10 August 2017, 1:17pm / Wesley Seale

SOCIAL CONTRACT: The South African constitution is not set in stone and may be subject to amendment if it no longer serves the interests of the parties that it seeks to govern. It can be amended with a two-thirds majority in Parliament.




Picture: Nokuthula Mbatha

Wesley Seale asks: why is the constitution important and is it off limits to be being amended, if people’s interests are placed first? In the light of the controversy sparked by the public protector on the mandate of the SA Reserve Bank, it is important to understand that the re-examination of the mandates of central banks is up for discussion and it is viewed that they will hardly remain independent in the foreseeable future.

LAST YEAR South Africa celebrated 20 years of the signing of the constitution of the Republic by President Mandela. Taking our cue from the common law, our constitution, like many constitutions the world-over, serves as a form of social contract. This social contract originally emanated from the agreement reached between the king and nobility and which was later extended to the people.Those of us who study the formations of constitutions would also know that constitutions not only serve as a social contract between the governed and the governing but also as a declaration that unites peoples. One of the earliest examples of the uniting purpose of a constitution was the Constitution of Medina.

This charter, drafted by the Islamic prophet Muhammad, served as a binding document between Muhammad and the tribes and families of what was later known as Medina. The document made sure to end all inter-tribal fighting between families and clans, thus instituting a number of rights and responsibilities for each community, be they Christian, Jewish, pagan or Muslim.

While the social contract and the uniting declaration serves the South African context well, for our purposes the constitutional objective of the Greek philosopher Aristotle is most useful. Pre-dating the Constitution of Medina by approximately 1000 years, Aristotle believed a constitution was to be a document outlining “the arrangement of the offices in a state”. In other words, he proposed the principle, followed by nearly all modern constitutions, of articulating the role and function of each office and how they relate to each other in the state.

At the same time, it is important to understand, as most scholars have done through the ages, that constitutions are not static documents. They are alive and evolving; adapting to the material conditions of the societies they wish to serve. It is for this reason that, in the last 200 years, the US constitution has been amended 17 times. In the last 20 years, the South African constitution was also amended 17 times.

Note, though, that the constitutional frameworks of these two constitutions are different. In principle, it is important to note that the constitutions have changed and that often the most life-giving applications of these social contracts were the court judgments interpreting the constitutional law. Again, it is important to note that if at any stage the governed or the governing feel that this social contract is no longer relevant to the relationship between them and their material conditions, the constitution itself must make provision for it to be amended to remain legitimate.

Recently, much controversy erupted surrounding the remedial action proposed by the public protector in respect of the South African Reserve Bank. We do not wish to go into the details but again suffice to say that no part of the constitution remains untouchable in being amended, if the amendment can wield a two-thirds majority in Parliament.

What the public protector has done, whatever her actions may be in the future, is to open the debate on the mandate of the SA Reserve Bank (Sarb). Given South Africa’s economic conundrum, it should be a debate that is welcomed. In fact, in light of the 2008 global economic crisis and that even South Africa’s economic conundrum is somewhat a result of that crisis, the debate surrounding central banks and their mandates is happening at a global level.

Recently, leading economists at the London School of Economics released an article called: Is the era of central bank independence drawing to a close? The authors of the blog include Wouter Den Haan, professor of economics and director of the centre of macroeconomics at LSE; Ethan Ilzetzki, associate professor of economics at LSE and an expert in international finance, fiscal policy and macroeconomics; Martin Ellison, professor of economics at Oxford and a former consultant to the Bank of England; Michael McMahon, associate professor at Warwick and an international consultant economist for the International Monetary Fund; and Ricardo Reis, professor at LSE and an academic consultant of the Federal Reserve Board of New York and Richmond. These academics acknowledge that, at one stage, the independence of central banks was in vogue.

It would not be wrong of us to suggest that this occurred especially during the nineties when the Bank of England was made independent by the Blair administration in the UK and South Africa’s constitution, guaranteeing the independence of our Reserve Bank, was written and promulgated. Coupled with this move to declare central banks independent, suggest these academics, were policies which aimed at inflation targeting and protection of the national currency.

However, in the wake of the economic global crisis, the central banks and their “unconventional instruments” as well as their ability to act “with a great deal of discretion” have come under scrutiny, especially by democratic governments and parliaments.

Often part of these criticisms, the academics continue, is that central banks have overstepped their mandate.

They go on to point out, based on a Eurobarometer survey, that only 30% of Germans trust the European Central Bank. In the UK, leading figures in both the Conservative and Labour parties have criticised the independence of the Bank of England.

While it might not be “politically correct” to quote US President Trump, even he questioned the role of the US Federal Reserve Bank during the 2016 US presidential election campaign. He was not far off, when even the Bank’s vice-chair, Stanley Fischer, questioned the “many current challenges to central bank independence”.

These academics then report on a survey they are conducting with leading economists across Europe, in the main OCED countries, the majority of whom, two-thirds in fact, suggested that independence of central banks will change in the next two years. Even more so, the survey showed that a leading argument for the independence of central banks – lower inflation – was no longer convincing to these leading economic experts.

Yet what does all of this mean for South Africa? First, we must recognise that the discussion on Sarb and its mandate is not out of line with international trends. Economists globally, as we have just seen, are discussing this matter and so should we. Second, the discussion must focus on what kind of bank we would like to see. It is absurd that an independent bank, primarily accountable to shareholders who are sometimes foreign, is dictating monetary policy that directly affects the lives of ordinary South Africans.

Twenty-three years into democracy we must ensure the people govern and that if the bank is going to be accountable, it should at least be accountable to the democratically elected representatives of the people. Indeed, a balance could be found whereby the bank remains independent but accountable to Parliament. Currently, as per the constitution, it only needs to consult with the Minister of Finance.

As the ANC is in election mode, it is sad to see the expediency of some parties and organisations. In particular, it is sad to see the ANC’s alliance partners, Cosatu and the SACP, not coming out in support of the re-examining of Sarb’s mandate. Instead of enlivening debates and seeking ways to improve the lives of South Africans, we see crass factionalism at play through this political expediency.

Wesley Seale teaches politics at Rhodes University

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