That better human wellbeing is the outcome of higher economic growth is illustrated by the findings published in The Economic Freedom of the World report. The report ranks countries according to measurement of their level of economic freedom. South Africa currently features at position 95 out of 159 countries (Economic Freedom of the World: 2017 Annual Report). After being placed 46th in 2000, South Africa’s measure of economic freedom has gone into a sorry decline, hitting 70th in 2005 and 82nd in 2010.
With the prescience of these studies, it is clear what all involved in policymaking should do to bring about a policy regime that will reflect the highest levels of economic freedom. First, however, some impediments to freeing up the economy that tempt leaders and officials down a harmful path need to be done away with. Widely tempting seem to be the measures advocated to address income inequality as proposed by Thomas Piketty in his book Capital in the Twenty-First Century.
Essentially, Piketty advocates punitive redistributive tax measures that target the richest individuals and business entities. The consequences of this will be to negate capital formation and drive the capital in the hands of the wealthy to other entrepreneurial-friendly markets.
Piketty’s thesis even echoes the words of the founder of communism, Karl Marx, who said “There is only one way to kill capitalism – by taxes, taxes and more taxes”. It also complies with the statement made by the late communist leader of Russia, Vladimir Lenin: “The way to crush the bourgeoisie is to grind them between the millstone of taxation and inflation”.
The Piketty thesis will not work because in stark contrast to these ideas is the reality of human nature. People are endowed differently, have different tastes, preferences and priorities. They embark on a whole diversity of socioeconomic endeavours in order to lead relatively contented lives and enjoy happiness. When people are free to exploit their internal resources, the outcomes naturally manifest in various ways and degrees. Some embark on business ventures, even when at great risk as there are no guarantees of success. The element of risk, and the degree thereof, explains why entrepreneurs are few and far between in any community or country. Most people seek a less risky means of earning an income by choosing to work in established business enterprises. Other individuals prefer to pursue initiatives in other spheres of human endeavour such as sporting activities, music, and fine arts. Not surprisingly and inevitably, the income outcomes will manifest a whole range of income differentials.
Piketty negates this aspect of the real nature of humans, because, in essence, his proposal contradicts economic freedom.
“The worst form of inequality is to make unequal things equal” was the amazing verdict of Aristotle, Greek philosopher (384 – 322 BC).
Another block to growing an economy is affirmative action. Empirical evidence abounds to the effect that in any country where affirmative action policies have been implemented, the results have been totally counterproductive. A case in point is the United States. After more than fifty years of affirmative action policies implemented to boost the social fortunes of a targeted beneficiary group, this group, the blacks/African-Americans, occupies the lowest rung of the socioeconomic ladder. At the top are the US-Asiatic ethnics, followed by the whites, then the US-Latino ethnics, and then the blacks, after all that help, still lagging behind. Affirmative action policies the world over have only, ever, demonstrably benefited politically connected elites, as is the case in South Africa.
In South Africa, a whole plethora of policies should be abrogated because they negate the economic freedoms of individuals and thus detrimentally impact the socioeconomic welfare of the country.
Economic freedom is defined in terms of the fundamental principles of protection of private property, voluntary exchange and freedom to compete. Policies collectively defined within these parameters would launch this country on a trajectory of high economic growth and overall happiness.
This is exactly what happened in the People’s Republic of China. Starting in Shenzen in Guangdong province with the liberation of the agricultural sector from the clutches of the state, from 1972 onwards, Deng Xiaoping, at the helm of the Communist state, implemented the most radical free market experiment (unprecedented historically) in areas designated as special economic zones/Freed Trade Zones. The result, according to the World Bank, has been, within decades, the upliftment from poverty of over 500 million Chinese.
Yes, it is possible to reverse the damage and set South Africa on a high growth economic trajectory. For our lack of economic growth, the buck stops with the government, solely and exclusively. That cannot be emphasised enough. Scapegoating by blaming this country’s shortcomings on apartheid, colonialism, imperialism and the discredited nonsensical concept of white monopoly capital or some particular individual white industrialists, is calculated to deflect attention from those supposed leaders and their acolytes, who are wholly responsible for and cause the perpetuation of the mess.
Author Temba A Nolutshungu is director at the Free Market Foundation.
Comments on The higher the growth, the better human wellbeing