Lake Como, Europe’s deepest lake, in the genteel and well-heeled landscape of northern Italy, is an unlikely place to sit in a room for a day and a half analysing and dissecting the experience of populist economic policies on two continents, South America and Africa.
It was the venue for the conference because Konrad Adenauer, Germany’s first post-war chancellor, has a holiday home there and the Konrad Adenauer Stiftung, which promotes the social-market economy as a compromise to centralist socialism and unbridled capitalism, uses the home as a conference venue. Participants went to cross swords and break bread in a convivial atmosphere.
At this event, which has the Brenthurst Foundation as co-host, delegates discussed economic populism and indigenisation, the idea being to consider what Africa may learn from populist economic policies in Latin America.
Economists and policymakers, among them a former central bank governor and vice-president, presented their specialist knowledge of Argentina, Bolivia, Brazil, Chile, Costa Rica, El Salvador, Nicaragua and Venezuela.
Africans from Nigeria, Senegal, South Africa, Zambia and Zimbabwe also attended. The South Americans outlined various economic policies from Peronism to Chavismo.
Great variations
The countries vary greatly — there are more differences than similarities. Brazil is huge, Costa Rica tiny. Brazil is an economic powerhouse, Nicaragua a basket case. Chile has shown sustained growth, Argentina’s growth has been stop-start.
The state owns successful enterprises in Chile and Brazil. The latter’s state-owned financier, BNDES, provides cheap finance, about 80% of which goes to just 12 of the country’s largest companies.
Some countries are relatively tolerant of inflation, Brazil being a case in point, while others, such as Argentina, which has seen what runaway prices can do to economic growth, are not. Their populations can be heterogeneous or homogenous. Some score relatively well on measures of inequality, others poorly. Some are resource rich, others resource poor. Nicaragua is a nation where “nothing works, only the volcanoes”.
Most countries practise stay-at-home economic policies, but Venezuela, led by the populist Hugo Chávez, makes generous contributions to other states within the region.
What is populism? One participant said it was hard to define but, like porn, you know it when you see it.
Populism can take many forms. It can be extreme in nature or benign, Brazil being an example where policy has fought poverty and reduced Âinequality without radical nationalisation.
Scratch former Brazilian president Lula da Silva’s populism, said one participant, and you will find that he was “in fact a pragmatist”.
Short-sighted populism
Populism, often associated with charismatic leaders who champion the common person, worker and smallholder, is also associated with producing macroeconomic instability, high inflation and unsustainable budget deficits.
“Populism is normally short-sighted, usually ending up in a Âbalance-of-payments crisis,” a participant said.
The most useful insights to me were the conditions under which populism flourishes. One is the ability to sustain a narrative independent of the facts.
So, for instance, 80% of Venezuelans in 2000 believed that theirs was the richest country in the world. Having natural resources helps leaders to be populist. Think of Julius Malema and the mines.
Populism also needs an “other”, someone to blame for the fact that you are not as well off as you could be. Examples of the “other” may be the rich, another race group, foreign governments, bankers or an institution such as the International ÂMonetary Fund.
Experiments with indigenisation (in South Africa we call it empowerment), notably in Brazil, which has interventions in education under way, were also discussed.
Maintaining investor confidence
Empowerment may or may not take on populist overtones. Where it is undertaken in a way that maintains investor confidence and increases economic sustainability through the reduction of inequality, it can have a positive economic impact.
In South Africa no one, outside of a narrow group of beneficiaries, seems to be happy with the results of black economic empowerment (BEE). Where figures are available, they are controversial. A study commissioned by the JSE has shown that black ownership of the JSE accounts for between 8% and 36% of total, depending on which comparisons are made. Ratings agency Empowerdex maintains, though, that if only unencumbered shares are considered, the figure is below 2%.
BEE has cost about R600-billion but, save putting a number of black names prominently on the Sunday Times’s annual Rich List (Patrice Motsepe is in number two spot with a R14.2-billion fortune), BEE is widely seen to have produced a narrow outcome to date.
The ANC noted this at its mid-term meeting in Durban, expressing its “profound concern that the existing approach has led to narrow empowerment and a series of unintended consequences”.
Brazil trumpets its success by showing that 30-million Brazilians have moved into the middle classes while social grants reach 12-million families or 45-million people.
You have to hunt around in South Africa to find research that addresses the extent to which growth, coupled with empowerment in the widest sense, is working.
Stellenbosch economist Servaas van der Bergh, using AMPS data, has shown that an additional 5.6-million people joined the working and middle classes (earning above R200 000 a year for a household of four) between 1994 and 2008. This is an impressive 65% growth from 8.6-million to 14,2-million people.
But perhaps more impressive is the extent to which the economy has deracialised as it has grown. The black share of these classes has grown from 33,4% in 1994 to 80% in 2008. In the case of the higher middle class (R320 000 annual income for a household of four), the black share has jumped from 12,3% to 36,4%.
Social grants
Lower down the income scale, 13-million individuals receive social grant payments each month. It is unclear how many people benefit from these payments because some households receive more than one grant, but it is probably more than 25-million people.
Brazil spends 1% of its GDP on grants; ours, at R85-billion a year, is considerably higher, at 3,6% of GDP.
The higher middle class indicated here represents a monthly income of R26 000 for a four-person household. A family which is headed by two teachers easily falls into this category, yet based on scenes from the recent public sector strike, some public sector workers believe they are the most disadvantaged people in the country.
The total public sector wage bill shows that the cost of paying government workers jumped by a whopping R100-billion to R270-billion in four years between 2006 and 2010. Numbers employed grew from 1.13-million to 1.25-million. The average government worker now earns R18 000 a month.
This is the value of sustaining a narrative independent of the facts. Helped by the “other” who is richer than you, you can push your Âinterests independent of wider considerations.
Borrowing their wages
At a R1 cost to the fiscus out of every R3 spent, the public sector wage bill is now one of government’s most challenging priorities. Government literally borrows money to pay the salaries of its workers.
President Jacob Zuma appears to do little more than spend his energies on keeping the ANC and its alliance partners together. But two significant partners in his alliance, Cosatu and the ANC Youth League, have been pushing their own Âpopulist agendas. Zuma be thought of as populist, he has given Julius Malema, the youth league leader, the space both to push a populist pro-nationalisation agenda and to attack other ANC leaders who are seen to be a challenge to him.
Note that “been there before”, the ability to learn from failed nationalisation both in our backyard and wider afield, does not matter. One participant told me privately that many members of the ANC had seen first-hand the failure of nationalisation in Africa and Eastern Europe, but had preferred to remain quiet rather than challenge Malema on the issue.
The narrative in this case sustains itself independently of the international experience of nationalisation and the country’s failing state-owned enterprises.
Malema, as he grew in confidence, came to attack Zuma too — on his age, the number of his wives and lovers and the fact that his family and friends were the primary beneficiaries of the multibillion-rand ArcelorMittal deal, one that sets new standards in terms of narrow-based BEE.
Narrow populism
Commentators have pointed out that Malema does not appear to be pushing for nationalisation for the greater good, for instance, to provide the economy with low steel prices by nationalising ArcelorMittal, but rather so that the state will buy failed BEE deals.
Two names consistently come up in this regard as Malema’s backers: Tokyo Sexwale, a rand billionaire on the Rich List, and Bridgette Motsepe, the sister of Patrice Motsepe, a dollar billionaire on the list.
You can conclude from this what you want, based on how it best fits the South African narrative as you perceive it. Mine is that populism of a narrow and insidious form is alive, well and kicking.