On Thursday, March 7 2019, South African President Cyril Ramaphosa announced in Parliament that his government will “do away with” some 770 “external shareholding” in the South African Reserve Bank.
Many commentators see this announcement as the first step in the implementation of the resolution taken by the ruling African National Congress at its 54th national conference in December 2017 to nationalise the South African Reserve Bank, South Africa’s Central Bank.
Media headlines screamed “Rand Takes A Pounding”, as copywriters joined their imaginary dots between the President’s announcement in Parliament and the currency’s slide.
Here is the unembedded truth.
The Bank of England was nationalised in 1946. The Pound Sterling did not go into free-fall. The UK economy did not collapse.
In France three major banks, Banque Nationale de Paris (BNP), Société Générale and Crédit Lyonnais, were nationalised after the Second World War, and remained nationalised for half a century. The sky did not fall. France was not “Venezuela-ed”. It was not “Zimbabwed”.
In 1948 the Australian government tried to nationalise commercial banks but that was successfully resisted in the High Court on constitutional grounds. But try they did. The sky did not fall at the news of the attempt.
In 2008, Iceland nationalised four large commercial banks: Kaupping, Landsbanki, Glitnir and Icebank. In 2009, a fifth bank, Straumur Investment Bank and the savings bank was also nationalised. The sky did not fall. The country was not “Venezuela-ed” or “Zimbabwed”.
The 2008 United States Troubled Assets Relief Programme by which Henk Paulsen pumped staggering amounts of taxpayers’ dollars into the banking system is widely regarded by economists as nationalisation. Denialists insist that this was a “relief” programme or “recapitalisation” or “bailout” – naturally. The idea of the paragon of capitalism nationalising assets is unthinkable. But it did. And life goes on.
Norway’s Posten Norge (Norwegian Post Office) is state-owned; Switzerland’s Schweizerische Bundesbahnen (Swiss Federal Railways) is state owned; Électricité de France is state-owned; so, too, are hundreds of local savings banks in Germany. The sky has not fallen.
Zimbabwe and Venezuela are often cited as examples of the decrepit effects of nationalisation. Yet, many listed South African companies remain invested in Zimbabwe.
Venezuela thrived under Simón Bolívar’s nationalism bent. What failed under President Chávez is not nationalisation; it is rather the manner of its implementation exacerbated by the United States and its allies which conspired to ensure failure of implementation as they saw it as a threat to “The New World Order”, a euphemism for rampant plunder of Venezuelan oil resources.
Implementation that has disastrous effects in these circumstances can never be indicative of the inefficaciousness of the policy itself. The experience in Continental Europe proves this beyond doubt.
But pop culture and facts make for strange bedfellows.
Gustave Le Bon and Edward Bernays are two of the names that spring to mind in regard to the power of influencing group psychology by manipulating the content of the information that the public consumes; a phenomenon colloquially known as Propaganda.
Stripped of all frills, the phenomenon comes down to three psychological tactics that have endured since the turn of the 20th Century:
- Creating carefully calculated associations with the subconscious fears and desires of individuals.
- Influencing opinion leaders and perceived authority figures in order to reach those who follow them.
- Initiating the contagion of behaviours and ideas through social conformity.
The object is social conformity by sheer deception. Perhaps the best illustration of this phenomenon in recent times is the fabled “War on Terror” which is considered by some as a lie perpetrated by successive governments in the United States as a ruse to plunder natural resources in the Middle East and elsewhere.
In South Africa, talk of nationalisation (especially of the South African Reserve Bank) has by sheer manipulation of facts become something of a boogeyman of economic transformation. South Africans, black, white, educated and uneducated, are now conditioned to believe that nationalisation is the most stupid idea. This is done through relentless bombardment in the media, carefully selected television interviews, social media and carefully edited “news” material about Zimbabwe and Venezuela.
Of course, no one likes to be perceived as “stupid”, least of all people with tertiary qualifications. So, they tend to conform, and probably grumble in private for fear of being accosted with a Venezuela or Zimbabwe trope, and labelled “stupid” for good measure.
