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In conversation with Dr. Fadhel Kaboub


Dr. Fadhel Kaboub speaking at “The Quest for Economic and Monetary Sovereignty in 21st Century Africa” in Tunis, Tunisia, November 2019. Photo: George Gale.

The conference “The Quest for Economic and Monetary Sovereignty in 21st Century Africa” was held from 6–9 November in Tunis, hosted by the Rosa-Luxemburg-Stiftung’s North Africa Office and the Global Institute for Sustainable Prosperity (GISP). GISP President Fadhel Kaboub opened the conference on the morning of 7 November and led the closing session on 9 November. Kaboub is an advocate of Modern Monetary Theory (MMT), an approach that views states as the source of money creation through the issuing of currency, and taxation as the destruction of that money supply. In this formulation, states do not use taxes to fund policies but rather create funding through issuing currencies, while taxation is used to curb inflation or disincentivize social practices that are seen as harmful, such as pollution or extreme inequality. MMT has grown increasingly popular among left-leaning politicians in North America and Western Europe, and is beginning to make its way into African political discourse as well.

Kaboub believes that MMT could serve as the foundation for better development policies in the Global South—one of several issues debated over the three-and-a-half days in Tunis. Other conference attendees offered perspectives on the problems facing sovereignty in Africa, bringing up issues such as the use of currencies pegged to the euro, food dependence, financialization, division along nation-state borders, and military interventions from the Global North. Regarding strategies to resolve the problem of sovereignty, one broad theme brought up repeatedly was “delinking”—a strategy Samir Amin developed for Global South countries to shape development strategies according to internal needs, prioritizing this logic over that of conforming to global forces of trade and value.

Fadil Aliriza, co-founder and editor-in-chief of the Tunisian news portal Meshkal, sat down with Fadhel Kaboub on the side-lines of the conference to get his perspective on what exactly MMT is and is not, and how he thinks Tunisia and other countries in the Global South could utilize it as a tool to develop their economies and adjust imbalances between themselves and the Global North.

FA: Do you think the passage of the Central Bank Independence Law in 2016 was a watershed moment in Tunisia, moving in another direction in terms of monetary sovereignty?

FK: It is moving in another direction for many reasons, not just central bank independence, but the structural issues in my presentation today and the MMT podcast are not getting any better, they get worse and worse over time. We heard the director of monetary policy today from the Central Bank recognizing exactly what I described this morning, namely the huge imports of cereals, wheat, and what she described as “weaknesses in attracting foreign direct investment”. So they do recognize the structural issues, but they insist on this inflation targeting, knowing for a fact that there’s nothing you can do by raising interest rates—independently or not independently of the government.

How is raising interest rates in the Tunisian economy going to change OPEC policies in the Middle East? How is raising interest rates going to change wheat prices coming from Ukraine or from Russia? That’s the “independent” part. We’re not getting close to any solutions, so that’s why I insist that the solutions are to be found outside the Central Bank, and policies that actually recognize and target the sources of inflation. I always joke that inflation targeting policies should be run by the Ministry of Agriculture or renewable energy commissions, not the Central Bank.

Fadhel Kaboub is an Associate Professor of Economics at Denison University and President of the Global Institute for Sustainable Prosperity, and co-organized the recent conference “The Quest for Economic and Monetary Sovereignty in 21st Century Africa”. Fadil Aliriza is co-founder and editor-in-chief of the Tunisian news portal Meshkal. Maisie Odone assisted in the recording and transcription of the interview.

That’s why I use this metaphor as a joke, but it’s really true that central bankers are like the kids in the backseat thinking they’re driving the car. But who’s sitting in the backseat? It’s OPEC, price setters in the food industry, corrupt networks. It’s the price setters who actually drive inflation. It’s the structural weaknesses of the economy and the Central Bank on its own—whether independent or not they have no jurisdiction in that area. The ministries and government leadership that has jurisdiction in that area do not recognize those weaknesses.

After the Tunisian Central Bank official Rym Kolsi’s presentation, Daniela Gabor mentioned that, given the data she showed, it’s not the interest rate that’s having an effect on inflation in Tunisia, but what she called the “exchange pass through rate”. Can you explain what that means?

