EWC is a zero-sum game that will lead to more poverty and misery

05 August 2020
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Venezuela, Cuba and Zimbabwe expropriated land and now they are categorised as "repressed" on the Heritage Foundation's 2020 Index of Economic Freedom. The countries rank at 179, 178 and 174, respectively, out of 180 nations.

Absolute poverty is surging in these countries, while their citizens desperately flee. Despite the cautionary tales, South Africa is pursuing the same land policy of expropriation.

The economic downturn accelerated by the Covid-19 coronavirus lockdown has left South Africa’s economy unstable.

If expropriation without compensation (EWC) is approved and the Constitution is amended, it would plunge the economy into deeper and irreversible economic trouble.

The poor will be most vulnerable to falling into absolute poverty, reversing many of the gains made in the past two decades.

EWC will increase poverty in South Africa and equality of poverty will be the only outcome.

The only real solutions for inequality are to strengthen private property rights, eliminate corruption and reduce taxes. Strong private property rights enable individuals to create, own and grow wealth.

However, individuals have no security over their businesses and properties when land is owned by the state.

Government would arbitrarily choose winners and losers, and this zero-sum game would result in economic instability.

Threat to food and livelihoods

EWC would also have an adverse effect on job security.

The unpredictable nature of selecting winners and losers would have negative effects including food insecurity, hyperinflation and currency devaluation.

This would decrease productivity and reduce the purchasing power of South Africans, while enriching a small politically connected elite.

Economic prosperity relies on the free participation of individuals in the economy. EWC increases barriers to participation in the economy by creating fundamental uncertainty around security and begs the question: Will the land on which new businesses rest be expropriated without compensation leaving entrepreneurs with nothing?

Government might say it won't abuse its power, but history has taught us to never have blind faith in the promises of politicians.

One needs not look farther than the lack of service delivery which has been a continuous struggle for South Africans. Eskom has severe issues and SAA is in financial turmoil.

These reasons should disqualify government from being involved in agriculture and land development.

The central issue in South Africa is endemic lack of wealth creation. EWC creates more hindrances to wealth creation than it contributes to solving poverty because individuals will not own wealth.

Instead the state will be the sole owner under the guise of redistribution.

This would worsen inequality by elevating only the elite, who will be on the receiving end of land grants and leases.

Corruption as key driver for poverty and inequality

South Africa’s inequality problems are not a result of the lack of property ownership; they are the inevitable result of high levels of corruption and bad government policy.

South Africa ranks at number 70 out of 198 countries on Transparency International’s Corruption Perceptions Index, with a 44/100 corruption score (0 = highly corrupt; 100 = very clean).

High levels of corruption cause poor service delivery, but government shifts the blame to past administrations.

South Africa has had a democracy for 26 years, yet unemployment has skyrocketed and poor governance continues to erode community development.

Less corruption would make South Africa attractive to international investors and economic growth would follow.

This would allow welfare to be an effective tool through which individuals escape poverty.

Despite high taxes and government programmes, South African schools still have pit toilets.

Most citizens live in townships while politicians build lavish homesteads and buy luxury vehicles using state funds, all the while conveniently blaming the rich in the private sector.

Taxes are an effective tool to fund part of the economy if corruption is low, however, high corruption and high taxes create a hostile environment for entrepreneurship.

The latter creates high business overheads and stagnant salaries.

Lower taxes would improve the ease of doing business. Moreover, the disposable income of individuals would increase, thereby contributing to accelerated economic growth.

Based on a false presupposition

EWC will not decrease economic inequality.

Its promises will mirror the unfilled promises of the past 26 years and its outcomes will mirror the devastation which the governments of Zimbabwe, Venezuela and Cuba have wrought on their citizens.

South Africa will suffer the same fate as other countries that have flirted with socialist policy if government succeeds in amending the Constitution.

The only equality that EWC will achieve is that of poverty and misery.

South Africans can attain economic freedom by establishing strong private property rights, eliminating corruption and reducing taxes. Anything else is economic slavery.

This article was first published on City Press on 28 July 2020

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