Professors of Economics are not spared either. Witness the vitriol that followed Professor Chris Malikane for daring to speak out in favour of nationalisation. The depravity of the assault even borders on racism when the professor’s academic standing was called into question, prompting his peers to spring to his defence.
The attack on nationalisation in South Africa hinges on factual deception of which Le Bon and Bernays would have been proud. But what are the true facts.
Mineral and petroleum resources in South Africa were nationalised more than 15 years ago and the South African economy did not collapse as a result of that. Mining companies require prospecting and mining licenses from the government in order to prospect and mine resources. The government has the power to suspend and cancel those licenses.
One of the objects of the legislation by which government nationalised mineral and petroleum resources is “to promote equitable access to the nation’s mineral and petroleum resources to all the people of South Africa”. The reason ordinary South Africans are largely not benefiting from these resources is not the failure of nationalisation; it is the failure of this government to give effect to the objects of the legislation.
So, when people demand “nationalisation of the mines”, I wonder if they have any idea that South Africans already have a right of equitable access to the mineral and petroleum resources of the country. And it is not in the rapacious interest of mining companies to talk too loudly about that, or for this government to remind ordinary South Africans, lest we make our rightful demands.
Banks are an obvious strategic target for nationalisation because the single most egregious impediment to most black South Africans’ entry into the supply-side of the economy is the banks’ prejudicial tight-fistedness.
[Yes, the Industrial Development Corporation (and other government funding entities) is not faring much better either. That is a story for another piece.]
But nationalisation of the Reserve Bank will achieve nothing. The Bank’s mandate must change. The Reserve Bank should, like the Bank of England, facilitate employment and competition in the market, not just target inflation largely in the interests of its private shareholders.
When the Bank of England was nationalised in 1946, the reason advanced was its “importance to the economy”. It has two primary objectives: to maintain price stability and to protect and enhance the stability of the financial system. But it also has another objective: to facilitate growth, employment and competition.
Contrastingly, the legislative objectives of the South African Reserve Bank are limited to “monetary stability” and “balanced economic growth”. It does so by influencing total monetary demand through the exercise of control over money supply and the availability of credit.
Inflation targeting is the resultant obsession. Economic growth, employment and competition be damned. The inevitable result is that the emergence of many smaller businesses on the supply side of the economy – especially in banking and financial services – is suffocated under the mound of the inflation targeting policy.
But if you dare point this out, you are quickly snuffed out as “stupid” because this is not the sort of thing that resonates with entrenched interests – white and black.
The South African Reserve Bank, like the Bank of England, should be nationalised because of its “importance to the economy”. Its legislative objects should be amended to include facilitating employment and competition in the market, like the Bank of England. Until that is done, and visionary and competent people appointed to achieve that goal, the meaningful and sustainable transformation of this economy will remain something that governments like to say but have absolutely no intention of ever achieving.
Commercial banks are also strategically important to the economy if used to facilitate growth, employment and competition. What we have currently is an oligopoly of banks driven by individual greed of shareholders and executives. This is precisely the sort of incentive that resulted in the 2008 financial crisis.
The “social conformity” angle we have been fed is that South Africa was relatively spared the pain of the 2008 crisis because of our banks’ monetary stability policies. The truth, however, is that banks and other big businesses were sitting on bundles of cash they were not investing in the economy citing “political uncertainty”.
The bottom-line is this: Nationalisation is not the problem. Like every policy proposition, it is its implementation that will be the measure of its success. The fact that this government’s deployees at state-owned enterprises are disastrous in their running of some of those entities is not the appropriate measure of nationalisation’s success. Think of South Africa beyond the African National Congress. There are many bright young people outside political circles in South Africa who can make this country great.
Nationalisation in South Africa is bastardised by people who view it through an ideological prism as a sort of “Swart Gevaar” rather than focus on its efficaciousness in promoting and facilitating economic growth that is inclusive of all hard working South Africans, adequate employment and competition.
The benefits of nationalisation are grounded in cold, hard economic sense. The facilitation of sustainable economic growth, employment and competition depends on it. Zimbabwe and Venezuela are an Aunt Sally argument.