Outgoing South African Reserve Bank Governor Tito Mboweni was among several world finance experts who did not provide adequate leadership to prevent the global finance crisis, former president Thabo Mbeki said on Wednesday.
Mbeki was speaking on the ”effective exercise of leadership” and the future role of the youth at the University of the Witwatersrand in Johannesburg.
”The effective exercise of leadership must, in part, be based on as thorough an understanding as possible of objective reality,” he said.
Mbeki was addressing a packed hall. Crowds of students trying to push their way into the auditorium were locked out by security officials.
”The correctness of this view is confirmed by what happened, which led to the current global economic recession and the various questions this has thrown up,” said Mbeki, who was welcomed with loud cheers.
Mbeki said most economists failed to predict the global financial crisis, and quoted from speeches delivered by the chairperson of the United States Federal Reserve, Ben Bernanke, in April this year, and Mboweni in March this year.
”On March 13 2009, the outgoing Governor of the South African Reserve Bank, Tito Mboweni, went further to say: ‘The global financial system is a finite entity, and although risk can be passed around, it does not disappear. We had probably underestimated the inter-linkages of financial systems across the globe, and the extent to which globalisation had created a complicated network of circuits for the contagion of financial risk …’.”
Bernanke had said the financial industry ”designed securities that combined many individual loans in complex, hard-to-understand ways”.
These new securities later proved to involve substantial risks, risks that neither the investors nor the firms that designed the securities adequately understood at the outset.
”These statements by two central bank governors emphasise precisely the point that even they failed to understand what was happening in the global financial markets and therefore did not provide the leadership that was necessary to avert the financial crisis which led to the current global recession,” Mbeki said.
He also referred to a New York Times article written by Nobel Laureate in Economics Paul Krugman in which he asked how economists failed to predict the crisis.
”Professor Krugman had made the charge that because they failed to understand objective reality, the world’s economists failed to see the then-impending global financial and economic crisis,” said Mbeki.
”Accordingly, they failed to provide the leadership which could have resulted in various interventions being made, which would have saved the world from a crisis that has resulted in the impoverishment of hundreds of millions and an alarming growth in levels of unemployment.”
The aftermath of the global recession raised several important questions, including how to limit the centralisation of capital to avoid the ”emergence of monopolies and oligopolies made up of companies that are too big to fail”.
Role of the state in the economy
Also, the role of the state in the economy, regarding the ownership of companies and the regulation of the market, needed to be discussed.
”I pose these questions without providing any answers, once again to underline the point that our young emerging leaders will have to participate in the effort to answer them.
”For them to be helpful to society, those answers will have to be based on a profound understanding of the process of contemporary social development.”
In South Africa, young leaders would always have to grapple with issues of social development, transformation and how to create a non-racial society, said Mbeki.
”I am certain that there are very few South Africans, if any, who today would, for instance, question the need for us to transform ours into a non-racial country.
”The reality, however, is that because this objective, like the others mentioned in our Constitution, cannot be realised in a short time, the young emerging leaders will still be faced with the task to lead the country as it continues to strive to implement the constitutional prescription to build a non-racial society.”
On how to be a good leader, Mbeki, who was removed from office by his own party, said honesty was a key characteristic.
”To lead means to engage the people in an honest and sustained manner to mobilise them so that they too play an active and conscious role in the process of fundamental social transformation rather than remain as immobilised spectators who expect government to ‘deliver’.
”It means learning the habit always to tell the truth and thus cultivate the confidence of the people in you, who will be their leaders,” said Mbeki. — Sapa