Quarterly Review 2011.09

21 December 2012
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FMF

Quarterly review

July – September 2011

FMF on Facebook

Terence Davie is now in charge of our Facebook page. He reports the following since his takeover:

A tremendous amount of effort was put in by my predecessor to get the page going and when I took over as the page administrator, there were 341 fans.

I started working on the page on 5 September; the last item posted prior to that was on 21 April. We have gained back the interest of many long-standing page members plus 27 new members. The total number is now 362 which I believe is a very good base.

Facebook is a superb method of reaching and engaging people in conversation you very probably would otherwise not have access to. Because of its “viral marketing” nature, new members are joining on a daily basis.

I believe that if we were to run the Facebook page on the basis of preaching to the choir, there would be very little point. So what I am trying to achieve is an FMF Facebook page that is not intimidating to visitors unfamiliar with free market principles and the FMF, while, at the same time, retaining the interest and active participation of hard core free marketers, libertarians, etc, by keeping the information current – updated daily – and by using feeds from organisations like the Cato Institute, Reason, etc.

The best possible thing that can occur on the FMF Facebook page is debate. Debate is critical to the success of the page for two reasons. Firstly, it attracts more members because anything you say on a Facebook page is published on your own wall and, perhaps, after having had a look at the page you're commenting on, your friends will push the “Like” button.

The second reason why debate is critical is that by sharing their views, more experienced free marketers can assist people who are new to free market ideas to gain a better understanding of the basic principles, as well as assist in spreading the FMF's ideas and vision.

The following has already been done or is underway:

  1. The FMF Facebook Initiative. This introduces the great free market thinkers. We started with Walter Williams and recently have moved on to Thomas Sowell. We plan to cover Milton Friedman next. The idea is to publish either an article or a video of each of these “free market thinkers” every day for two weeks and then move on to the next one.
  2. We have affiliated the page to a list of other organisations which are visible to our members and offer them further reading opportunities (Cato, Adam Smith Institute, Mises.org, etc).
  3. The best thing about these affiliates is that they provide their own feed, parts of which we can choose to share with our fans.
  4. The “quote of the day”, another new addition, seems popular.
  5. The FMF's Facebook Page is also linked with a Twitter account by the name of FMFSouthAfrica. It is an easy way to maintain both types of social media because Twitter is set up to tweet everything posted on Facebook (with the character limit of course).

Please “Like” the Free Market Foundation Facebook page here: http://www.facebook.com/FMFSA.

Contributors to forthcoming book

Two FMF staffers were asked to contribute toward a new book:

In his chapter, The importance of intellectual property rights protection for the pharmaceutical sector in South Africa, Jasson Urbach demonstrates that a sound intellectual property rights environment is a necessary but not sufficient condition to achieve better health and economic outcomes. Complementary laws and institutions are a vital component. Although governments may have well-meaning intentions to increase access to medicines through the introduction of new laws and regulations, the South African case demonstrates that these laws and regulations often have many unintended consequences that actually reduce access to medicines.

In his foreword, Leon Louw argues that the ANCYL’s proposed nationalisation of key sectors of the economy and land would require an amendment to the property rights clause in the Constitution. This would jeopardise property rights, including intellectual property rights (IPR), and increase the danger of arbitrary confiscation. If the government is serious about higher rates of economic growth and substantial declines in unemployment, it will have to make a concerted effort to maintain and improve its international ratings by protecting and strengthening property rights.

RDP housing and progress in “Perryville”

The allocation of RDP houses remains a source of frustration. To date, an astonishing 3.4 million homes have been built. Unfortunately, instead of the new owners being granted full freehold title, each title deed includes pre-emptive clauses that prohibit the building of additional structures as well as the sale of the RDP house for eight years. In addition, the government’s use-it-or-lose-it RDP policy means that RDP home “owners” are under a kind of house arrest. If they are unemployed, they often face a stark choice between losing their most valuable asset, their home, and getting a job elsewhere, or remaining unemployed by having to stay where they are.

The pre-emptive clause and use-it-or-lose-it policy have resulted in a grey market in RDP properties where insecure title forces “owners” to sell at well below market value and discourages “buyers” from investing as they cannot get a title deed. Studies indicate that the policies are largely unenforceable and have lead to an up to 50% ‘illegal’ occupancy of RDP houses as they change hands on the grey market.

