Zuma, Julius and Trump: The rise of macroeconomic populism in South Africa (a cheeky academic-esque look).


Immediate disclaimer: This is not an article about being good at economics. It has nothing to do with the economic understanding or prowess of any person mentioned. It has much more to do with brash populism and the danger it presents to South Africa.

Also, this is a bit of a different essay to those we usually write – it is more academic. Pardon the excessive citations and referencing. Old habits die hard. As usual, the important bits are in bold.

With Boris Johnson doubling down on his Brexit stance, Donald Trump’s rise to presidency, and Brazil’s abrupt heave to the right with the election of Jair Bolsonaro – one need only glance around at global politics briefly to notice a series of watershed events all pointing to one resounding word: “populism”. Even on the local front, in recent years Jacob Zuma and Julius Malema have brought home the reality of this populist shift.

Whether this shift will be an economically beneficial or a detrimental one for South Africa will be the focal area of this article. In this short piece, you can expect to find an explanation of what populism is, its economic drivers and consequences, as well as its increasingly dominant role on the international stage. Once its essence has been established, populism will be held up against the light of South Africa’s multi-faceted economy and its merits – or lack thereof – be laid clear.

While populism is not an un-researched concept in academia, the literature surrounding its effect on South Africa in particular is comparatively sparse. Further, as South Africa has so far experienced populism far more in the political sphere than in the economic sphere, international analysis – particularly of the economically comparable South American countries will be of vicarious importance1.

Most countries in Latin America have emerging, upper-middle income economies characterized by challenges around restrictive labour regulations, inefficient government bureaucracy, a shortage of skilled workers, political instability, and corruption.2,3 Sound familiar?

“Populism” is usually a very fluid term, and two people may differ so entirely on their definition of it as to make it apparent neither are talking at all of the same thing4. However, in almost all cases, populists are united in their division of society into two fundamental groups: the “true people” and the “elite”5. The former are almost always those who populists claim the economic policies of the country should prioritize, while the latter are those they claim are prioritized at the expense of the former.6 In many ways, populism may be seen as a reaction to the unfulfilled promises of previous parties to address redistribution. It is, in short, a rebellion of the disenfranchised.

Some have noted that, due to the many sub-types of populism displayed in different countries, any effort to analyse the impacts thereof should restrict itself to one particular sub-type as each has its own economic goals and priorities.7,8 Thus, the below analyses restrict themselves as far as possible to the sub-type of populism which one is likely to find in South Africa under the banners of the EFF and ANC.9

Economic populism on the international stage has thus far proved to be a staggeringly detrimental and unsustainable policy option, resulting in a sharp decrease in real wages, difficulties in the balance of payments and ultimately hyperinflation and complete economic collapse.10 On the home front, it has fared no better, permeating our politics and producing or exacerbating far more problems than it has helped solve.

Macroeconomics of populism

What is populism?

Continuing our definition of populism from the fundamentals laid out above, in a study on Latin American policy, some economists (namely Dornbush and Edwards)11 define economic populism as an approach which “emphasizes growth and income distribution and de-emphasizes the risks of inflation and deficit finance, external constraints and the reaction of economic agents to aggressive non-market policies”.12 They, along with Sachs,13 summarize the salient features of the populist cycle as follows:

Initially, several conditions have to be met for economic populism to take root. Typically, countries must have experienced either very slow growth, akin to stagnation, or depression resulting in a lower standard of living.14 These countries will usually also have a highly unequal income distribution, thus providing the basis for a radical shift in economic policies.

In certain cases, a preceding stabilization program would have improved both the external balance and the budget (through accumulating international reserves) enough to facilitate – if not warrant – an expansionary fiscal policy.15

This policy is justified in the mind of the populist by the belief that any capacity unused may be used for expansion as the conservative attribution of risk to deficit finance is largely exaggerated.16 Populists believe that the combination of the ability to ration foreign exchange and the existing international reserves afford policymakers the leeway to expand without constraints.

