Quarterly Review 2010.09

20 December 2012
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Quarterly review

Free Market Foundation  July – September 2010

 

Launch of freedom index

On September 21 the launch of the Economic Freedom of the World: Annual Report 2010, co-published by the FMF, was held at the Foundation’s offices. In his talk, Leon Louw explained that the report measures the degree to which the policies and institutions of countries are supportive of economic freedom, the cornerstones of economic freedom being personal choice, voluntary exchange, freedom to compete, and security of privately owned property.

 

The FMF press release, headed SA falls 40 places in economic freedom index in last decade said: South Africa is ranked 82nd in the 2010 Report. Last year, South Africa ranked 70th and, in 2002, 42nd. It has taken less than a decade to slide 40 places down the rankings. This is a matter of grave concern.

 

This year’s report shows that economic freedom experienced its first global downturn in a quarter century, with the average score falling to 6.67 in 2008 (the most recent year for which data is available) from 6.74 in 2007. Of the 123 countries with economic freedom rankings dating back to 1980, 88 (71.5 per cent) saw their rankings decrease while only 35 (28.5 per cent) recorded increases.

 

“In response to the economic decline of 2008, many countries opted for perverse credit expansion and regulatory policies, damaging economic freedom and hindering future growth,” said Leon Louw, Executive Director of the FMF. “Even in the wake of recession, the quality of life in nations with free and open markets is vastly superior to that of countries with government-managed economies.”

 

The report ranks Hong Kong number one, followed by Singapore and New Zealand. Zimbabwe once again has the lowest level of economic freedom among the 141 jurisdictions included in the study, followed by Myanmar, Angola, and Venezuela.

 

The annual peer-reviewed Economic Freedom of the World report is produced by the Fraser Institute, in cooperation with independent institutes in 80 nations and territories.

 

EFW uses 42 different measures to create an index ranking countries around the world based on policies that encourage economic freedom. Economic freedom is measured in five different areas: (1) size of government, (2) legal structure and security of property rights, (3) access to sound money, (4) freedom to trade internationally, and (5) regulation of credit, labour, and business.

 

Research shows that individuals living in countries with high levels of economic freedom enjoy higher levels of prosperity, greater individual freedoms, and longer life spans. This year’s report also contains new research showing the impact of the economic freedom on rates of unemployment and homicide.

 

“Commitment to economic freedom is a common theme among the world’s most prosperous nations. While residents of these countries enjoy the highest standards of living and greatest personal freedoms, people in countries at the bottom of the rankings are typically impoverished and subject to oppressive governments that recognise few – if any – individual rights or freedoms,” said Temba Nolutshungu, the Cape-based Director of the FMF.

 

South Africa scores in key components of economic freedom (from 1 to 10 where a higher value indicates a higher level of economic freedom):

  1. Size of government: declined from 6.20 in last year’s report to 5.33
  2. Legal structures and security of property rights: declined from 6.51 to 6.33
  3. Access to sound money: declined from 7.75 to 7.60
  4. Freedom to trade internationally: declined from 6.77 to 6.76
  5. Regulation of credit, labour and business: declined from 7.27 to 7.25

 

“World experience shows that the direction of change is more important than the economic system. After 1994, the ANC steered SA in the right direction, and we were rewarded with steady growth after a generation of stagnation. The 2010 report shows that there has been deterioration in every component, which is potentially catastrophic. Unless we return to increasing freedom, we can expect a decline and another round of stagnation,” said Leon Louw.

 

This year’s report includes new research examining the impact of economic freedom on rates of unemployment. The results suggest that high levels of economic freedom lead to reduced joblessness. Denmark, for example, increased its economic freedom score to 7.8 in 2007 from 6.5 in 1980, causing a marked improvement in the Danish labour market and an estimated reduction in unemployment rate between 1.0 and 1.3 percentage points over the period.

 

“Given the substantial costs of unemployment and the enormous number of jobless people in SA the government should increase economic freedom as one of the best methods of reducing unemployment, particularly in the wake of the global recession,” said Nolutshungu.

 

The report also examines the effect of economic freedom on rates of homicide in Venezuela, Colombia, South Africa, Latvia, and Lithuania. The results suggest that increases in economic freedom lead to decreases in homicides. “Markets foster better co-operation among the citizenry, as reflected in the negative correlation between rates of economic freedom and homicide,” said Nolutshungu.

 

Copies of the Report (including an analysis tool on CD) are available from the FMF at R125 – email Judith on fmf@mweb.co.za.

 

Nationalisation project

Malema: “I sit in the national executive committee … I know nationalisation is on the agenda of the ANC … nationalisation will be resolved as a policy position in the 2012 centenary conference of the ANC.”