As part of the FMF’s ongoing efforts towards the upgrade of black-owned land to full freehold, Leon Louw wrote a feature article for the FMF’s website entitled: Convert all RDP housing to full and unrestricted freehold title. In it he urged government to grant black South Africans the same property ownership rights enjoyed by white South Africans. The article was republished in the following media: NGO Pulse, Ludwig von Mises Institute Southern Africa, and Moneyweb.

“Perryville”

The conveyancers working with the FMF on the “Perryville” project have begun the process of transferring the first of 33,000 properties to the occupiers.

A new problem has arisen which is delaying lodging the “sales” in the deeds office: the requirement that the “seller” (the Council) provide the “purchaser” (the occupant) with an electrical compliance certificate. This latter is proving a real stumbling block as any expense in this regard will be a considerable drain on the project and Council.

Other common problems encountered include: tracing the deeds related to individual properties; occupant fears regarding scams (one woman was convinced it was a scam as her neighbor knew nothing about it), eviction and perhaps having to pay something toward the transfer; and the recent strike which delayed proceedings.

In-house functions…

On July 27, Dawie Roodt, Efficient Group Chief Economist, presented A guinea fowl, Karl Marx and a grave digger walk into a bar… In answering the following questions, Dawie showed how real life experiences reveal old economic truths.

  1. How does a child’s discovery of guinea fowl prices result in a headache for his father?
  2. Why are prices low in a centrally controlled economy?
  3. Can beer bottles be equated to money supply?
  4. Can good intentions lead to trade in wells?
  5. Who really caused the great recession?
  6. Why is the rand overvalued in terms of the price of a woman?

On August 24, following the FMF’s AGM, Leon Louw, FMF Executive Director, presented The things people know that ain’t so… People are entitled to their own opinions, Leon said, not their own facts. He addressed widely-held axioms and memes and compared them with the facts. He was controversial and counter-intuitive, yet relied on uncontroversial and readily available facts. Leon debunked the following beliefs:

  1. Socialism helps the poor – the poor flee from socialistic economies because socialism harms them.
  2. Socialists care about the poor – they don’t, they care about the rich, they’re obsessed with the rich, and are interested only in policies that might harm the rich, but actually help them at the expense of the poor.
  3. Jobs can be “created” – jobs can’t be created; so long as there are unsatisfied desires, jobs, or at least readily available job opportunities, exist; the problem is what keeps job seekers from available jobs.
  4. “Labour-intensive” ways of doing things create jobs – it actually reduces employment and impoverishes supposed beneficiaries.
  5. Companies pay tax – they don’t; no one has any idea who pays so-called “company tax”.
  6. Governments “regulate” businesses – they don’t; all business regulation is actually the regulation of customers.
  7. “Consumer protection” protects consumers – it doesn’t; all so-called consumer protection harms consumers by reducing consumer power, increasing prices, and reducing competition and choice.
  8. Cheap imports destroy local jobs – they don’t; cheap imports increase local employment and promote exports.
  9. We need more exports and more forex – we don’t; we need to dispose of foreign exchange for maximised imports.
  10. Government “stimulus packages” increase spending and stimulate growth, jobs etc they don’t; they reduce the amount of money in the economy and retard recovery.
  11. A free market is unplanned – it isn’t; there is much more planning in a supposedly unplanned economy than in a centrally planned economy; free market planning is much more co-ordinated, much more rigorously enforced, and much more effective.

On 21 September, Robert Vivian, Professor of Finance and Insurance, School of Economic and Business Sciences, University of the Witwatersrand, asked (and answered) this question: Competition Policy: Is it constitutional?

The Competition Commissioner has told business that if they “co-operate” when under investigation, ie if they confess guilt, they will be fined 6% of turnover; if they do not, ie if they defend themselves, they will be penalised by being fined 10% of turnover.

The Act governing competition policy states that the purpose of the Act is:

  1. To promote the efficiency, adaptability and development of the economy.
  1. To promote employment and advance the social welfare of South Africans.
  2. To expand opportunities for South African participation in world markets and recognise the role of foreign competition in the Republic.
  3. To ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy.
  4. To promote greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons.

Professor Vivian concurred with Justice Robert Bork, author of The antitrust paradox – a policy at war with itself, who said “the exclusive goal of antitrust adjudication [competition law] is the maximization of consumer welfare”. Robert pointed out that South Africa’s competition policy – and its application – attempts to deal with more than simply “consumer welfare” and argued that for many reasons, the Act is probably unconstitutional.

