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The Sparks of Economic Freedom

29 September 2012, 23:04

The South African economy had been set ablaze by the activism of workers and young people. Their vision and public demonstrations for economic freedom in their lifetime are making sparks fly in boardrooms and in the streets. A restive economy with sluggish growth had been danced into a spin. A new inquiry into the meaning of economic freedom had suddenly kicked in across the country as news networks went viral with stories about demonstrations, strikes, shootings, burning trucks and courtroom dramas.

The question is what does this economic freedom look like, that the youth is calling for in their lifetime. People had been living under the impression that South Africa is a showcase for economic freedom. But it would appear that the young people are not convinced that the government and industry bosses were pulling out all the stops to change the level and form of economic freedom in society.

They seem to be right, because South Africa was rated at number 70 out of 179 countries internationally and only 5th out of 46 countries in the Sub-Saharan Africa Region. This according to the Heritage Foundation’s 2012 Index of Economic Freedom. Rugby fans will be agitated by the fact that Australia and New-Zealand came in third and fourth place respectively, ahead of Switzerland, rated the most competitive nation in the world by the World Economic Forum.

South Africa attained its relatively poor rating primarily because much of the population is poorly educated and lacks access to infrastructure and services. South Africa has one of the world’s highest HIV/AIDS rates and its affirmative-action mandates threaten private property rights. The public service is bloated. The court system is slow, understaffed, under-funded, and overburdened. The courts impose undue burdens and costs on rights holders pursuing infringement cases. Corruption continues to undermine the foundations of economic freedom.

Economic growth is widely regarded as a function of the level of economic freedom, changes in the level of economic freedom and investment in physical and human capital. It thus makes good sense to establish precisely what economic freedom means.

In a free economy people have better lives, in virtually every way. The measures of a good society are sustained economic growth, higher incomes, income equality, gender equality, service equality, long life expectancy, and so on. Organizations such as Freedom House, the Heritage Foundation, and the Fraser Institute, as well as individual scholars, have researched the concept “economic freedom” and their frameworks and indices are key to understanding the call of the youth.

The key ingredients of economic freedom are personal choice, voluntary exchange of goods and services, freedom to compete in markets, and protection of person and property. Institutions and policies are consistent with economic freedom when they allow voluntary exchange of goods and services and protect individuals and their property. Economic freedom requires that the government refrain from taking people’s property and from interfering with personal choice, voluntary exchange, and the freedom to enter and compete in labour and product markets without constraints. Economic freedom is driven by an economic system based on private property and free markets. There are no restrictions that limit entry into occupations and business activities. Policies of affirmative action and equal opportunity restrain economic freedom.

There are five measures of economic freedom. Size of government, a sound currency, rule of law and property rights, international trade and regulation have been identified as the five crucial measures of economic freedom.

To get high ratings in the size of government for example, governments must tax and spend modestly, and marginal tax rates must be relatively low. While governments are important in protecting property rights, enforcing contracts, and providing some services, as governments grow they inevitably infringe on people’s economic freedom to engage in trade and enjoy the fruits of their labour. They become tax consuming, bloated and lethargic as the numbers of officials balloon. There is reason for concern in South Africa, because government is one of the biggest employers, with many provincial and local governments and many departments and institutions that service and regulate the economy. There is also evidence of widespread corruption and cronyism.

When we want to establish what the young people refer to when they agitate for economic freedom we must assess our performance in each of these measures and establish where the changes are needed. The freest economy in the world is considered to be Hong-Kong. Hong Kong has relatively low taxes, a good legal system, sound money, free trade, and minimal regulations. It has had these institutions and policies in place for several decades.

When one pools the demands that communities, workers and young people have been making public in their ongoing demonstrations, issues like low wages, access to basic services, employment and decent living conditions, crime, corruption, poor education, weak institutions and weak leadership seem to be the most prevalent. We seem to be a long journey away from attaining human and institutional excellence. The political will, enthusiasm and ability to address these issues must be mobilized and committed otherwise the youth will not experience economic freedom in their lifetime. We may experience the same volatility and rebellion that prevails in other countries where economic freedom is restrained, if we don’t engage all the people in rigorously building economic freedom.

Sources:

www.heritage.org/index and www.weforum.org

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