Media release: Rein in government to end recession

Media release
6 September 2018

Rein in government to end recession

The causes of South Africa’s economic woes are domestic and invariably emanate from policy decisions. The only way to escape the tailspin toward increased destitution is for the size and scope of government to be reined in significantly, in favour of a limited, efficient, and constitutional state apparatus. This means that talk of expropriation without compensation must cease immediately, and meaningful steps must be taken toward relieving the economy of the dead weight of government bureaucracy and interference.

According to Free Market Foundation (FMF) director and economist, Jasson Urbach, “the latest information indicating South Africa now finds itself in a technical recession should be seen in the wider context and the fact that we are more accurately in a depression.” A technical recession happens when there have been two consecutive quarters of economic contraction, but “South Africa has had a per capita recession for almost a decade, meaning economic growth has failed to keep up with population growth.”

While government will attempt to assign blame overseas, the fact is that the source of the problem is entirely domestic, and entirely political. South Africa’s institutions are skewed toward increasing the role of the State at the expense of the private sector. It is long overdue for all in government to acknowledge that the private sector is the real engine of economic growth in the economy – especially if any effort is to be made to combat the ever-increasing enormity of the unemployment problem facing this country.

Government does not have its own money. The money it uses is money it has taxed or borrowed. Jobs “created” by government are clearly visible but what we do not see are the jobs that would have been created in the private sector with that same money if it had not been taxed or borrowed by government. Government is merely a redistributor of money from the productive to the non-productive sectors of the economy. When no new income results, no new demand for goods and services is created, and no growth in the economy is the true outcome. Urbach asks, “who would want to invest in such an environment?”

At the launch of the 2018 edition of the International Property Rights Index in Rosebank in August, it was revealed that internationally South Africa had been the biggest loser, losing 0.65 points as compared to its ranking in 2017. South Africa has since 2000 also consistently fallen on the ranking of economic freedom, as expressed in the FMF co-produced Economic Freedom of the World report. In 2000, South Africa ranked 46th in the world, but had fallen to 105th in 2017. The plunge in these indices are directly attributable to government’s policy of economic intervention.

The lack of growth in South Africa, especially recently, has been due to an uncertain policy environment and the looming threat of government seeking to expropriate privately-owned property without paying compensation. No rational investor, whether South African or foreign, will in this context engage in the type of behaviour that leads to economic growth. It thus comes as no surprise that there has been a 29.2% decline in agricultural production during the second quarter of 2018, according to the latest GDP figures published by Stats SA. Earlier this year, the FMF also learned that property developers in Johannesburg are considering moving their business elsewhere due to draconian “inclusionary housing” policies being pursued by the municipality.

South Africa’s infamously rigid and authoritarian labour laws have also done their part in ensuring a dearth of economic growth, by disincentivising businesses from hiring the labour they need freely. The new National Minimum Wage Act will further retard growth, especially for small businesses which are unable to comply with the R3,500 per month price-tag.

As the Institute of Race Relations reported in April, government’s wage bill stands at about a third of its annual budget, totalling R587 billion. Government employs over 2 million people in all spheres of government. Despite such a massive workforce, South Africa continues to struggle with service delivery and responsiveness, meaning that having one civil servant for every 30 South Africans is an unnecessary expense.

A lean, efficient, and limited government guided only by its constitutional mandate and not politically-convenient legacy projects is necessary now more than ever. Our experiment with populism must now give way to cool headedness and reason, before it’s too late to turn the tide.


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