In short, economic populism holds here that deficit finance leading to expansion is not inflationary as there is always spare fiscal capacity and decreasing long-run costs to contain the cost pressures.17 Further, as the priority is always to redistribute in favour of the “true people”, as the deficit transfers public resources to the masses, the demand for goods is believed to increase enough to actually reduce unit costs (ibid).

Populist policy is thus constructed to prioritize three tenets: redistribution of income, reactivation, and restructuring of the economy.18 Typically, this “reactivation with redistribution” is achieved through macroeconomic policies involving large real-wage increases without the subsequent increase in prices (ibid). The populist will reject devaluation under the impression that it reduces standard of living and will further exacerbate inflation without affecting the internal sector positively (ibid).

The patterns of economic populism

When populists first start implementing their above policies, they appear fully successful: output grows, and both employment and real wages increase.19 Price controls ensure that inflation does not pose a threat and any production shortages are covered by imports. Imports are financed largely by the international reserves or by reducing external payments, thus minimizing the impact to inflation (ibid).

Following this, the economy bottlenecks due to both a lack of Forex and a rapid increase in demand for domestic goods for which there is insufficient supply.20 The earlier overuse of international reserves disallows effective monetary control and stabilisation of price and valuation (ibid). Thus, the budget deficit deteriorates drastically due to state subsidies as inflation and wages increase – an example of this is the Chilean government’s inability to transition from redistribution to accumulation.21

This is followed by extreme shortages, steep inflation and way too little foreign exchange in the reserves, all of which lead to investors pulling out of the country and a subsequent demonetization of the economy.22

The reduction of tax collections and the increased subsidization cause the budget deficit to worsen (ibid). This leads to authorities desperately attempting a real depreciation and slashing subsidies to the point where real wages drop too much and policies become unstable (ibid).

Finally, when it becomes clear that the government is desperate, it is believed that orthodox stabilisation will almost always take over under the form of a new government, who often violently overthrew the previous one, and usually with the assistance of the International Monetary Fund.23 The net result of populist economic policy is a decreased real wage, persistent decline due to investor perception and low capital levels. The reason for this is basic: “Capital can flee from poor policies, labour is trapped” (ibid).

Internationally, almost all the Latin American countries – excepting Columbia – have followed the above pattern verbatim, and all to varying degrees of economic disaster.24 The resultant question then, is whether all populist economic policies are so destructive, or whether there may be some variant, which applies in some system, which is ultimately beneficial?

Economic populism in South Africa

Similarities between South Africa and Latin America

The question above applies directly to the South African context. Unfortunately, in its application, one will find that here – as in Latin America – economic populism in policy-making will prove to be a poor decision.

In many ways, South Africa shares many market similarities with the Latin American countries: as mentioned above, both regions are classified as “emerging”, both face great income disparities between the haves and the have-nots, both face challenges with governance and political stability, and both are lacking in an educated and skilled workforce.25

According to local economists du Plessis, Smit and Sturzenegger there have even been occasions wherein South Africa has engaged in similar populist-influenced, pro-cyclical fiscal policies, much the same as those the Chilean government implemented three decades ago (along with the rest of Latin America).26 Thus, it is reasonable to assume that, for the most part, the lessons from the Latin American experience are directly transferable to the South African context.

As far as notable differences between the economies go, there is evidence that rigorous taxation regulations and efficiencies may help a country implement populist economic policies.27 South Africa is, on average, 70-90 notches above Latin American countries in terms of taxation efficiency and regulations.28 Thus, SA is, at least in this sense, theoretically more positioned toward success in these polices. However, whether these policies will be more successful than their orthodox alternates is unlikely.

