Only a free market can halt SA's decline in 2021

Few would have predicted the eventful 2020 we've had. All across the world, lives have been changed forever, often devastatingly. In South Africa, the COVID-19 lockdown has exposed the economic weakness caused by years of misguided government policy and state capture. Between 2009 and 2019, South Africa created 2.4 million jobs, but as many as 2.8 million jobs were lost as a result of the lockdown. More than 11 million people are unemployed – above 43% of the working-age population.

There might be some recovery in 2021, but this must be seen against the background of a very low floor. In terms of economic growth, the 2000 to 2010 decade was the country's worst ever on record - with an average of just 1.35% growth. Any apparent growth will only be to claw back from the massive damage caused by the lockdown. Given the government's apparent lack of will to implement reforms - and very little reason to believe that those in power understand the damage caused by their misguided policies - we should not expect great progress next year. We might get back to the inadequate pre-lockdown growth levels by 2023 – but only if the wrong policies are abandoned, and better ones are implemented.

Government's debt-to-GDP ratio is expected to breach 100% in 2022. According to Nedbank, "debt service costs will rise to 6.6% by 2022." Government's seeming inability to address rising debt formed part of the credit rating downgrade to 'junk' earlier this year. The ratings agencies and investors will find little reason to be confident in government's ability to handle its debt - especially in light of government's messy handling of public servants wage negotiations.
From R154 billion in 2006, to R639 billion in 2020; South Africa's wage bill for 1.2 million public servants is out of control. It is now the single largest component of government expenditure.

It is clear that, financially, government cannot accommodate this wage deal, so expect trade unions to exert even more pressure in 2021, to the detriment of South Africa's fiscal situation.The proposed amendment to section 25 of the Constitution, to allow for the expropriation of property without compensation (EWC), and the implementation of a National Health Insurance (NHI), loom largest in 2021. EWC will undermine the very notion of property ownership and further entrench the power of the state.

The NHI will monopolise the management of all healthcare goods and services in the hands of the state. Neither of these plans will fix the current problems in the areas of land reform or healthcare. That South Africa needs to address the injustices of the past is without question; but increasing the power of the state is not that path.In 2000, South Africa ranked 58th on the Economic Freedom of the World index. In this year's edition, it was 90th, out of 162 countries. The country's continued decline indicates government's ever-increasing control over all aspects of the economy - and the lowering of individual freedom generally. A lower economic freedom ranking indicates a lower quality of life. People living in countries with higher levels of economic freedom on average enjoy greater prosperity, more political and civil liberties, and longer lives. Indeed, countries in the top quartile had an average per-capita GDP of R670,000 in 2018, compared to R87,000 for countries in the bottom quartile.

If free-market policies are not implemented in South Africa, the triple crises of poverty, unemployment, and artificial (as opposed to spontaneous) inequality will likely worsen. 'Good intentions' should no longer be the standard by which we measure government action; rather, the actual effects on people's lives, and the extent to which economic freedom is restricted, should be the standard. Policy barriers to employment, for example the National Minimum Wage (NMW), only serve to dissuade small businesses from taking on more employees. That the NMW Commission has proposed an increase of the NMW indicates little regard for economic hardships, and will negatively affect workers in the agriculture and domestic work sectors especially.

It appears the world will soon have COVID-19 vaccines available. Hopefully the widespread distribution of these will put paid to any possible plans for more lockdowns. The economic and psychological damage of lockdowns have been astonishing. For all the talk that we could return to 'normal,' that would simply not be enough. South Africa was already in dire straits before the lockdown - there is an opportunity now to implement the difficult, but, ultimately the right and necessary, structural reforms.

In a post-lockdown world - where populist sentiment and isolationism will find fertile ground - South Africa can, by adopting the right policies, become a place of maximal investment and job creation. A shift from redistributionism to wealth creation is vital. There is not just one big wealth pie to be divided up by the government every year between those who have the necessary political connections; rather, people need the freedom to bake their own pies. As of October, the South African Revenue Service projected a revenue shortfall of R304 billion for 2020/2021.

People who desperately need assistance from the state will find themselves left out in the cold. The government must realise that it cannot redistribute South Africans into prosperity; if a positive environment is not created, there will be no tax base to tap.The tendrils of the state are present in virtually all aspects of our lives. An environment that actively makes economic activity, capital accumulation, investment, and job creation more difficult, always and everywhere affects poorer people worst. Any 'bounce back' will be inhibited by a rigid labour market and low labour absorption. Many of the jobs lost as a result of lockdown will take a long time to return - if indeed they ever do. It turns out that the economy - and the people and businesses of whom the economy is comprised - is not a simple switch to be easily flipped on and off. 

This article was first published on City Press on 3 January 2020

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