South Africa should follow winners, not losers

17 April 2018
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Nationalisation of property, inefficient State-owned enterprises, raising the legal drinking age from 18 to 21, and higher taxes in a low-growth environment. These ideas have all been tried elsewhere. And they have failed consistently, with few exceptions. The opposite of these ideas: strong protections for private property, an active and entrepreneurial private sector, personal freedom, and low taxes, have also been tried quite widely, and, essentially, everywhere they have been tried, they have worked. Why, then, does South Africa insist on following the losers and not the winners?

In the information and communication technologies sector, South Africa has decided to hoard the resources required by the industry in the hands of a State monopoly. This will lead to an inefficient and arbitrary allocation of this resource (radio frequency spectrum); a task that could have, and should be, performed by the market. In a market economy, the spectrum would inevitably end up in the hands of firms that put it to best use. In government’s envisaged planned economy, spectrum will lie dormant, as it has for several years because the telecoms department refuses to allocate it.

Raising the minimum drinking age to 21 is a policy intervention for which no supporting evidence exists. In the United States, where this was tried, the incidence of underage drinking (predictably) rose and the already-decreasing rate of drunken driving fatalities continued apace. The criminalised youth between 18 and 21 – who, previously, could drink openly and responsibly – retreated into university dorms and other unsupervised locations where they could drink without sanction. Professor Camille Paglia argues that the incidence of rape, especially at universities, increased as a result of pushing drinking parties underground. Raising the drinking age does not work and will create more problems than it solves. Law enforcement, not a lack of law, is our problem.

That expropriation without compensation is ill-considered needs no detailed elaboration. Zimbabwe, Venezuela, and North Korea are the contemporary examples of what happens in societies where property rights are not respected. The poverty this has brought about has reduced Venezuelans to eating their pets and having to smuggle ‘luxuries’ like sugar into the country. North Koreans, on average, are three inches shorter than their South Korean counterparts due to malnutrition (there was no difference when the two Koreas split). Zimbabweans, like Venezuelans and North Koreans, have been battling to escape from, not return to, their socialist homeland. The movement between property rights-respecting societies and property rights-depriving societies is a one-way street.

The proposed expropriation without compensation will mean the end of the South African miracle and whatever hope we may have had for the future. We should rather be strengthening and expanding property rights to those who were deprived of them during apartheid.

South African Airways (SAA) and Eskom continue to be a drain on the taxpayer’s already-beleaguered wallet. These companies provide services that government has no business providing in the first place. It has been shown, especially with SAA, that private sector competitors outperform their public sector counterparts in leaps and bounds.

Private companies have an incentive to produce and provide satisfaction for the consumer as this is the only way their continued existence can be guaranteed. State-owned enterprises, on the other hand, do not. Both SAA and Eskom have financial histories that would have wiped them out of existence as private enterprises, yet, as SOEs, they continue to exist and suck at the teat of an emptying treasury. SAA needs to be either privatised (if there is anything left to privatise) or liquidated, and Eskom needs to be unbundled and made subject to market forces, rather than the arbitrary diktat of politicians.

The implementation of a national minimum wage in a country with 9.2 million unemployed is a direct challenge to reality. These 9.2 million people are earning zero rands per month – not one cent. By setting an arbitrary price control on labour, government is denying job opportunities to unskilled and inexperienced jobless people – especially youths – and robbing them of the ability to compete on the price of their labour with those who are skilled and experienced.

Look at the United States’ territory, Puerto Rico, which, in 1983, was forced to raise its minimum wage in line with national policy. The Puerto Rican economy is dependent on low-skilled workers in manufacturing and tourism and hundreds of thousands lost their jobs. After the U.S. Fair Minimum Wage Act was imposed on the territory in 2007, employment declined further, and GDP per capita fell by 7 percent. According to a report by the Puerto Rican government, employers “are disinclined to hire workers because (a) the US federal minimum wage is very high relative to the local average … and a more binding constraint on employment … and (b) local regulations pertaining to overtime, paid vacation, and dismissal are costly and more onerous than on the US mainland”.

Ironically, the South African government has exempted its own public works programme from the minimum wage, which goes to show government understands the deleterious effect the policy will have on the poorest of the poor. Yet, it refuses to apply this principle to the broader economy. The minimum wage must either be abandoned until South Africa has a far healthier and steadily-growing economy, or the unemployed must be exempted from its application.

South Africans need to ask and answer the following question: Are government’s policies truly motivated by a concern for South Africa’s future as a free and prosperous society, or are they simply ideological imperatives which ambitious politicians want to add to their CVs? Unfortunately, the answer appears to be the latter. We need to develop a thick skin and not allow ourselves to be seduced by rhetoric. Look at what the policies have wrought. Let us try freedom instead.

Leon Louw is the Executive Director and Martin van Staden the Legal Researcher at the Free Market Foundation

 

Comments on South Africa should follow winners, not losers





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20 Apr 2018, 21:06 Rory Short Economic insanity should be a notifiable disease which sadly is a disease many in South Africa, particularly politicians, suffer from.