FK: This is what economists call the “pass through effect”: a depreciation of the exchange rate and the impact on inflation. That’s why bankers are obsessed with stabilizing the exchange rate, as they see it as a way to protect local consumers from the inflation effect. But it’s a Band-Aid solution, because how do you stabilize the exchange rate? By getting a loan from the IMF, and now you have an external debt putting more pressure on your exchange rate in the future. You haven’t fixed the structural issues that caused the problem in the first place, which is food sovereignty, energy sovereignty, etc. All of the solutions we see are temporary and rely on small periods of relief and limited success which is completely independent of central bank policy.

Another hidden problem that the central bank director mentioned today, which we haven’t discussed so far, is the olive oil industry. Tunisians are very proud of our huge harvests as one of the top producers of olive oil in the world. We have this misperception that a successful season producing olive oil brings economic benefits to the Tunisian economy in terms of export revenues, but that’s not always the case. When you think of who the key power players in the olive oil industry are, it’s not Tunisian farmers. They’re the weakest players. Collectively they produce a large amount, but individually they’re very weak. The key players in the global market are Spanish and Italian companies, who dominate the global supply chain and extract the highest value added from the industry. When you buy a bottle of olive oil in Europe or the US, most of the price is for the supply chain, marketing, and bottle design, not for the actual raw material coming from Tunisian farmers. It’s the same problem: the value-added content is very weak.

The related problem is that because they dominate the global supply chain, Spanish and Italian companies collectively have five years’ worth of global olive oil supply. We could completely stop olive oil production in Tunisia and the rest of the world for five years, and they could supply global demand. It’s a strategic reserve. Which means, as a small farmer in Tunisia, how do you negotiate? They actually come and buy your supply a year in advance, before you produce it. They set the price, and they pay you in advance. And what do you have to say as a small farmer? They say “take it or leave it”, and if you don’t take the deal they’re not going buy from you, and what do they tell you? “Good luck selling it!” This is the power structure that we’re talking about at the global level. The olive oil industry looks like a huge success story, but it’s still at the bottom of the food chain globally, and it’s still at the mercy of the Italian and Spanish companies. This is not just a Tunisian problem—it applies to all farmers across the African continent.

Just to pin you down on the Central Bank Independence Law: it’s largely overlooked in the history of the last few years of the Tunisian economy, but was there a real effect in terms of policy space for the Tunisian government?

It certainly reduced policy space and the likelihood of implementing the policies that I was talking about today, because it creates an obstacle between what the government’s vision could be for implementing an employment-driven economic growth policy focusing on mobilizing domestic resources, and the need for the Central Bank to coordinate its actions to meet those policy requirements. It doesn’t mean it’s impossible, because I still think the parliament in the fiscal policy space has the upper hand if they have the political will and the vision to take action.

You mean if parliamentarians were to draft the spending bill instead of the government ministries? If they took the initiative?

Yes, because we have to realize that in a democracy, ministries—including the Central Bank—are sub-branches of the government. You can give them independence as a political entity, and in the same way you can mandate that they operate in a different way. In that sense, if parliamentarians are empowered with a vision for economic development and see a clear path to better economic and democratic outcomes, then it shouldn’t take too long for them to draft new laws that reflect that.

That’s why I always insist on the importance of having a political vision within the parliament, within the ministries and the monetary policy guys. They’re the ones sitting in the backseat. We give them too much credit for their influence over the economy. We allow them to run with it, but they really have very little impact. They do more damage than good.

You mean the bureaucrats? The independent Central Bank?

Yes, because they don’t know what they’re doing. Many of them have admitted this. The Federal Reserve admitted last year that we have no valid theory of inflation. Last month Mario Draghi asked European governments to do their part by looking at ideas like MMT and taking action on the fiscal side, because there’s not much we can do.

Do you see many politicians in Tunisia who are open to the idea, who have an appetite for looking at things through an MMT lens?

Not yet. Except for one of the MPs [Jamila Ksiksi, Ennahdha] who was here today, she seemed to be inspired by this. But so far, from the time of the revolution until the last presidential election, none of the political parties really had an alternative vision. Those that did lacked the political popular mandate to take bold action. There’s a lot of tension in Tunisian society, in politics—a fear of bold action because it brings bad memories of government dominating and taking aggressive action. It’s a very nascent democratic process. There’s always a lot of resistance to some government or political entity taking aggressive structural actions, because it brings that phobia about dictatorship. Economic action requires really deep structural reforms and shifting gears on a macro scale, but I haven’t seen anybody in the political realm willing to do that kind of transformation. That’s why everything we heard until the last presidential election was tinkering around the edges, doing things with less corruption, with more precision and efficiency. But it’s the same things. Now, since the presidential election, there’s a new window of opportunity with a president [Kais Saied] who has a huge popular mandate and a huge amount of political capital.