 

The FMF believes ANCYL’s call for nationalisation of mines, land and wealth has to be taken seriously. For this reason, the FMF is preparing a monograph on nationalisation and alternatives.

 

The monograph will outline the problems underlying the calls for nationalisation – essentially poverty and unemployment. One section on nationalisation and why it is not a solution will be authored by Dr Richard Grant, former Chief Economist of the Chamber of Mines in South Africa, author of Nationalisation: How governments control you, and currently Professor of Finance and Economics at Lipscomb University, USA. This will be juxtaposed with a section on the benefits of privatisation and outsourcing and how best to accomplish these.

 

Leon Louw, Temba Nolutshungu, and others will author additional sections. The one on partial nationalisation (over-regulation and excessive taxation) will be followed by another outlining workable alternatives. This will focus on liberalising the economy and will deal with land reform; lower, simpler taxes; special exemption certificates for the unemployed; laws affecting small business; and more.

 

The concluding section will describe the economic environment required for growth and job creation.

 

Leon Louw presentations this quarter

 

09.07 | The future of Africa: Liberty or tyranny? | Freedom Fest | Las Vegas

03.08 | Fraud | Procurement, Asset and Financial Fraud African Summit 2010 | Harare

26.08 | Energy security: An economic imperative – private sector perspective | South Africa National Energy Association conference | Johannesburg

14.09 | Africa at the crossroads: Socialism or capitalism? | Mr Price | Durban

16.09 | Being competitive in the service sector | Services Seta | Johannesburg

17.09 | Being competitive in the service sector | Services Seta | Cape Town

23.09 | The future of Africa: Poverty or prosperity? | Seda Ethekwini | Durban

28.09 | Africa in ‘Double Dip’ | Citi Bank | Johannesburg

 

In addition, Leon was asked to be a judge in the final round of the Students in Free Enterprise 2010 SIFE South Africa National Competition (06.08.2010) where he had to evaluate the impact and effectiveness of the educational programmes the student teams had developed.

 

Why liberty?

Temba Nolutshungu was asked to contribute a chapter to Why liberty? Personal journeys toward peace and freedom. The collection includes the personal journeys of 55 authors from 15 countries: philosophers and physicians, economists and judges, military officers and environmentalists, police officers and soccer moms, lawyers and small business owners. These, and other individuals like them, have learned that only by interacting peacefully can we achieve a more harmonious, prosperous, healthy and tolerant society. While seeing the promotion of individual rights as a worthwhile goal in itself, the authors also believe that a free society is a beneficial one and that freedom is best for all.

 

Temba at Mensa

12.07 | Temba Nolutshungu, our Cape Town Director, addressed Mensa on South Africa post World Cup. Temba argued that the challenges facing South Africa loomed large; that affirmative action/BEE would prove counterproductive; that the move towards a welfare state would gain momentum and incur negative unintended consequences; that corruption was a serious problem and getting worse. The solution, he said, lay in implementing economic policies that lead to growth.

 

Land reform: Case study – Alexandra

Alexandra was proclaimed early in the century as a “normal” township. In those days, property developers decided such things as land use, neighbourhood covenants, and restrictions on which races could occupy. In this case, the developer offered the land to “natives and coloureds”, who acquired the land in full and unambiguous freehold title.

 

Under Verwoerdian apartheid, Alex became known as one of many “black spots” in which blacks owned land in white group areas. Along with most such black spots, all privately owned land in Alex was expropriated and landowners became city council tenants.

 

By then most land owners had built middle-class brick houses which exist to this day and are occupied by aged victims, or their descendents. Most landowners also had tenants living in shacks in their yards – an average of four per plot.

 

There were about 3,000 freehold (expropriated) properties with 12,000 tenants.

 

Currently all former owners (and their descendents) and all former tenants are in the same legal position as tenants of the Johannesburg City Council, despite which the two groups are still spoken of as “owners” and “tenants”.

 

Owners formed two representative groups – Alexandra Property Owners Rights (APOR) and Alexandra Property Owners Association (ALPOA) – to try to acquire restitution. There has been some litigation – the principle effect of which has been to stop the city council developing disputed property or “selling” plots to tenants.

 

APOR and ALPOA’s main activity was to apply for restitution to the Land Claims Commission. The outcome was an offer of R50,000 per claimant / property – supposedly in full settlement. Most claimants signed the contract, but insist they were briefed by government representatives to the effect that the R50,000 was compensation for lost rent and that their land claim was still to be resolved.

 

The obvious question is why the government did not simply restore land seized by the apartheid regime. This sort of claim should be the easiest to resolve; there is a clear victim who held undisputed title and no costly willing-buyer-willing-seller redistribution from whites is required. The answer is simply that tenants outnumber owners four-to-one, which means they are a more important political constituency.

