concession.

The IMF’s days of bailing out New York investors (treasury secretary Robert Rubin’s friends) are numbered, and its ultra-neoliberal ideology is bankrupt. But are we ready to take the logical next step towards renewed national sovereignty that notable formerly neoliberal economists such as Paul Krugman and even Paul Volcker advocate today?

As World Bank chief economist Joseph Stiglitz confirmed to me in a discussion earlier this month, dual exchange rates of the financial rand variety – which were in force as recently as 1990 in 35 countries – now make a great deal of sense for tempering financial capital’s irresponsible freedom in emerging markets.

The rub is the vast “round-tripping” corruption that then Witwatersrand attorney general Klaus von Lieres und Wilkau identified at the Reserve Bankin 1994 , presumably a matter of high priority for Reserve Bank governor designate Tito Mboweni

Tellingly, what Keynes – a Cambridge elitist with little or no inkling of progressive political solidarity – had in common with many on the left, was the notion that globalisation should be about people, not about financial capital. As he argued in a 1933 Yale Review article: “I sympathise with those who would minimise, rather than with those who would maximise, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel – these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible and, above all, let finance be primarily national.”

Patrick Bond is a lecturer at the University of the Witwatersrand

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