In Cape Town on September 22, FMF launched the Economic Freedom of the World: Annual Report 2011 with Dawie Roodt, Chief Economist, Efficient Group and Neil Emerick, Council Member, FMF.

The key ingredients of economic freedom are choice, voluntary exchange, freedom to compete, and protection of persons and property. The index published in Economic Freedom of the World (EFW) provides the most comprehensive measure of economic freedom available.

In EFW 2002, South Africa was ranked 42nd; in EFW 2011 it was ranked 87th. It took less than a decade for South Africa to slide 45 places down the rankings. This is a matter of grave concern.

EFW 2011 (available from the FMF for R150) includes an in-depth analysis of South Africa’s economy by Dawie Roodt and a CD compiled by Neil Emerick. The CD includes a software programme, the EFW data, and the World Bank Development Indicators. The software makes it easy for researchers to test the economic freedom variables against real-life outcomes. For example: Does more economic freedom create longer, healthier lives and higher levels of income? (The answer, by the way, is yes to both.)

Printing, distribution and the launch were sponsored by Friedrich Naumann Foundation for Liberty and African Equity Corporation (Pty) Ltd.

Media coverage

From 1 August 2009 through July 2010, 216 articles (or interviews) by or about the FMF were published by the local and international media. From 1 August 2010 through July 2011, 242 articles (or interviews) by or about the FMF were published by the local and international media – almost one every working day. Many articles have been republished prominently on the leader pages of The Star and others. See July leader page articles below.

2011.07.28 A debate on nationalisation is pointless when evidence looms so large, Temba Nolutshungu & Gert Joubert, Cape Argus

2011.07.27 Nationalisation not the way, Leon Louw & Jasson Urbach, The Star

2011.07.27* One can’t debate nationalisation without reflecting on its zero success rate, Temba Nolutshungu, Pretoria News

Save these dates

October 20: IPR Indaba 2011 (see www.iprindaba.co.za)

November 2: Launch of parallel study to ANC nationalisation research / case studies

November 8: Launch of Jobs Jobs Jobs

Words of wisdom from Leon Louw this quarter…

12.07 – The outlook and prospects for South Africa over the next ten years – Adcorp

28.07 – led evidence on the Massmart-Walmart merger to the Parliamentary Portfolio Committee

04.08 – Nationalisation – SACCI

17.08 – How important are property rights in a modern economy? – Erwin Rode Property Consultants

18.08 – Nationalisation – Federation of Unions of South Africa (Fedusa)

24.08 – The things people know that ain’t so – FMF AGM

14.09 – Fraud – Fraud conference, Tanzania

22.09 – Nationalisation – debate with Young Communist League, Steve Biko Foundation

The morality of capitalism

You may recall that FMF Director Temba Nolutshungu contributed a chapter to The morality of capitalism: What your professors won’t tell you, which comprises 14 contemporary essays from all over the world. One hundred thousand (100,000) copies of the book were printed and distributed to student groups around the world.

Temba Nolutshungu … notes, “Government-generated jobs are at the taxpayers’ expense and amount to subsidized employment. Being unsustainable, they have no positive economic consequence. The private sector is the main creator of wealth, and the state sector a consumer”.

Another author, John Mackey, founder of Whole Foods, says, “The beautiful thing about capitalism is that it’s ultimately based on voluntary exchange for mutual benefit”.

David Boaz of the Cato Institute writes, “The market arises from two facts: that human beings can accomplish more in co-operation with others than individually and that we can recognize this”.

David Kelley of the Atlas Society writes, “The principle of rights says that we must deal with others peaceably, by voluntary exchange, without initiating the use of force against them.”

One book reviewer concluded: “In essence, capitalism is an amazing vehicle for social cooperation because such cooperation benefits the capitalist individually and society as a whole.”

Nationalisation

The FMF’s book Nationalisation sparked a lot of media and other interest. Of the 3,000 copies printed in January 2011, none remain. Most of the books were distributed free of charge (see recipient list below); some were sold to firms and interested individuals. Those distributed free of charge were done so at the request of the recipients in most cases.

The FMF has since received sponsorship to print an additional 4,000 copies. Of these, 2,000 copies will be disseminated free of charge, predominantly to political parties, and to university libraries.

The ANC, in response to the ANCYL’s calls to nationalise, is in the process of researching nationalisation in 12 countries. The FMF is also doing further research on the subject and will launch the results to government officials, the media and the general public on November 2.

The FMF thanks the sponsors of this important project. 