 

The Law Review Project (LRP) and FMF have been working with APOR for many years to help resolve their claim.

 

Recent progress

Over the past ten years APOR’s attempts have not yielded any concrete results. Consequently both organisations and the Alex community in general have become demoralised. “We are drinking ourselves to death” an APOR representative told a FMF audience at a presentation last year.

 

The LRP/FMF this year recommended a protest march and the introduction of legal action.

 

The march resulted in a meeting attended by role players and representatives of provincial government, the South African National Civic Organisation (Sanco), the Alexandra Renewal Project, etc.

 

It was agreed that the principle of restitution should not be compromised, subject to the rights and interests of “tenants” being satisfactorily accommodated.

 

As a direct result of our interventions, APOR and ALPOA have agreed to cooperate and possibly merge so as to present a united front, and there is generally greater optimism. We have also suggested that instead of seeing Sanco representing tenants as opposition, claimants and tenants should initiate constructive dialogue with Sanco with a view to presenting politically achievable solutions to government. To that end we are in contact with Sanco’s legal representatives who have established that Sanco is agreeable.

 

Legal action is being pursued pro bono as a result of our efforts.

 

EFW media coverage to date

20.09 Leon Louw interview, East Coast Radio

20.09 Article from interview, East Coast Newswatch

20.09 Leon Louw interview, Summit TV

20.09 Article from press release / feature article, Moneyweb

20.09 Article from press release / feature article, Fin24

20.09 Article from press release / feature article, Africa Aviation

20.09 Article from press release / feature article, Times LIVE by Sapa

20.09 Article from press release / feature article, NGO Pulse

20.09 Article from press release / feature article, Mail & Guardian

20.09 Article from press release / feature article, Business Report

21.09 Leon Louw interview, SAFM AM Live Radio

21.09 Leon Louw interview, SABC TV News@1

21.09 Article from interview, SABCNews

21.09 Leon Louw interview, Radio Pretoria

21.09 Leon Louw interview, Radio Jacaranda

21.09 Leon Louw interview, Fine Music Radio

21.09 Leon Louw interview, Classic Business Radio

21.09 Neil Emerick interview, CNBC Africa TV

21.09 Temba Nolutshungu interview, Radio Pretoria

21.09 Article from press release / feature article, Business Day

21.09 Article from press release / feature article, allAfrica.com

21.09 Article from press release / feature article, MSN ZA News

22.09 Leon Louw interview, Radiosondergrense

22.09 Leon Louw interview, CNBC Africa TV

23.09 Article from press release / feature article, www.polity.org

23.09 Article from press release / feature article, Sangonet

23.09 Article from press release / feature article, Engineering News

24.09 Leon Louw article, Financial Mail

 

Other media coverage…

As you know from our monthly media digests, the FMF’s weekly feature articles continue to be republished in local and international media, resulting in 66 articles and interviews (excluding those above) during this quarter.

 

Other in-house events…

The Foundation hosted two in-house events this quarter – the launch detailed above and…

 

On August 4 Leon Louw presented The future of Africa: Liberty or tyranny? in which he attempted to answer these questions: During the last decades of the 20th century, while the rest of the world got richer, Sub-Saharan or ‘black’ Africa got poorer. Why? Was it: race? The ‘colonial legacy’? The absence of democracy? Insufficient aid? African culture? In such a sea of poverty, tyranny, misery, corruption, genocide and conflict, there were islands of success, which included the world’s highest growth country averaged over the last 30 years, and a Hong Kong-like mini-state. A generation ago, black African countries characterised the world’s least free countries, however measured. Now the region has more countries getting freer faster than any other. What does this tell us about Africa’s future? Will it learn from its plethora of disasters and build on recent successes to become a sub-continent of liberty and prosperity? Or will it join First World lemmings plunging mindlessly into an orgy of government spending, deficits, regulation and nationalisation in response to the government-created financial crisis? Will they, like the world’s richest countries, forget that prosperity occurs only under democratic capitalism?

 

Wise Words

What our generation has forgotten is that the system of private property is the most important guarantee of freedom, not only for those who own property, but scarcely less for those who do not. It is only because the control of the means of production is divided among many people acting independently that nobody has complete power over us, that we as individuals can decide what to do with ourselves. If all the means of production were vested in a single hand, whether it be nominally that of "society" as a whole or that of a dictator, whoever exercises this control has complete power over us.

Friedrich A. Hayek, The Road to Serfdom, 1944

 

Save these dates…

The Foundation is in the process of organising its 4th Annual Intellectual Property Rights Indaba to be held at the Southern Sun Grayston Sandton Hotel in Johannesburg on 26 November 2010.

 

The Foundation will be celebrating its 35th anniversary, and revealing its new look, at the Johannesburg Country Club on 1 December 2010.


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