Book Extract | Recession, Recovery and Reform: South Africa after Covid-19

Chapter 9: A free market for a more prosperous South Africa
Chapter 9: A free market for a more prosperous South Africa

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Edited by Raymond Parsons

Published by Jacana Media

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Chapter 9: A free market for a more prosperous South Africa

By Temba Nolutshungu

Extract

South Africa’s socio-economic problems and their broader detrimental consequences may seem insurmountable, but they are not. The situation can be turned around.

Simply implementing policy reforms that enhance individual liberty and respect the supremacy of the private sector in creating wealth and generating employment would be like waving a magic wand.

All government has to do is remove their varied ideological blinkers when enacting policy.

They need to focus instead on empirical evidence that irrefutably explains the glaring discrepancies between high-growth, prosperous economies and poor economies characterised by low growth and economic decline.

Read: Open letter | Mr President, the time to lead us out of socioeconomic ills is now

The late president of South Africa, Nelson Mandela, shone a light on the matter when he asserted: “It is not a question any longer about whether the world embraces a free market economy. The globalised world in which we live has made it imperative that we open our markets both internally and to the outside world. Closed markets and command economies are self-evidently inappropriate for our times.”

Mandela’s insightful conviction has been underscored by various empirical studies, such as the Economic Freedom of the World (Fraser Institute), the Index of Economic Freedom (Heritage Foundation) and the International Property Rights Index (Property Rights Alliance).

These studies illustrate the self-evident correlation between economic freedom – that is, free markets – and economic growth from which emanate measurable outcomes, such as higher incomes per capita, higher incomes for the poorest people in the country, higher life expectancy, and greater political and civil rights.

In the dark days of apartheid, the Nationalist Party government told everyone that they supported free enterprise.

Yet they implemented massive socialist housing programmes, established state-owned enterprises, introduced a communist-style autocratic government and told citizens whom they could live with, marry and sleep with, and where they could be buried.

All government has to do is remove their varied ideological blinkers when enacting policy. They need to focus instead on empirical evidence that irrefutably explains the glaring discrepancies between high-growth, prosperous economies and poor economies characterised by low growth and economic decline

We believed their falsehoods and resolved that if that miserable existence was free enterprise, then we had to find our salvation in the opposite camp, which was socialism.

I steeped myself in socialist literature. I read everything I could find on Marx, Lenin and other promoters of the communist philosophy.

I then started to notice something about the theorists that did not ring true.

They spoke passionately about raising the working classes, but they saw themselves living in luxury and style.

Through rational self-reflection and acknowledging the realities and facts around me, I gradually gravitated away from socialist thought.

Instead, I embraced the paradigm based on the reality of human nature and placed personal liberty – in other words, individual supremacy and sovereignty – at its core.

Evidence abounds that former communist countries that made an about-turn and implemented free-market policy reforms have realised high economic growth rates and subsequently achieved significant socioeconomic successes for their citizens.

Communist China’s free market reforms targeted areas riding on the crest of an average 10% economic growth rate over more than three decades.

From this, the following facts emerged: more than 850 million people lifted themselves out of poverty, while the 88% poverty figure in 1981 fell to a statistically negligible 0.7% by 2015, according to the World Bank.

It is fascinating that all this was achieved under the auspices of a communist administration.

Logic tells us that if what we are doing is incurring negative consequences, the best course to follow is to stop doing it.

This logic is applicable in all cases, including the work of government.

In a freely functioning economy, government would not do what South Africa’s apartheid government did, which was to micro-manage the activities of businesses, telling them who their partners in business could or could not be and whom they may hire at the various levels of their businesses.

This system did not work well, and in the late 1980s and early 1990s, the economy went into decline because of excessive interference from government.

Read: Book Review | Will South Africa be okay?

Come 1994 and freedom erupted in the country. The positive changes and general improvement in relationships prompted Archbishop Desmond Tutu to talk about the “Rainbow Nation”.

Businesses were free to enter into a wider range of partnerships and hire whomever they wished from a much greater pool of talent.

According to the World Bank, South Africa’s economic growth rate increased at an average annual rate of 3.2% over the period 1994 to 2012.

The reason for the improvement was that the people of South Africa were doing what they had been prevented from doing for many decades, they were cooperating freely with one another in multiple fields of endeavour.

Why has it since gone downhill? I would contend that it is because of the gradual disappearance of that cooperative spirit.

The nature of the economic environment is critical for the success or failure of any economy. What characterises free market economies is that economic exchanges are voluntary and participants are not subjected to violence or the threat of violence.

They are also not subjected to reams of costly red tape.

Unfortunately, South African business has had to contend with increasingly burdensome regulatory requirements.

Legislation placing discretionary decision-making powers in the hands of officials has created costly uncertainty, which hampers business activity and is detrimental to the functioning of the economy.

South Africa’s Constitution determines that there is to be no discrimination on any grounds, including race. These requirements have been brushed aside, which has sullied the freedoms that were gained in 1994.

In addition, businesses are forced to hand over substantial parts of their businesses to others at no cost and are denied the right to freely appoint executives and staff according to their evaluations of the talents and qualities of the applicants.