Saied seems to have put social issues at the forefront of his campaign.

His mind is on the right issues. The question is does he or his team have a true alternative economic strategy, or is he going to embrace the same ideas we have tried over the last seven years, under the Ben Ali regime, and in so many other countries—just applied with a bit more integrity and transparency. We want integrity, transparency, we want all of it—but we also want new ideas. Having this much political capital and this much trust from the pubic, and then applying the same policies and receiving the same results—that would be a big waste of that political capital and a huge missed opportunity.

Sometimes new things in Tunisia come not from politicians but from the streets. The Fech Nstannew movement did not propose a new policy beyond rejecting the 2018 budget. But now there is this giant Facebook group with 1.5 million members about consumption in Tunisia, and they seem to have had some success in shaping prices. You’re talking about the central bank not really being able to change prices, but here we have 1.5 million consumers seemingly having this kind of effect. What do you think?

I think it’s encouraging. It’s one thing to have an economic vision like I presented, it’s another thing to have a PM or president who says “Let’s think about this idea”, and it’s yet another to have 1.5 million people on the streets saying “We believe in this idea and we want to drive it forward”. The missed opportunities with social movements like in Lebanon and Chile, and even in Tunisia during the revolution, is that social movements are very clear about what they don’t like. They’re very clear about not liking inequality, outcomes of socioeconomic exclusion, the cost of living… they’re very clear about what they don’t like and about wanting something different. The weakness in that popular movement is usually not having a true, well-formulated set of demands that produce that alternative economic system other than less corruption, better democratic process, and better results. But how do you get better results? Getting rid of corruption is an element, but it’s not the only element. The weakness of a lot of these social movements is they get rid of corruption, elect a new government, better accountability, but then apply the same policies that produce the same inequality. Then, ten years later we’re back to square one with the same social movement saying we don’t like this government.

I saw someone on social media today placing your ideas next to Samir Amin’s ideas, and while listening to you speak it sounded like “delinking” was in the background. Is that an idea that you feel like makes sense from a Tunisian perspective, or from other developing countries?

I’m a big fan of big ideas, and Amin is one of them. Jan Kregel [who also presented at the conference] and other big thinkers are very influential in my work. But I’m an academic, so I get into all of those ideas. It’s fun to debate them and learn from them and build on them. I’m also very solutions-oriented, policy-oriented. I like to talk with the public, the media, policy makers and all of those groups. A small minority are interested in the big ideas in the academic sense of the term, but they want more practical solutions.

One of the things I think I was able to do over the last few years was to translate a lot of the old ideas and new ideas, bring them in the contemporary context and bring some of the practical solutions that people can believe in—politically, socially, and economically—and realize that this is within reach, not pie-in-the-sky impossible transformation.

By “within reach”, we’re not saying it will be easy. But people can picture their life in their economy and their society in a better position within their lifetime. They can see a clear path towards that vision, which is only activated within that participatory democracy with structural reforms that are inclusive—not exclusive to a small elite at the Central Bank or Ministry of Finance. That’s why Tunisia’s this wonderful opportunity for creating things, because we do have the mass movement. We have people who believe in the democratic process—not just on the streets, but MPs, people truly believe in the democratic process and want to preserve it and celebrate it and are willing to give up political space to celebrate the democratic process. This is a huge opportunity where the political spectrum is on board, the streets are on board. We’re missing this one piece that I’m trying to articulate. I think we are unstoppable if we do that.

Some people seem to worry about MMT and finding ways to avoid foreign currency. If I understand correctly, many countries built up foreign currency reserves after the Volcker shock as a sort of defence mechanism. There seems to be a necessity for Tunisia to have foreign currency reserves to bring in medicines and everything, but it’s not necessarily clear what these reserves are being used for. Rather, people who are well-connected or certain businesses are bringing in luxury goods.

