Radical economic transformation to end poverty by being radically rational

Economic policy needs to change as we imagine a future post-Covid-19. Picture: iStock
Economic policy needs to change as we imagine a future post-Covid-19. Picture: iStock

South Africans are entering a period of hardship like none we have seen before.

The numbers do not lie.

The global lockdowns are projected to result in a 5.2% decline in global GDP and 7.2% in the domestic GDP.

The consequences for the ability of South Africans to find meaningful employment promise to be worse than the first quarter unemployment rates of 39.7% and 70% for 15- to 24-year olds (those who are not in school).

READ: SA faces more downgrades as debt soars

Policy proposals that have already been accepted are being offered again by the same people, and that won’t do.

When it comes to investing in infrastructure, we have been there and done that – not so long ago with the World Cup build programme as well as the government’s “trillion rand” infrastructure build.

These so-called investments were used to fund billions in corruption, by people who were anti-corruption – people like Minister Pravin Gordhan, former president Jacob Zuma’s first finance minister and a champion for the first government stimulus packages under Zuma.

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Billions were given to Transnet, Eskom, SAA, Denel etc because we were to become a developmental state, with state-led economic growth, that would rescue us from poverty and the evils of austerity that the nation “suffered” under former president Thabo Mbeki and former finance minister Trevor Manuel.

If not given in direct transfers, the treasury simply issued guarantees that the country would pay, if none of these “investments” worked out.

They didn’t.

Instead we got corruption, which seemed to grow in proportion to the amount of spending.

Instead of the promised land of jobs, no poverty and equality, politicians and their cronies became richer than most of the rest of us.

This is the investment the country paid for.

Those who controlled the funds reaped all the benefits by taking away our hard-earned money, to splurge in Dubai and who knows where else.

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It will not be different this time around.

For one thing, we have shown ourselves to be extremely inefficient at prosecuting the corruption that many journalists have uncovered, with a fraction of the state’s resources, and often under situations of extreme duress.

If we have failed to prosecute the corruption emanating from the last spending binge, why would things be different now?

But it is more serious than that, because even in those rare times when government spending projects were free of corruption, the money was used inefficiently and at the expense of the private sector serving our real needs and wants.

South Africans have seemingly forgotten that the root of prosperity is within us, the people.

It is through our actions, as workers, entrepreneurs, investors, savers and consumers that an economy functions.

To the extent that we are deprived of resources through taxation, is also the extent to which the economy cannot function efficiently.

The government persists in pursuing a planned economy three decades after the collapse of the planned economies that existed during the Cold War, of which the apartheid economy was one.

READ: Infrastructure projects are no cure for ailing SA economy

It must be understood that government interference in an economy can only make us and the government poorer.

The government needs us to become ever more efficient at producing so the economy may grow.

If the same government then puts up onerous barriers in the form of high taxes and regulations, the consequence is less production and less government revenue.

These are the common-sense laws of production emanating from the fact of scarcity that all of us are intuitively aware of.

The government produces nothing, otherwise there would be no need to pass a law requiring the payment of taxes or requiring that we all use rands to transact.

Pick n Pay, MTN, Capitec, and the like, never passed a law saying we have to buy from them or use only the currency they issue, for instance.

In fact, companies in the private sector spend billions on marketing every year, competing for our rands.

They go out of their way to find out what it is that we want so much that we are willing to part with the products of our labour.

In contrast, a state-owned enterprise like Eskom spends millions paying for advertisements telling us not to use their product.

This is the exorbitant privilege (to borrow a term from a former French finance minister) of being granted a state monopoly.

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The sad fact behind the loud calls for radical economic transformation is that it masks an emptiness of rationality and therefore of content.

There is nothing radical about repeating the policies of the past 12 years.

There is nothing economically transformative about doubling down on the regulations that have forced our best entrepreneurs to exist in something called the “informal sector”.

Incidentally, this sector along with private homes, added 33 000 jobs in the first quarter of 2020.

This indicates the potential of the people that the government sees only as recipients of welfare, to bring about a real radical economic transformation.

A transformation that would see townships and rural areas be the engines of growth, driven by the brilliant entrepreneurs who already exist and are stifled every step of the way by government policy, going back to the days of apartheid.

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We need a paradigm shift, not more of the same.

If we are to talk about being radical, let us be radical and let us do so by first being radically rational.

The actions we undertake must achieve the goal we have set out to achieve.

This means we cannot uncritically condone the same policy through multiple trials where it continues to prove its destructiveness, and call for changing everything but the policy.

This is dishonest and it will do great harm to the economically excluded of South Africa.

A real paradigm shift will put free markets, fuelled by ordinary South Africans, at the front and centre of our goals for economic prosperity and the end of poverty.

Mpiyakhe Dhlamini is a data science researcher at the Free Market Foundation. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.


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