Economic populism is already at play

While South Africa’s populism is experienced more in a political sphere than an economic one, the line between the two realms becomes increasingly blurry as one examines the roots of the economic challenges South Africa faces, particularly with the now-familiar concept of populism in mind. Although multi-faceted and deeply complex, each challenge may be expressed in a populist theory:

Parallels have been drawn between South Africa and Brazil’s middle-income emerging market status, holding that both countries are caught in a “long-run growth trap”.29 Now, arguably the most effective way to break through such a trap is through innovation and “moving up the value chain”.30

However, in reference to South Africa’s position, economist Luiz – who is drawing much of these parallels – is somewhat disheartened, holding that the populace engages in “bounded populism”, replacing innovation with an intricate rent-granting system while retaining economic stability, even if it means keeping the economy at a low level of development (ibid). He claims this is largely because of the “client-patron” relationships that the elite develop with their labour wherein entrepreneurship and innovation on the part of the “true people” is sacrificed on the altar of certainty and economic progress on the part of the elite on the altar of maintaining the status quo.

Regarding the challenges around income disparities and corrupt and inefficient governance, some have posited that any rational group with well-defined interests which can attempt to use the state to secure monopoly rights which would favour their group, will unfortunately do so.31 As such, it is suggested that the social waste of rent-seeking as taught in group theory is a natural by-product of the desire to control barriers to entry which empower one’s own interest-group when one is in power (ibid). If one can escape the competitive forces of the market through monopolistic control (which the state provides), one will (ibid). Applying this now to a populist reading of the Freedom Charter and the ANC’s constitution, one can easily understand how the issues of corrupt governance and bureaucratic inefficiencies arise.32 33

The challenges of South Africa: restrictive labour regulations, inefficient government bureaucracy, a shortage of skilled workers, political instability, and corruption overlap largely with those of Latin America – hence it is prudent to learn from the application of economic populism within those countries. While much of the populism already within the confines of South African borders is political, it spills over into the economic sphere frequently. Many of the problems mentioned above can be traced to a populist root. Hence it is entirely illogical to presume that further populism, economic or otherwise, would at all help to alleviate the stress on South Africa’s economy.


Economic populism has an astoundingly bad track record within emerging markets. While it may initially create a boom for the economy, it’s frivolous disregard for orthodoxy has consistently resulted in a bust causing conditions far worse than the original status.

The populist policies demonstrated in Latin America are a valuable lesson to South African policymakers not to spend carelessly and without rigorous control and forward planning. The economic similarities between the two regions provides South Africans with an almost exact trial run of the policies, leaving little questions to be answered.

Further, the problems South Africa does face cannot be answered by populist ways of thinking, largely because it is such ways of thinking which have contributed to these problems arising in the first place. In short, economic populism is not only not an appropriate address to South Africa’s problems, it is in fact an exacerbating factor as well as a partial cause of many of those exact problems.


Bhorat, H., Hirsch, A., Kanbur, S. & Ncube, M. 2014. Economic policy in South Africa. Cape Town: Oxford University Press.

Bitar, S. 1986. Chile, Experiments in Democracy. Philadelphia: Institute for the Study of Human Issues.

Carbonetto, D. 1987. El Perú heterodoxo: un modelo económico. Lima: Instituto Nacional de Planificacioþn.

Dornbusch, R. & Edwards, S. 1991. The macroeconomics of populism in Latin America. Chicago: University of Chicago Press.

Dovis, A., Golosov, M. & Shourideh, A. 2016. Political Economy of Sovereign Debt: A Theory of Cycles of Populism and Austerity.

du Plessis, S., Smit, B. & Sturzenegger, F. 2007. The Cyclicality of Monetary and Fiscal Policy in South Africa since 1994. The South African Journal of Economics. 75(3). 391-411.

Guriev, S. 2018. Economic Drivers of Populism. AEA Papers and Proceedings. (108). 200-203.

Kaltwasser, C. 2018. Studying the (Economic) Consequences of Populism. AEA Papers and Proceedings. (108) 204-07.

Kyle, J. & Gultchin, L. 2018. Populism in Power Around the World. SSRN Electronic Journal.

Lingle, C. 1989. Populism and rent‐seeking in post‐apartheid South Africa. Politikon. 16(2). 5-21.

Luiz, J. 2015. The Political Economy of Middle-Income Traps: Is South Africa in a Long-Run Growth Trap? The Path to “Bounded Populism”. South African Journal of Economics. 84(1) 3-19.

