The irony escaped me at the time, but it was not long after I relocated to this remote university town almost seven years ago that the global economy started to unravel.
The irony escaped me at the time, but it was not long after I relocated to this remote university town almost seven years ago that the global economy started to unravel.
The crisis started in August 2007, but came to a head a year later with the filing for bankruptcy of one of the world’s biggest financial institutions, Lehman Brothers on September 15 2008.
Here, at least 900 km from every major urban centre, I could watch a unique economic phenomenon on DSTV, one so exciting that I forgot to be scared when I realised that what we now know as the Global Financial Crisis proved in a particularly malign way just how connected financially and in other ways the world had become.
How many people realise that the world went to the brink of economic disaster in 2008/09 and fell over before bouncing back? The crisis also underlined for me a belief borne of many years of unsatisfactory economic forecasts.
Economic forecasts seemed to me to be accurate enough most of the time, as long as the figures were not too precise – ignore any forecast with a percentage point – but now and then failed hopelessly, casting doubt on the whole exercise.
The truth was that, though some had identified elements of the crisis, no one had expected a crisis of such severity to occur in exactly the way it did.
When the crisis did hit, anger was directed at financiers, regulators, economists, and, inevitably, the news media. Greed was the catch-all explanation, but it did not explain enough.
Alan Greenspan, the former governor of the USA’s central bank, the Federal Reserve, and a hallowed figure in economics summed up the problem with a mea culpa. Along with other mainstream economists, he had not believed that the heads of the big banks at the centre of the crisis would imperil the survival of their own companies, and as it happened the whole financial system, by taking the huge risks they did.
But take huge risks they did, playing with other people’s money, made more confident by ratings agencies that told them the complex financial products they were dealing in were fine.
The false confidence of the ratings agencies was abetted by literal rocket scientists employed by the big finance firms to minimise risks through super fancy mathematical models.
Why remember this now? It is not chance that the South African economic growth is mediocre. The hangover of the massive party that led up to the steep plunge in the world economy in 2009 affects us still.
The global crisis ironically emphasized that while the world is more connected than ever before, we do have the power to change things for better or worse. Our own banks were not badly affected because of tight regulation.
The outgoing governor of our own Reserve Bank, Gill Marcus, whose replacement was named this week, in June gave an example of what we can do to improve our economy. In a speech at a SA Institute of Accountants breakfast, Marcus remarked that our economy was facing "enormous headwinds, many of which are of our own making, and therefore within our capability to resolve".
"High on the list is the currently debilitating labour relations environment, and it is incumbent on all parties to resolve these issues. All parties need to recognise their own roles in bringing about this toxic environment, and consider the significant costs to the individual workers, the affected companies and the country of not resolving these disputes."
Instead, the Gauteng ANC has just this week called for 49% of mining companies to be black owned by 2030. This, together with other worrying evidence of a surge in economic nationalism, sends the wrong signal to foreign investors. They are already expected to comply with complex black economic empowerment requirements to get a licence to exploit the mineral rights owned by the State.
Foreign investors are also supplying the capital inflows that finance our large import bills. The 49% figure is better than 51%, as required in Zimbabwe’s indigenisation policy, as it does not call for outright control. It makes little sense, however. Why not have 100% black ownership of some companies and zero of others?
More importantly, it does nothing to improve the lot of the miners themselves, which one would have thought after the Marikana shootings would be a priority, to start to defuse the toxic environment Marcus mentioned. Which is more important, prioritising greater black ownership of mines or better working and living conditions and higher pay?
There is almost certainly at least a temporary trade-off. High economic growth increases opportunities. Recessions and near recessions mean greater competition and conflict for the limited resources available.
Without some hard decisions we are on a path to an even more mediocre future.
