Ownership of production, not land, needed to tackle poverty and inequality
This is according to Yanis Varoufakis, former finance minister of Greece and professor of Economic Theory at Athens University, who told delegates at the i3 Summit – an annual event hosted jointly by Sanlam Investments and Glacier by Sanlam – that the roadmap to empowered communities lay in increased ownership of the means of production, not just land. He noted several similarities between Greece and South Africa:
“Our countries exhibit great income disparities, with immense pockets of wealth juxtaposed with large tracts of devastation and hopelessness”.
It is widely accepted that South Africa will have to address inequality to prosper, but redistributive efforts could be hamstrung by global shocks to the economy. One future scenario sees a concerted attack by international investors on South Africa’s currency and bond markets. “South Africa will face major fluctuations to the exchange rate that will be a major impediment to strategies for development, given that macroeconomics in the US and the EU are moving against you,” said Varoufakis.
“Macroeconomic policy responses are limited to expending the central bank’s foreign exchange reserves to support the rand, pushing interest rates to levels that choke local development, or introducing stricter capital controls.”
The outlook for emerging markets is heavily influenced by economic and political developments in global centres of power, including the US, the Eurozone and China. The US and Eurozone are experiencing major political upheaval at present as evidenced by Donald Trump’s 2016 presidential election win and the more recent success of Matteo Salvini, leader of Italy’s ‘euro-sceptic’ Northern League, “wishing to split up not only the European Union but also Italy”. These victories can be attributed to changes in sentiment amongst the respective electorates.
Trump’s ‘make America great’ slogan resonated with the country’s middle class at a time when median earnings were in multi-year decline. Varoufakis noted that 2016 was the first time since 1929 that more than half of American families could not afford an entry level car, they neither had the cash nor the credit worthiness to secure funding for the approximately $14 000 sticker price. “And the US is a country in which everyone needs a car.” Of equal concern was the fact that the sub-prime crisis of 2008 had decimated the wealth ‘stored’ by most US families in their homes.
The US liberal establishment believes that further economic malaise or a stock market collapse will unseat Trump, but they could be in for a surprise. “If Trump’s policies lead to a recovery, especially in middle America where he concentrated his election promises, he will get the credit for it; if there is a crisis, he will deflect the blame to the liberal establishment,” said Varoufakis. “Tails he wins, heads they lose!”
Political developments in Italy, the fourth largest economy in the region, could destabilise the entire Eurozone. Italy is sitting on a debt time-bomb with €463 billion owed by the Italian central bank to the German Bundesbank alone. “Italy is too large to bully, too large to fail and too large to bail out. A financial crisis, which for Greece was a nightmare, would be a dream for Italy’s new leadership,” said Varoufakis. “Salvini does not need to run a political campaign to get Italy out of the euro; he needs only allow for a financial crisis to develop and capital controls to be applied – and Italy would be out of the Eurozone”.
Trump’s global trade wars will be of far greater concern to South Africa. The latest move in his ‘game’ of aggressive capitalism is to target German car exports to the US, but he has China in his sights too. One of his apparent goals is to liberalise the Chinese financial services sector to give access to Wall Street firms. “If this happens South Africa and the rest of the emerging market countries will be in serious trouble,” says Varoufakis. “Capital will simply flow out of China, the renminbi will fall, the US dollar will strengthen, and emerging markets will be crushed”.
The world is still struggling with the after effects of the 2008 Global Financial Crisis, but the next crisis is already looming. According to Varoufakis countries that face similar problems could insulate against future financial crises by creating common instruments to absorb external shocks, particularly from the US, but added that this would not be as effective as a new fiscal agreement between the major global powers.
“The only way to establish shared prosperity in the world is to move in the direction of a new Bretton Woods, an agreement to coordinate global investment in a way that ends the incongruity between savings and investments and at the same time coordinates fiscal policy,” concluded Varoufakis.
He lamented the dearth of leadership in the US and Eurozone to make this happen.