Economics is certainly no ideology

REMEMBERED: Members of Amcu gather to commemorate Marikana killings four years ago in this file photo. Marikana was a protest against unfairness, not against ‘inequality’, say the writers.

"NEO-LIBERALISM” has become a convenient term to ideologise economics, treating it as an “idea” which can be debated and potentially discarded. Certainly this is the approach taken by social justice activist Gillian Schutte in her article: “SA needs an egalitarian economy” published in The Star on May 25.

Economics is not an ideology, whether it’s called neo-liberalism or capitalism. It is not a set of theories or opinions, but a set of value-free facts.

For instance, there can be no debate about incentives in the private versus public sectors. Unless fraud is at play, in the private sector longevity depends entirely upon consumer satisfaction otherwise the firm dies.

In the public sector, the satisfaction of the citizen is immaterial, as the institution of government cannot be liquidated and sold off to its debtors (Greece still has an independent government and is not a German province).

And, unlike in the private sector, those who mismanage government institutions rarely face consequences. Detractors might say consumers are not satisfied with many private firms, which leads to another fact of economics: value subjectivity.

When a consumer sacrifices an amount of his money, labour or time in exchange for something else, it means that he values that something else more than that amount of his money, labour or time.

Therefore, consumers might seem to be very dissatisfied with for instance an expensive health insurance company but the economics – the facts – indicate that they still value the service they are receiving more than the amount being charged.

However, when government props up monopolies or subsidises unprofitable firms then the consumer’s satisfaction takes a back seat. These wasteful supports are made using taxpayers’ money – money for which South Africans, poor and rich, have worked very hard.

Attempts to ideologise economics into the straw-man “neo-liberalism” or orthodox economic “theory” emanate from those who are actually engaged in trying to replace economics with their ideology. And this ideology can take any form. In our past, apartheid was the ideology with which nationalists tried to replace economics and today that ideology is often called “social justice”.

In the name of social justice – it is debatable how “social” and how “just” it is – the price mechanism has given way to price control, whereby incorrect market signals have been sent down the production line causing overand under-pricing.

For example a contributing factor to the inflated price of data is that some service providers are forced by government to provide data to educational institutions at a discounted price.

Another ideology-laden “economic” policy is the minimum wage, which controls the price of labour and prevents an exchange of work for pay if the rate is below that which social justice ideologues deem decent, even if the worker has no experience and is willing to accept something rather than nothing.

To take an analogy from Dr Chris Freiman, associate professor of philosophy at the College of William & Mary: “Someone who employs a pauper at below the minimum wage would apparently be more morally reprehensible than someone who does not pay the pauper at all.” If an employer can legally offer the pauper nothing, then why is it illegal to offer him something that is better than nothing? Schutte and Thomas Piketty’s view of the Marikana massacre as a consequence of “neo-liberal” policies demonstrates their willingness to replace economics with ideology. Marikana was the only contemporary example of conflict caused by “inequality” that Piketty could find to use in his 700-page monologue. However, it is incorrect to analyse what happened in Marikana without due regard to the regulatory context.

South Africa’s labour market is heavily controlled by government intervention, which means that lower-thanideal wages might be due to the higher indirect price of labour imposed by government.

The unfortunate conflict that occurred was more likely to be a protest against unfairness, rather than the academic idea of “inequality”. With President Jacob Zuma’s government determined to strangle the economy with more anti-market interventions in the name of “radical economic transformation”, South Africans may face another future Marikana massacre.

Piketty and company like the Marikana example because it appears to endorse the Marxist idea that the poor will “rise up” against the rich. Yet this has never happened without the presence of Marxist agitation, ie it is a self-fulfilling prophecy. Instead the poor aspire to become the rich and, where free markets have been allowed to function, have become much more interested in private property and freedom from government interference as they move into the middle classes.

“Radical economic transformation” must be economic to stay true to itself. Economics dictates that if the heavy hand of government is felt in the economy, consumers – and especially the poor – are going to suffer. The Free Market Foundation.

Authors: Phumlani Majozi & Martin van Staden

This article was first published in The Star on 9 June 2017

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