There is some of that, and you can get rid of it targeting by corruption and these entities. But I always push back against calling them “currency reserves”, because it creates this illusion that we have excessive amounts of reserves of foreign currency, when we actually have a massive amount of external debt. Even the central banker today mentioned the level of foreign currency reserves, which are usually calculated in terms of days’ worth of imports of basic necessities. In other words, if we go back to the period of Tunisian debt crises, the days’ worth of reserves dropped from the IMF’s threshold—which was 90 days’ worth of reserves—to five or six days. That means after six days the country would not have any resources to import wheat for bread or gasoline, which means you will have riots on the streets. In fact, there were riots on the streets.

The idea behind building up reserves is to give the economy a buffer time period to absorb temporary shocks—economic crises or depreciation of the currency—to give the Central Bank 90 days’ worth of imports before the riots start on the streets. That’s an important thing to recognize, that this is not a luxurious surplus that we have.

But the other part of the question is corruption, which was brought up today by Chafik [Ben Rouine, cofounder of the Tunisian Observatory of Economy who chaired the conference panel with Kolsi] in his questions concerning export-oriented Tunisian companies with an exclusive privilege, namely being able to offshore. That’s where you see some of the corruption, where some of the managers of these companies can buy their BMWs and bring them into the country. The Central Bank is not okay with the corruption part of it, but they’re okay with giving them that incentive because presumably they’ll import better technology and there will be some kind of transfer of technology in Tunisia, which she [Rym Kolsi, director of monetary policy at the Central Bank of Tunisia] tried to emphasize today. But show me the positive effect of transfer of technology in the last 30–40 years and then I’ll believe you. It’s not there.

I’m personally very curious about what it means for Tunisia to have a national currency that’s not pegged, not something every country has. We heard about the CFA franc, which is pegged to the euro and previously the French franc. Did having a sovereign currency at the time of independence mean that Tunisia could do things it couldn’t under colonialism? Was there a sense of this sovereign currency being a part of the independence struggle?

There are two aspects. One is the fact that France didn’t really care very much about the Tunisian economy. It wasn’t even planning to colonize Tunisia, it was sort of an accident. It was a bothersome group of people across the border from Algeria, so they thought “What the heck, let’s take that country too.” It wasn’t as important as the other colonies from a natural resource or economic strategy perspective. Letting go of Tunisia wasn’t a huge loss to the French economy. It wasn’t a struggle to transition to the Tunisian dinar.

In a sense, maybe the Algerian experience was more problematic because the dinar that circulated in Tunisia said “Bank of Algeria” on it, and then it would say “circulated in Tunisia”. Tunisia was an extension of the monetary system that France had for Algeria, which was considered French territory and was not up for negotiation. In that sense, there wasn’t much resistance to creating a national currency from the French.

Plus, you have to realize that, as a postcolonial country on day one of independence, you have a president, your parliament, and your money. What are you going to do on day one? Are you going to continue producing and selling the same stuff you’ve been producing? The day after independence it will be the same.

After colonialism, it was actually made worse because you tried to accelerate it. You’re now in charge of the economy. You want to generate more revenues for exports, so you keep using the same structures. You’re still extracting from the same mines, shipping to the same ports, and delivering to the same customers in Europe. In that sense, removing French troops from Tunisia didn’t really change the economic benefits France had. Now you have political sovereignty, you have your own president and flag and national anthem. Economically, you’re still serving the same structures.

Even if you technically have your own currency, that’s not the full picture of what you want in terms of economic sovereignty?

If you have to fix your exchange rate and your economic production system is the same, except now it’s governed by your own people doing damage to your own economy, because that’s the vision they see for economic benefits. Then you go to import substitution industrialization (ISI), that kind of internal development, and that was done in a very corrupt way where a small group of elites got subsidies from the state to build  factories and what would become the core structure of the Tunisian economy under Bourguiba’s regime. But it created this wealthy business elite that was highly subsidized and wasn’t delivering the productivity and competitiveness level the Koreans or Singapore or Japan were developing around the same time.

Well, you had to import capital goods, often with loans, to carry out ISI. In Tunisia’s case a lot of that was coming from the US, right?

