Feature Article: South Africa at the Crossroads

An unemployment rate of over 35%, if you include people who have given up looking for work, an economic growth rate of 0.9% in the first quarter of 2013, a dismally failing public health sector, a public education sector that is qualitatively and quantitatively on the decline, rampant corruption on the part of public representatives and officials. The United Nations Conference on Trade and Development records that South Africa’s foreign direct investment inflows between 2011 and 2012 declined by 24%.  The list of bad news concerning this country seems endless. Some people are so despondent that, like the ostrich, they stick their heads in the sand and simply refrain from watching, listening to or reading any news reports.   

Policymakers also seem to avoid taking heed of news reports as they just keep piling on cumulatively obstructive policies that impede the spirit of enterprise.  Government expands unabated in terms of personnel and expenditure, all at the taxpayers’ expense.  State enterprises, such as Eskom and SAA, owe their existence to the beleaguered taxpayers who continue to be forced into subsidising them. South Africa is sliding into a perilous scenario of how to destroy a country’s economy.  Yet all of this can be halted. The economy can be turned around and the country and its people saved from poverty and hardship. 

First of all, there has to be a ‘mea culpa’ acceptance by the government for all this mess.  The government must stop indulging in its favourite pastime of pointing accusatory fingers at scapegoats such as capitalist selfishness, colonialism, imperialism, and, especially, the grossly misrepresented collapse of financial markets as a ruse to deflect attention from itself. 

The challenges that confront this country require political leaders with statesman integrity and character, who will rise above partisan politics and do what has to be done.  The many job-creation summits, study task teams and countless other flights of fancy have proved to be futile, costly exercises.  More similar worthless initiatives are being proposed as serious measures in an effort to conjure up solutions to our plethora of problems. But, if the right foundations are not put in place, like all the others, they will just prove to be as costly and futile and the problems will continue to worsen relentlessly.

South Africans should remember that, in December 2010, a spontaneous uprising in Tunisia was triggered by Mohamed Bouazizi when he set himself alight following persistent harassment of his humble roadside retail business by government officials.  The average unemployment rate in that country was 14.83% (2005 - 2012).  When compared to South Africa’s 35%, we have to realise that we have a potentially cataclysmic situation.  Some circles have described it as a political powder keg. 

Yet government keeps on listening to pundits of out-dated economic policies, introducing empirically proven failed interventionist policies. Minimum wage laws are implemented despite evidence garnered from throughout the world documenting the disastrous effects of such policies. Wherever minimum wage laws are implemented, they result in jobs for the young, unskilled and not well educated being lost. They result in long-term unemployment as these people are then denied access to even the minimum level of entry into the workforce. The calls that grow more vociferous by the day for a comprehensive national minimum wage law to be enacted are going to exacerbate our crisis and 35% is going to become 45% or more. 

These persistent anti-business, anti-job creation, and, consequent, anti-wealth creation calls are being welcomed by a government more focussed on a short-term electoral agenda. Government seems to choose, rather, to play to the gallery and indulge in irresponsible, opportunistic, populist rhetoric than show any concern for the country’s people.  Predictably, as elections approach, this tendency will increase. 

The willing-buyer willing-seller principle is the crux of voluntary economic transactions. Reckless calls to abolish it will constitute a serious disincentive to domestic and foreign investment.  The proposed tobacco and liquor policies are based on the assumption that those in government have the wisdom to operate as moral dictators and thereby interfere with what should be free, un-coerced social and moral conduct of individuals and businesses.  Mark Twain wrote, “No man’s life, liberty or property is safe while the legislature is in session”. Every one of us needs to bear these words in mind.

If the real government would stand up, the solution to all this mess is patently obvious, simple and feasible to implement.  Non-ideological engagement and a critical review of existing policies is required; people who do rely on empirical evidence and will seriously consider policies that generate high economic growth rates.  The most important lesson to be taken on board from the world’s experience is that high economic growth and GDP per capita rates, high employment levels, overall improvements in the socioeconomic welfare of people all correlate with economic freedom. 

Economic freedom can exist only if there is protection of private property, freedom of exchange, personal choice in how and where and for how much to sell your labour and skills, and the supremacy of the rule of law to underpin all of these values.  Irrefutable evidence of this can be found in several studies published internationally, such as, “Economic Freedom of the World” (Fraser Institute), “Index of Economic Freedom Studies” (Heritage Foundation), and the “International Property Rights Index” (Americans for Tax Reform Foundation)

If  any more proof is required that economic freedom is the route to go, consider the progress being made by China’s special economic zones, the East African Community member states, Mozambique, Ethiopia, Niger, Burkina Faso, Nigeria and the Republic of Congo which still post GDP growth rates above 7%.

Given all the obtainable and visible evidence, the marching orders to government should be to expunge from the statute books all policies that negate the spirit of enterprise.  Another order would be to resist pressure by ideologically vested interests to impose any policy that stunts our badly injured spirit of enterprise and retards this country’s economic growth. 

Embarking on such a campaign will usher in an enabling policy environment for the private sector.  It is important for government to acknowledge and accept that it is the private sector, both formal and informal, that creates jobs. It is the private sector that is the engine of wealth. Government is a consumer of wealth. The government should embark on policies that will translate into South Africa being a magnet for foreign investors who ultimately choose market destinations that result in competitively high returns on investment.  If the list of cumbersome and onerous legislative intrusions grows any longer, this country’s policymakers will be able to boast that they have mastered the art of destroying an entire economy. 

It is imperative that unnecessary legislative and regulatory barriers to entry across all industries be removed.  It must be easy to open and run a business, and the cost to do so must not be excessive. Every effort is needed to encourage a proliferation of private enterprises. The more people employed, the more wealth generated, the greater the all-round improvement in the lives of all South Africans. This is the real world. We have to adopt policies that work.

Author: Temba A Nolutshungu is a Director of the Free Market Foundation. This article, which is based on his address to the Milk Producer’s Organisation in Pietermaritzburg on 28 August 2013, may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

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