MEC/MEFC and the Macroeconomy

Abstract

ABSTRACT:The methodological point of this chapter is that key weaknesses of neoclassical macroeconomic analyses require correction, not just by applying different theoretical and policy approaches but also through a different conceptualisation of macroeconomics itself as is incorporated into a systems of accumulation analytical framework, and particularly a Minerals-Energy-Finance Complex (MEFC) approach to South Africa. It provides context through inclusion of institutional factors shaped by struggles over economic and political power. Mainstream macroeconomists' evidence generally glosses over these important issues and others, such as market dominance, inequality, structural unemployment and historical evolution of political and economic institutions. The MEFC framework rejects the Rational Expectations Theory of the neoclassical New Macroeconomics Consensus, including its focus on exogenously determined sentiment and the idea of Ricardian Equivalence that deems fiscal policy ineffective. Key vested interest within the MEFC, supported by the post-apartheid government, promoted neoliberal finance and macroeconomic policies. This liberalisation diminished the government's role in allocation of capital towards redistribution, industrial development and developmental goals. It facilitated extraction of capital in addition to existing high levels of illicit capital flight, which created increased reliance on short-term hot money inflows. Consequently, increasing unemployment, deindustrialisation and lower levels of investment have worsened macroeconomic instability.