Mbete, S. 2015. The Economic Freedom Fighters: South Africa’s Turn Towards Populism?. Journal of African Election. 35-59.

Pastor, L. and Veronesi, P. 2018. Inequality Aversion, Populism, and the Backlash Against Globalization. SSRN Electronic Journal.

Sachs, J. 1989. Social Conflict and Populist Policies in Latin America. NBER Working Paper.

Schwab, K. and Sala-i-Martín, X. 2016. The Global Competitiveness Report. World Economic Forum. Geneva: the World Economic Forum, 326-327.

Sturzenegger, F. 1990. Fiscal Policies in an Open Economy: A General Equilibrium Approach. MIT. Mimeograph.

Venter, G.J. 2012. Is Competitiveness a Prerequisite for FDI? South Africa & Brazil Compared. Stellenbosch: Stellenbosch University

Vincent, L. 2011. Seducing the people: Populism and the challenge to democracy in South Africa. Journal of Contemporary African Studies. 29(1).1-14.

[1] (Venter 2012: 1).

[2] (Schwab & Sala-i-Martín 2016: 327)

[3] As this essay has restricted itself to the Latin American form of economic populism, the form more commonly found in the developed world (such as under the Trump (USA) and Johnson (UK) administrations) has largely gone un-addressed. These are more right-leaning forms and deal more with the backlash against globalization and immigration (Pastor & Veronesi 2018: 33 and Guriev 2018: 200). Suffice it to note that South Africa is not yet similarly developed and it’s main driver of economic growth since 2010 has been its net trade balance (Bhorat et al 2014: 9). As such, any policy so isolationist may almost be dismissed out of hand as both detrimental and incomparable.

[4] (Kyle & Gultchin 2018: 6)

[5] (Kaltwasser 2018: 204)

[6] (Kyle & Gultchin 2018: 6).

[7] (2018: 206)

[8] For example, the left-leaning populist policies of the late Hugo Chavez in Venezuela, which emphasize increased regulation on private business, higher capital tax levels and stronger socioeconomic redistribution are drastically different to the right-leaning policies of Donald Trump (Kaltwasser 2018: 206). The President of the USA tends to favour a more neoliberal approach – arguing that “the establishment frustrates the hard-working people with unnecessary laws and high taxes while rewarding their undeserving electorate of public-sector workers and immigrants.” (Kaltwasser 2018: 206).

[9] per Mbete (2015: 36) and Lingle (1989: 5)

[10] (Dornbush & Edwards 1991: 7).

[11] (1991: 9)

[12] Note: Kaltwasser (2019: 206) argues that this ‘definition’ alleges only the consequences of populism and neglects to define it. Further, he suggests it does not account sufficiently for the existence rightest or exclusionary forms of populism. For our South African context however, this definition will do just fine.

[13] (1989: 4)

[14] (Sachs 1989: 4).

[15] (Dovis, Golosov & Shourideh, 2016: 3).

[16] (Dornbusch & Edwards 1991: 9).

[17] (Carbonetto 1987: 82).

[18] (Dornbusch & Edwards 1991: 10).

[19] (Sturzeneggar 1990: 23).

[20] (Sturzeneggar 1990: 25).

[21] (Sturzeneggar 1990: 25; Bitar 1986: 54).

[22] (Dornbusch & Edwards 1991: 10).

[23] Dornbusch and Edwards (1991: 12)

[24]  (Dornbusch & Edwards 1991: 369).

[25] (Schwab & Sala-i-Martín 2016: 327).

[26] (2007: 8)

[27] (1991: 13)

[28] (Schwab & Sala-i-Martín 2016: 327).

[29] (2015: 5)

[30] (Luiz 2015:17).

[31] (1989: 6)

[32] (Lingle 1989: 8)

[33] Populism inherently strives to do away with the “checks and balances” of the system, seeing them not as enablers of democracy – the claimed foundation of populism – but rather as frustraters of the peoples’ will set up by the elite (Vincent 2011: 5).

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