By the time you get to the free trade and globalization era Tunisian manufacturers were crushed by foreign competition, and now they have to be a small subcomponent of the global supply chain. They don’t have horizontal integration of industries. They have this vertical integration to produce one small component of the supply chain, and are completely dependent on global demand. When global demand increases because of events in the US or decreases because of events in China, they are affected domestically and there’s nothing they can do about it. The Central Bank raising or lowering interest rates is not going to change the fact that the US is in a recession, or China decided to switch demand from this to that.

My last question is a theoretical question. Is MMT post-Keynesianism? Where does it fit in theoretically? Would you say that MMT can be thought of outside the bounds of capitalism, and what’s its relation to capitalism?

Before there was anything called MMT, all the MMT ideas that we discussed today came fundamentally from post-Keynesian economics and institutional economics, heterodox economics traditions outside of the mainstream. What MMT economists have done is build on those two traditions and add this lens that clarifies what monetary sovereignty is. This lens allows you to estimate how much fiscal policy space you have before you start running into inflation. MMT provides a lens that says structural issues drive inflation, not government spending. It depends on which industry. What determines inflation is productive capacity, market power, corruption, these things. In that sense, I see MMT as a continuation of these two traditions and I don’t think there would be an MMT without them.

In terms of capitalism or beyond capitalism, once you have that lens that says “This is how much fiscal policy space you have, and this is how much you have before you run into inflation, and this is what causes inflation”—market power and productive capacity—then you can take that descriptive knowledge of how the system works and decide to take advantage of this additional fiscal policy space to, for example, invade Canada. It’s a political choice, nothing to do with MMT. Or you can say, “Let’s take this additional fiscal policy space to provide universal healthcare for people regardless of their employment level”, or we can use this fiscal policy space to fight climate change because it’s a national priority. Let’s use this fiscal policy space to reduce inequality, to enhance the democratic process, to weaken the oligarchs and this power and influence and politics in the economy. These are political choices.

You can take the MMT vision and make things worse or you can take the MMT vision and make things better, and that’s why it’s very important for this to be cantered within the democratic process, so that we get the better outcomes that serve the needs of people. If we allow this MMT knowledge to become a private vision for the oligarchs and the military industrial complex, they’re going take it and they’re going to use it. That’s why it’s important to bring it into the public discourse. We have to call their bluff, the elites who say “If you spend more it’s going to cause inflation and you’re going turn into a Venezuela.” Calling their bluff means we know better, and this gun you’re holding, hijacking the economy, isn’t a real gun. It’s a water pistol. You’re bluffing. We know better because we know what causes inflation, we know the fiscal space we have, and we know that taxing the rich is not about getting their money or their permission to spend.

Taxing the rich, polluters, and speculators is not because we need their permission to fund health and education and climate change, but because we want to reduce inequalities, pollution, their market power, reduce corruption. That’s where the MMT lens helps us to decouple spending from taxing. Both are extremely important, but they’re not linked in the way we usually think they are and they’re hijacking the economy by saying “If you don’t raise tax revenues for this, you’re not going to have your healthcare.”

But it would have impacts on the globalization project, right? MMT means you would need to have a shift in the ways countries expect to use and consume.

Absolutely, but I wouldn’t go all the way to the point where you would say MMT is pro-capitalist or anti-capitalist. MMT just says: “This is how the capitalist system works today”, and then tries to take it and transform the system in ways that people will decide which way. You can still be export-oriented, pro-tourism, part of the global supply chain, but now you do it more strategically to serve the needs of your economy. I’ll leave it at that. It’s not one extreme or the other. It’s interesting, we’re getting more and more of these questions to help people realize that this is sort of a technical solution to the existing system, and the politics of it you can take in whichever direction you want.

Especially if you think of neoliberalism as a time period, this sort of late-stage capitalism, and whether we’re moving to reshaping capitalism or moving past capitalism is on so many people’s minds—do you think MMT could be the next thing?

There’s no one form of capitalism. As Minsky used to say, there are 57 varieties of capitalism—just like ketchup. I think MMT has the potential to form another kind of capitalism. It has the potential to move beyond capitalism. But it’s not the binary “capitalism versus socialism versus communism”. There’s a wide spectrum of potential political systems. I think the choice has to be democratic. It has to be participatory. And I think it has to come with the desired economic outcomes, with the democratic and personal political freedoms that everybody aspires to. Whatever system that happens to be, we will invent a name for it and then we will just have it, so we will add another “ism” to it.