The Free Market Foundation and Solidarity Research Institute last week launched perhaps the first quantification of the cost of so-called broad-based black economic empowerment (BEE) policies to the South African economy, in both economic growth and jobs. It is clear that on nett BEE is harmful. And yet, the question still arose, “What is the alternative?”
This question seems innocuous on its face, until we appreciate the somewhat perverse implication.
It should be understood upfront that the BEE research only considered the direct compliance costs of the policy – up to R290 billion per year, or some 2-4% of GDP or up to 192,000 lost jobs – whereas the far greater and necessarily unqualifiable harm is the opportunity cost: How many billions does South Africa lose every year to foreign and domestic investors deciding not to invest, not to expand, not to develop, in part because they do not want to participate in racial engineering?
Perhaps it is good that we cannot put a number on it, as the answer will no doubt paralyse us with shock.
Nonetheless, when we consider the costs of murder, rape, genocide, or natural disasters, never does anyone utter, “But what is the alternative?”, because these phenomena are uniformly regarded as necessarily bad. When we ask, “What is the alternative?”, we reveal that at least subconsciously we regard the thing under consideration as either morally neutral or good.
To ask, then, “What is the alternative?”, after economic researchers showed how destructive BEE has been to the economy, is to reveal a latent faith (and this word, “faith,” is important) in the policy. It reveals that despite the evidence now showing that BEE is not a good thing, South Africa lacks and will for some time lack the uniform consensus about the necessary badness of this policy.
Perversely, it then falls to us to develop various “alternative” policies that could replace BEE, when in fact the following should be the obvious answer:
The alternative to BEE is to stop doing BEE.
Some medicine please, Dr Mengele
“First do no harm” is a foundational ethical principle in the domain of medicine and healthcare (let us not discuss the ethically barren wasteland of global healthcare between 2020 and 2022) but it applies just as firmly in public policy.
If people insist – and they should not – that we need government to engage in economic empowerment programmes, the first thing that needs to be done is ensure government is not engaging in programmes that cause economic harm. There is no point in going to see Dr Josef Mengele to be treated for poisoning when Dr Mengele is the person who continues to poison you.
The first step, then, to state-driven economic empowerment in South Africa is to stop BEE without delay. Then we can apply our minds to what should “replace” it. But to say that in the meantime – while we develop an alternative – we should continue drinking Mengele’s poison, is utterly misguided.
The Institute of Race Relations has nonetheless handily set out one of these alternatives.
Economic Empowerment for the Disadvantaged
In terms of a system of Economic Empowerment for the Disadvantaged (EED), the focus will be on empowering those factually disadvantaged, rather than looking for proxies like race or skin-colour.
Instead of awarding race-based “BEE points,” EED scores will be awarded to businesses that invest in the economy, generate profit, create jobs, produce goods and services, and contribute to the fiscus.
EED would also introduce a voucher system premised on means (not melanin) testing. Qualifying beneficiaries will then access vouchers for education, healthcare, and housing up to a prescribed value. Businesses can earn more EED points by topping up the voucher values of people who live in the communities in which they operate.
If a government-funded scheme is what we are looking for, EED is the most sensible proposal on offer.
Liberty First
On the other hand, the Free Market Foundation (FMF) has put forward its Liberty First policy package. Here, the purpose is to remove the key obstacle to economic development and prosperity – the state – and rededicate it to its primary directive: ensuring that person and property is protected and public order is maintained.
This is not grabbed from the ether.
Year-on-year the Economic Freedom of the World (EFW) annual report, published internationally by the Fraser Institute and in South Africa by the FMF, shows that those countries that on a relative scale adhere more to the principle of economic non-interference by the state, outperform peers that seek more state interference in the economy.
And it is not even close.

In the latest report, the EFW shows that countries with more economic freedom – in a word, more capitalistic states – are orders of magnitude wealthier (measured in dollar income per capita) than countries with less economic freedom – more interventionist states.
But the most important question, for our purposes, is “what about the poor?” And here the difference is even more stark.

The poorest 10% of the population – the poorest of the poor – in countries with more loving, caring, involved governments, earn on average eight times less than the poorest 10% of the population in the most laissez-faire countries.
Simply, it is better to be poor in a country where the government does not care or think about you. The more government wants to help you as a poor person, the greater your chances of being poorer and remaining poor.
There are, of course, no completely free markets in the world, but it is clear that those countries leaning more towards that ideal generate unequivocally better outcomes for the destitute, than those countries that lean in the opposite direction.
The knee-jerk reaction of “we cannot do nothing!” has always been more of an appeal to emotion than good sense. Doing less is better for the poor, and doing nothing might just be what they need to finally get around to empowering themselves: to take jobs without do-gooder politicians telling them that they are not allowed to; to build homes and businesses without know-better planners harassing them about “zoning” and “codes”; to start enterprises without busybodies lecturing them about “transformation.”
This is the real alternative to BEE. Repeal the policy, and do not replace it. In fact, continue repealing any other policies that also seek (euphemistically) to “help.”
The evidence is in, and the Liberty First proposals look precisely at what the EFW has identified as the policy areas that make countries more economically free. Those are Size of Government, Legal System and Property Rights, Regulation, Sound Money, and Freedom to Trade Internationally.
Countries that have smaller governments, more limited and decentralised states that fiercely safeguard private property, liberalised economic policies with minimal red tape, a currency that retains its value, and free trade across borders, are more economically free and therefore perform best as far as prosperity and human development are concerned.
The Liberty First reforms propose exactly how South Africa can begin this process of attaining economic freedom. Our economic freedom ranking in the EFW has declined consistently over the past several decades since the high of 2000, and putting liberty first is the only way to reverse the trend.
[Image: Dragan Lukovic from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
If you like what you have just read, support the Daily Friend