Many studies across the world show that economic freedom in particular, along with political and other freedoms, results in achievement and excellence. They also show that people flee or migrate from countries where freedom, in the broader sense, is suppressed to countries that offer greater freedom. The problem is that very few people have been able to explain this relationship between freedom and excellence in the various spheres of human endeavour.
The Economic Freedom of the World (EFW) annual report approaches the question from an empirical, objective and non-ideological point of view. In this study, economic freedom is defined in terms of protection of private property, personal choice, freedom of exchange and freedom to compete.
EFW uses data sourced from various institutions worldwide, such as the World Bank, the World Competitiveness Report and the International Monetary Fund and incorporates it with data based on the official government statistics of the countries in question. The study challenges sceptics to use whatever objective and empirical data they may choose to investigate the correlation between high levels of economic freedom on the one hand and high growth economies, high employment rates and high standards of living on the other - in fact, any indicators that collectively define good standards of living, in other words the good life.
EFW was inspired and conceptualised by economists of the calibre of Milton and Rose Friedman, Gary Becker, Michael Walker, James Gwartney, Robert Lawson and Walter Block among others. Spearheaded by the Fraser Institute and the Liberty Fund, the study is subject to rigorous annual review by 90 think tanks that constitute the Economic Freedom Network (EFN). The interesting thing is that with ever more objective and empirical data applied to the study at each successive meeting of the EFN, the correlation between economic freedom and socio-economic betterment is invariably and consistently reinforced.
The study can serve as a useful non-ideological tool to guide policymakers as to which policies to adopt in order to grow their economies; yet some countries ignore this insight at their fingertips and adopt and progressively implement policies that negate the economic freedom of their citizens. Policies that have detrimental consequences.
In South Africa, policies that include stringent and growing regulation of the labour market, the maintenance of exchange controls, high tariff barriers and the promotion and protection of state-owned enterprises (SOEs) which continue to bleed the economy at taxpayers’ expense, have been adopted. From the perspective of the EFW study, government involvement in the productive private sector is always at the expense of the economic freedom of individuals. It should come as no surprise then that, over the years, the SOEs (a contradiction in terms) have proved to be an abyss into which the incomes of taxpayers are relentlessly sucked. Their overall dismal performance and their chaotic hiring and firing practices seem to indicate that senior executives are employed mainly on the basis of their political loyalties.
With South Africa on the brink of a recession, reference to the EFW study indicates that the country’s restrictive policies account for its cataclysmic unemployment rate of more than 35%. The flight of capital - with foreign investors preferring other Sub-Saharan markets that are characterised by freer economies - is also symptomatic of an economy which is based on the quasi-socialistic doctrine of state control over the means of production.
It is no wonder that neighbouring countries that have embraced market reforms have outperformed South Africa. Economic growth rates are indicated in brackets for the following countries: Ethiopia (10.3% 2013/14), Mozambique (7.4% 2014), Zambia (6% 2014), Rwanda (7% 2014), Tanzania (7% 2014)
It is therefore disingenuous to explain South Africa’s dismal economic performance in terms of the impact of events in the global economy, as politicians so frequently do.
South Africa’s economic freedom rating has been steadily on the decline. The country’s prospects will depend on whether or not the government is going to continue to allow its anaconda policies to constrict economic freedom and the spirit of enterprise. I venture the prediction that this will be the case and that the situation will actually get worse as statists and ideologues cling to their dirigiste paradigm, no matter the consequences.
Despite South Africa’s growing friendship with China, policy-makers will not take cognisance of the actions of Deng Xiaoping who, whilst at the helm of the Communist Party of China, introduced into the Chinese economy Special Economic Zones, the most radical free market reforms in the world. The spectacular success of these reforms accounts for the fact that China awoke from socialist slumber to become the second biggest economy in the world today. This has prompted the current leadership to widen the experiment.
Premier of the People’s Republic of China, Li Keqiang, now in charge of widening the special economic zones, states that: “Reforming is about curbing government power. It is a self-imposed revolution; it will require real sacrifice, and it will be painful.”
Then again he has said, “The market is the creator of social wealth and the wellspring of self-sustaining economic development.”
It is appropriate to reinforce this point by revisiting Nelson Mandela’s insight:
"As I moved around the world and heard the opinions of leading business people and economists about how to grow an economy, I was persuaded and convinced about the free market. The question is how we match those demands of the free market with the burning social issues of the world."
Author: Temba A Nolutshungu is a director of the Free Market Foundation. This article 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 FMF.