South African history demonstrates how bad a teacher history is.
Albeit with the benefit of hindsight, we can see that many of the decisions made in the past were doomed from the start, with warnings and signs of failure plastered along the route.
This is especially the case today when our economy is being crushed under the weight of overregulation, incompetent and dangerously misguided governance and particularly the threat of land expropriation without compensation.
The 1990s were the pinnacle of political creativity.
All sectors of society busied themselves with the transition from authoritarian apartheid to libertarian democracy.
In 1993, Professor Richard A Epstein of the University of Chicago, and member of the Free Market Foundation’s Rule of Law Board of Advisors, wrote an article titled Drafting a constitution: A friendly warning to South Africa – a warning which seems to have been lost amid the excitement.
Epstein’s warning was that “the drafters of [the Constitution might] not distinguish clearly between the rectification of past injustices and the adoption of a general socialist economy.”
The last-mentioned clause, especially, would be catastrophic for the wellbeing of all South Africans.
Instead of South Africa going down that route, Epstein emphasised the importance of constitutionally protecting the free enterprise system.
He specifically pointed out how this system benefits not only the rich, but also the poor.
Where markets are freer, everyone is wealthier.
The annual Economic Freedom of the World report shows that the poorest 10% in free markets are about eight times wealthier than the poorest 10% in heavily regulated economies.
Economic migrants flee from countries where the so-called caring state purports to take care of the poor, to countries where the state plays a (relatively) minimal role in economic affairs.
SOCIETY SHOULD BE ALLOWED TO CONTEMPLATE INVASIVE CHANGES IN THE AFFAIRS OF PEOPLE AND THEIR PROPERTY OVER A LONGER PERIOD.
The point is often made that apartheid created immense inequality, and that a free market is an inappropriate solution.
“Markets have no memory,” argues Epstein in response, meaning “the ability to obtain gains from trade is therefore mercifully independent of [the] existence or extent of any past injustices.”
The result is that those disenfranchised from economic participation by the evil apartheid system can now freely participate without permits or passes enforced by an overbearing bureaucracy.
Epstein acknowledges that the poorer conditions from which black South Africans hail will linger even in a free market, but he correctly foresaw that regulating the market, particularly the labour market, would not undo this damage.
As we now see, this regulation has exacerbated the problem, with 29% of South Africans unemployed due to no notable reason other than government interference in the economy.
“The process of correction is fraught with pitfalls that make well-intentioned actions highly counterproductive,” noted Epstein.
But surely, critics argue, markets cannot be insisted upon when government has an ostensible democratic mandate to do such things as expropriation without compensation.
However, Epstein notes that constitutions should be geared towards the long-term.
This inherently means that political majorities, particularly if they are slight, must be limited from freely implementing their will.
This is not to undermine the will of the majority, however.
Society should be allowed to contemplate invasive changes in the affairs of people and their property over a longer period, rather than having such changes hurriedly tacked onto the back of convenient populist sentiment which inevitably benefits only an elite political class.
We are fortunate that the Constitution turned out the way it did.
Many believe the Constitution contains a laundry-list of socio-economic rights (something Epstein also warned against), when in fact most of those rights are formulated in a way that does not require government to unduly interfere in the economy.
Instead, they concern the creation of an environment that is friendly to enterprise.
Even the rights to “access to” health and housing read more appropriately as protecting ordinary South Africans’ ability to self-determine their healthcare and residential affairs – something denied them during apartheid.
Government, of course, has regarded these rights as giving it a host of powers to bring carnage to the economy.
But, regulation aside, the most pressing threat that might lead to the destruction of South Africa’s economy, not to mention its constitutional integrity, is land expropriation without compensation.
In a later article in 2014, Epstein explains that compensation is crucial in a society that aims to do justice.
Compensation “ensures that the individual, who has been forced by law to contribute property to some common improvement, is not wiped out in the process”.
Government’s “option to compensation can never be exercised at zero price”, reasons Epstein, “but only at fair market value.”
In other words, done correctly, “no one gets hurt, and any social improvement remains”.
The Constitution is powerless to direct how it should be interpreted.
A properly functioning constitution requires judges, politicians, and civil society to pay attention to the lessons of history.
History tells us that land reform – as a social improvement – has only been successful at bringing dignity and economic growth to a society when it has been married to a respect for private property rights.
We ignore this historical lesson at our own peril.
Doom is not inevitable. Right up until the proverbial fat lady sings, we can course-correct and pull ourselves out of the rut.
It is never too late, but the sooner we do it, the less pain we will have to live through.
Epstein’s observation that “Open markets and private property are the formula for constitutional success” is indisputable.
The longer we blindfold ourselves and dispute it with such notions as expropriation without compensation and developmental statism, the more we will suffer.
Martin van Staden is head of legal (policy and research) at the Free Market Foundation.
The views expressed in this article are those of the author and not necessarily those of the Free Market Foundation.
This article was first published on 06 March 2020 on City Press
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