Recent signs of America’s weakening global economic, cultural, and military dominance notwithstanding, the country continues to play a superpower-sized role in shaping the international narrative, with oversized consequences for national debates.
Be it Black Lives Matter, vaccine hesitancy, stock-market fads or economic regulation, what matters in the US matters not only ‘from California to the New York island’, as Woody Guthrie sang, but also from Limpopo to the Prince Edward Islands.
For years, development-minded economists and policymakers have lamented the seeming grip that Washington Consensus prescriptions have had on the South African government in general and the National Treasury in particular.
If the country could but break from those neoliberal shackles, the argument goes, the problems of unemployment, poverty and inequality could well be resolved.
So, what does it mean now that President Joe Biden’s administration is starting to pursue economic policies that were considered out-of-bounds for South Africa and other developing countries? What are the implications for domestic policymakers now that America appears less fearful of inflation than has been the case hitherto? That higher taxes are back in vogue? That inward industrialisation policy is no longer a swear word? And that a drive for decent union jobs is disrupting the previous emphasis on deregulation and labour- market flexibility?
All these developments are naturally extremely significant for the US, where the economic pendulum was seemingly allowed to swing too forcefully and for too long in favour of the so-called one percenters.
The question for South Africa is whether such a shift in economic policy is equally appropriate to us and our particular socioeconomic context.
Professor of international political economy at Harvard University’s John F Kennedy School of Government Dani Rodrik, who is a supporter of Biden’s reforms and a member of Cyril Ramaphosa’s Presidential Economic Advisory Council, urges some circumspection.
In a recent Project Syndicate article, Rodrik writes: “There is a risk that the changes in the US will be misunderstood in other countries, and that policymakers elsewhere will blindly copy US remedies without paying attention to the specificities of their own circumstances.”
He goes on to warn that, developing countries that lack fiscal space and have to borrow in foreign currencies (read South Africa) need to be wary of excessive reliance on macroeconomic stimulus.
“In developing countries, by contrast, wages are quite flexible in informal employment, and the expansion of modern sectors is held back by supply-side constraints. Under these conditions, monetary or fiscal stimulus is much less likely to be effective,” Rodrik cautions.
“The reconsideration of economic policy in the halls of the Washington economic bureaucracy is welcome. But the real lesson other countries should draw from it is that economics, as a social science, supports different policy advice for different circumstances,” he continues.
Rodrik’s conclusion is that, while changing circumstances and political preferences in the US are producing new remedies, other countries would do well to target their own specific problems and constraints.