Recipients of the Nationalisation book

ANCYL: 10 to 8 provinces; 200 to Mpumalanga; 20 Bryanston

300

Black Management Forum

129

BLSA / FMF corporate members

205

Cosatu: Education unit; Bloemfontein; Mpumalanga

170

Government officials

347

Luthuli House

50

Media

482

Nafcoc exco

10

National Union of Mineworkers (NUM)

40

Nelson Mandela Metro University

100

Students in Free Enterprise (SIFE)

260

 

2093

 

Jobs Jobs Jobs

Following on the success of Nationalisation, the FMF is in the process of compiling Jobs Jobs Jobs. The book, which will be released and launched in early November, includes the following chapters:

  1. Foreword: The personal cost of unemployment, Temba Nolutshungu
  2. Labour market review – problem analysis, Richard Pike
  3. Identifying the causes of South Africa’s mass unemployment, Eustace Davie

-               What happened to employment in South Africa: Output expansion and work without workers? Darma Mahadea and Richard Simson

  1. South Africa’s labour laws in an international context, Loane Sharp
  2. Analysis of the New Growth Path, Leon Louw
  3. Fixing the laws that govern the labour market, Martin Brassey

-               How labour legislation impacts on job creation and unemployment, Graham Giles in collaboration with Daan Groeneveldt

  1. ‘Sweatshops’ and other irresponsible western campaigns, Ann Bernstein
  2. Freeing the unemployed from the poverty trap, Eustace Davie

-               Hong Kong’s remarkable solution to mass unemployment, Eustace Davie

  1. Freedom to be enterprising: Job creation in the informal sector, Lawrence Mavundla
  2. Job Creation Zones, Leon Louw
  3. Increase employment by giving small firms a break, Michael Bagraim
  4. The futility of state welfare, Temba A Nolutshungu
  5. Black economic empowerment and job creation, Vivian Atud
Consumer power
In its July 15 submission on the Massmart-Walmart merger, FMF argued that, as is clear from all recognised pro-free market literature back to Adam Smith’s Wealth of nations, through such luminaries as Hayek and Friedman, to such modern exponents as Sowell and Buchanan, the essential purpose of markets is to serve the interests of consumers. Protagonists of free markets are not, contrary to popular mythology, fronts for the interests of business, whether big or small. As the great exiled South African free market economist, William Hutt, put it, the objective of a free economy is “consumer sovereignty”. Consumers and only consumers should decide who stays in business.

One of the great myths is that consumers are weak. On the contrary, consumers are not only sovereign, but ruthless. They hire and fire the world’s largest conglomerates with every consumer choice they make, whether considered or whimsical. The biggest corporations spend billions doing “consumer research” and “market research” and running elaborate advertising campaigns in a desperate attempt to appeal to sovereign consumers. The assumption that consumers are ignorant and uninformed has the unintended consequence of leading to legislation intended to “protect” them which in fact removes their right to decide for themselves how to spend their money and to what terms to agree.

The FMF concluded its submission with this statement: “The main objective of competition policy ought to be to promote and protect the right of consumers to choose.”

Advantages of innovation

At the FMF’s September 29 roundtable, Cloud computing for accelerated growth in sub-Saharan Africa, Mike Schüssler, Economists.co.za Director, presented The economic impact of cloud computing in South Africa, a paper co-authored with FMF economist, Jasson Urbach. The paper can be viewed on the FMF’s home page under Submissions / Reports / Papers. Mike pointed out some of the benefits of cloud computing:

  1. The greater the pool of entities served by the cloud, the greater the economies of scale, which in turn leads to lower costs and higher overall levels of efficiency.
  2. Cloud computing offers firms and individuals the opportunity to access programs and features to which they would not previously have had access … at a fraction of the packaged software prices.
  3. Creating jobs in SA is a very expensive exercise … cloud computing … will lower the capital required to create a job.

Brad Smith, General Counsel and Senior Vice President, Legal and Corporate Affairs, Microsoft Corporation, presented Potential impact of cloud technology on emerging markets and the importance of the policy and regulatory environment. Brad noted that:

  1. Cloud technology represents a transformational change in the history of computers and is reliant on the availability of broadband capacity.
  2. When technical markets start to shift, the greatest benefits accrue to those who move first.
  3. Practical and legal steps will need to be taken by the public and private sectors to protect data security and privacy.

The roundtable was facilitated by Tim Modise, Chief Executive Officer, Sizwe IT Group.

 

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