Given the burdens that have been imposed on both foreign and locally owned businesses in South Africa, the economic decline was to be expected.

In the dark days of apartheid, the Nationalist Party government told everyone that they supported free enterprise. Yet they implemented massive socialist housing programmes, established state-owned enterprises, introduced a communist-style autocratic government and told citizens whom they could live with

The people who are suffering most in the country are the poor and unemployed.

An unshackled and free South African economy growing at 4% each year would have provided opportunities and jobs, instead of giving rise to 10.3 million unemployed and suffering people today, many with families they cannot support.

The chosen course was unfortunately what economist Gordon Tullock called “welfare for the well-to-do”.

The solution to the current economic malaise is to unravel the policies, legislation and regulations that are weighing down the economy and preventing the economic growth of which South Africa is capable.

People are endowed differently. In all spheres of human endeavour, these differences manifestly come to the fore.

Rich sports and other stars, such as Lionel Messi, the late Muhammad Ali, the late Michael Jackson and a host of other wealthy entrepreneurs such as Bill Gates, accumulated wealth on the basis of intellectual endowment, dexterity and hard work.

In almost all cases, the pursuit of their goals characteristically entailed great risk and sacrifice.

Across all cultures, individual actions and aspirations are characterised by self-interest. Individuals pursue their interests on the basis of what is best for them, based on their subjective priorities, preferences, tastes, wants and needs.

This instinct is so deeply and irretrievably embedded in the DNA of human nature that no amount of re-engineering or political manipulation can change it.

This stubbornly remains the case. Even in cases of relentless ideological or political indoctrination, the ideologically oriented architects of such programmes serve their individual interests.

People are by nature acquisitive and hence have an insatiable desire to realise and progressively work towards greater returns for their endeavours on a perpetual basis.

Thus, they feel strongly that they have legitimate claims to the fruits of their labour.

The unintended consequences of confiscatory policies will inevitably be to discourage or negate investment and demotivate capital formation as the disincentives cause investors to explore alternative markets.

The South African economy has slumped and much of it is due to government adopting a policy of expropriation of private property without compensation, along with other measures such as the passing of the National Minimum Wage Act and the drafting of the National Health Insurance Bill

It is human nature for people to always strive to rise above their prevailing socio-economic circumstances.

They do their best to achieve their constantly rising goals. Whether they are owners of business enterprises or employees, they are alike in this regard.

The free market is sufficiently dynamic as to spontaneously expedite various permutations of ownership of the means of production and the production of wealth.

The free market gives full expression to individuals to pursue their interests uninhibited by legislative impediments, whether imposed by the state or some other supra-social entity, so long as the endeavours do not entail force or fraud.

Thus, interventionist, dirigiste policies or other statutorily regulatory media are by definition coercive.

“The worst form of inequality is to make unequal things equal,” said Aristotle, the Greek philosopher.

The pursuit of confiscatory policies threatens productive individuals’ and enterprises’ legitimate rights to the fruits of their labour.

It is a populist call that has a superficial appeal among many who do not seriously believe in working for a living and call on government to provide unearned goods.

The late Milton Friedman said: “A society that puts equality – in the sense of equality of outcome – ahead of freedom will end up with neither equality nor freedom … On the other hand, a society that puts freedom first will, as a happy by-product, end up with both greater freedom and greater equality.’

Property rights are a key ingredient for economic and social prosperity. More importantly, property rights are human rights and without them people are restricted in how they act, how they speak and how they participate in the economy.

The International Property Rights Index (IPRI), published by advocacy organisation Property Rights Alliance, measures the strength of physical property rights, intellectual property rights and the legal and political environments that enforce them.

The index demonstrates that one tenth of the world’s population live in the 15 countries with the highest degree of property rights protection. These are also some of the wealthiest countries in the world.

South Africa’s IPRI score continues to slide down the rankings and the country is now ranked 48th out of 129 countries.

South Africa dropped 11 places between 2018 and last year and is now ranked third in the African region, behind Mauritius (first) and Rwanda (second).

The South African economy has slumped and much of it is due to government adopting a policy of expropriation of private property without compensation, along with other measures such as the passing of the National Minimum Wage Act and the drafting of the National Health Insurance Bill.

Read: NHI white paper sketchy on cost to SA taxpayers

What do the above three measures have in common? All three are ideological interventions pursued for political expediency rather than for the public interest.

They are not evidence-based: every country that has ever tried expropriation without compensation has been reduced to a poverty-stricken banana republic; the minimum wage has been repeatedly shown to be most detrimental to the unemployed; and South Africa has no hope of funding a national health insurance system while we have declining economic growth rates.

The moral strength, dynamism and productivity of the free market are anchored in the supremacy and sovereignty of the individual.

This point is underscored by the wisdom of Mahatma Gandhi who, in commenting about socialism, communism and statist expansionist policies, said: “I look upon an increase of the power of the state with the greatest fear, because while apparently doing good by minimising exploitation, it does the greatest harm to mankind by destroying individuality which lies at the root of all progress.”


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