South Africa’s economy was on the ropes long before the coronavirus lockdown administered its coup de grâce. We do need a new economy once all this is over, but not the economy Ramaphosa wants.
President Cyril Ramaphosa has been very clear: ‘We are resolved not merely to return our economy to where it was before the coronavirus, but to forge a new economy in a new global reality,’ he told the nation on 21 April.
‘Our economic strategy going forward will require a new social compact among all role players – business, labour, community and government – to restructure the economy and achieve inclusive growth. … Building on the cooperation that is being forged among all social partners during this crisis, we will accelerate the structural reforms required to reduce the cost of doing business, to promote localisation and industrialisation, to overhaul state owned enterprises and to strengthen the informal sector. We will forge a compact for radical economic transformation…’
And so on.
Yes, Mr President, we do need a new economy. We need an economy that does not suffer nearly 30% unemployment, as it did before the lockdown was imposed. We need an economy which does not leave seven million people hungry every day. We need an economy in which new businesses are opening, instead of established businesses closing.
What we do not need is the sort of economy the African National Congress (ANC) envisages. A leaked strategy document authored by the chair of the party’s Economic Transformation Committee, Enoch Godongwana, and reportedly endorsed by the party’s highest decision-making body, makes its intent clear.
The ruling party wants to build an economy in which the state directs an ever-greater share of economic activity. Its solution to inequality is redistribution of wealth, starting with land. Its solution to failing state-owned enterprises is to bail them out, and when they run out of money with which to do so, to tap private capital in the form of savings and pension funds. Its solution to unemployment is expanding public works programmes, and creating new state-owned enterprises in sectors hitherto unburdened by them.
Fairness and unfairness
The government’s indecisiveness around reopening schools was instructive. The government noticed that some schools, for various reasons, were not ready to reopen. Instead of letting schools that could safely reopen do so, it kept all schools closed until the laggards could catch up.
It could not countenance a world in which some children, or even most children, went back to school, but a few were left behind. Even if the reason they were left behind was entirely the government’s own fault, having failed to deliver on basic water and sanitation promises that now proved to be critical, in a ‘fair’ society everyone must be forced to suffer equally.
The same prejudice could be seen in Ebrahim Patel’s approach to e-commerce. Even though online commerce was pretty much made for a pandemic, e-commerce stores were shut down or restricted in exactly the same way that brick-and-mortar stores were. This was not motivated by safety concerns, because there were none. It was motivated by the feeling that it would be ‘unfair’ for online retailers to be open while physical stores had to remain closed or restricted.
This reminds me of a line Winston Churchill used shortly after the end of the Second World War: ‘The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of socialism is the equal sharing of miseries.’
In Ramaphosa’s new economy, the government will make sure that all share equally in the country’s miseries. It’s only fair.
Flag carrier
He is determined to ‘overhaul state enterprises’, and the chronically mismanaged and bankrupt South African Airways (SAA) is first in the queue for handouts. According to a leaked draft business rescue plan, government has agreed to throw another R21 billion down that black hole, even after swearing high and low that it would not make this mistake again.
In these pages, John Kane-Berman likens the latest attempt at resuscitating the dying airline as ‘repeatedly reminding everyone of the incompetence, malfeasance, cowardice, and corruption that has brought about this tragic state of affairs’.
True. If SAA is supposed to be a flag carrier, what does it carry a flag for? For ever-deepening debt crises, cadre deployment, cronyist procurement processes, unaccountability, inefficiency, corruption and incompetence? For state-run monopolies hell-bent on driving private competitors out of business, and able to sustain losses indefinitely because they are funded by the bottomless coffers of the state?
I cannot think of a single state-owned enterprise that actually runs well. They’re either unprofitable or hopelessly indebted, and they largely suck at delivering the services for which they exist.
Of course, the state’s coffers are not really bottomless. The government’s budget deficit is projected to exceed 10% this year, levels only seen during the First and Second World Wars.
Taxpayer funding is exhausted, and so are taxpayers. Between financial years 2019 and 2020, 115 000 companies and 700 000 individual taxpayers vanished from the books of the South African Revenue Service.
The capital markets are exhausted, too. South Africa has to pay a premium for continued borrowing, which it simply cannot afford. Besides, a country’s credit is only as good as its ability to tax its economy, and that ability is looking mighty wobbly right now.
Robbing the piggy bank
Instead, the ANC has the rather large pot of retirement savings in its sights. Like the deadbeat drunk eyeing their children’s piggy bank, it wants to ‘mobilise’ the riches held by both private and public financial institutions in order to fund its grand plan for economic reconstruction.
It hopes to steal cash directly from citizens, who have worked all their lives to build up a little retirement nest egg, and ‘invest’ the ill-gotten loot in government’s infrastructure projects and state-owned enterprises. After all the expense of protecting old people from Covid-19, the government now plans to destroy their savings, turf them out on the streets, and starve them.
We need a new economy, but not one that clings to the failed ideology of the ‘developmental state’, guided towards a socialist utopia by ‘state-led growth’.
The economy we need
We need a liberation of the economy. State-owned enterprises have proven that government is incapable of providing necessary goods and services to the people of South Africa. Instead, we should let the private sector do so.
In the public sector, failure is perpetuated by bailouts. In the private sector, failure is rewarded with bankruptcy. Unlike in the public sector, such failures are not crises, because for every failed company, there are competitors waiting in the wings to try to do a better job. The market, and the profit motive, provide a systematic incentive to continually drive down costs and improve product quality.
That is why we have computers that double in power every few years, for the same price. That is why we have cellphones in almost every pocket. That is why we have an entire Internet full of marvellous content, while the SABC makes losses with an offering that is little different, in quality and purpose, from the propagandistic tripe peddled to us 40 years ago.
The government needs to systematically sell off and privatise state-owned enterprises, or shut them down. Only in areas in which a natural monopoly exists, such as the national electricity grid, should state-owned enterprises play any role at all.
There is absolutely no reason why the state should own a diamond mine, a forestry company, an arms manufacturer, several airlines, a broadcaster, a transport company, an airport monopoly, an energy company, a postal service, several telecommunications firms, and more than 100 other companies.
The government should systematically, and with speed, begin to cut red tape, bureaucracy and the regulatory burden on the private sector. Instead of trying to regulate as much as possible through licensing, it should regulate as little as possible.
Instead of trying to decide ‘what the market can bear’ by limiting the number of licences in issue for a given activity, let the market discover that for itself. There is no rational way for the government to discover ‘what the market can bear’, due to the economic calculation problem.
Instead of gambling with tax-payer money on risky new ventures or startup industries, let private investors risk their own money.
Rip up labour law
Rip up South Africa’s burdensome labour law, and replace it with something that ensures basic worker rights, without pricing 30% of the labour force out of the market. Minimum wage legislation essentially tells a job-seeker that if they cannot find a job that pays what the government believes is sufficient, they aren’t permitted to have a job at all. That is, frankly, immoral.
If it is easy to fire people, it is easy to hire them. The benefits of jobs gained will more than outweigh the benefits of jobs lost, and losing a job won’t be nearly as catastrophic as it is today in a dynamic, vibrant business environment that can easily adjust to the needs and wants of the market.
Guarantee secure property rights, including to those who all their lives have been tenants of the state. Only when property rights are respected can that ‘dead capital’ be leveraged into economic growth.
Let schools compete against each other for students. Government education is failing in South Africa. Standards are dismal and declining, and most children starting school never make it to matric.
Throw the education sector wide open to private sector competition. Give parents vouchers to help them fund their children’s education. Let schools differentiate in the kind of education they offer. Some will focus on academic preparation for tertiary educations. Others will focus on technical, trade or merchant-oriented vocational training.
Once schools can compete, fees for private schools will come down. There are numerous case studies around the world, in which low-fee, or even no-fee, private schools offer quality education to the poor.
Hobble the unions. It is a noble thing to bargain together for better working conditions, fair treatment and better pay. It is wrong, however, to hold industries – including children’s education – hostage to serve only the pecuniary interests of union members.
Focus government resources
Reduce the complexity and level of taxes. Make tax compliance easy. Remove all excise taxes and tariffs. To establish basic welfare services and a social safety net, consider implementing something along the lines of Milton Friedman’s negative income tax.
Make government small, but efficient. Focus its finances and human capital on the institutions that make a free economy work. Make sure that contracts can be enforced and property rights asserted easily and inexpensively. Make sure that bureaucracies run efficiently and smoothly. Make sure that the judicial system is independent, impartial and accessible to as many people as possible. Make politics, at all levels, responsive and accountable to the voters, as a means to improve their private lives, rather than as a means to make money from the state.
The freer an economy is, the faster it can grow. The faster it grows, the more jobs it creates. The more jobs it creates, the more prosperous people get.
Economic freedom is correlated with higher income per capita, higher life expectancy, more income earned by the poorest 10%, lower infant mortality, lower extreme and moderate poverty rates, greater political rights and civil liberties, less gender inequality, and greater happiness.
Instead, the ANC proposes to hobble the economy even further, and place upon it the heavy yoke of heavy-handed state control. South Africa cannot afford the ANC’s crippling vision for the country’s economy. It will impoverish us all.
The ‘new economy’ we need is a radically liberated economy, in which everyone can share in its blessings. It is the road to prosperity and hope for a brighter future. The ever-greater dirigisme and socialism that the ruling party wishes to foist upon South Africa will only bring us shared misery. It is the road to wretchedness, poverty and starvation.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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