Brian Benfield: The more numerous the laws, the more corrupt the State

Key topics:SA businesses face crushing dual enforcement and overlapping regulations.Compliance costs and bureaucracy stifle growth, innovation, and jobs.Capital and skills flee as the state dominates private enterprise..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Dr Brian Benfield*.Despite President Ramaphosa’s “Open for Business” tag line, South African business operates in an increasingly hostile environment, one that does not merely encumber initiative but actively suppresses it, exposing the SA state as what has been described as a vast extractive “protection racket”. In this condition of “New Communism”, companies are nominally privately owned but effectively controlled by the state and its minions.The results are wholly predictable: Declining investment, the steady flight of capital and skills, and the erosion of the tax base upon which this state is so dependent. This is not incidental drift. It is the cumulative consequence of an ideological state that has completely lost all sense of proportion.Recent developments in the enforcement of pension fund contributions provide a precise illustration of the state’s malaise: On 13 January this year the esteemed Minister of Employment and Labour, Ms Nomakhosazana Meth, withdrew a longstanding exemption governing employer contributions to pension and provident funds. The obligation itself is well established. The Pension Funds Act 24 of 1956 has long required that contributions be remitted within seven days of month end, with oversight provided by financial regulators and adjudicative bodies.The practical effect of the new notice, however, is to introduce a dual enforcement regime. The same obligation may now trigger sanctions under both the Pension Funds Act and the Basic Conditions of Employment Act. Junior labour inspectors may now impose administrative penalties, while non-compliance under the Pension Funds Act carries criminal sanction, including personal director liability. .Read more:.South Africans go off-grid as state fails to deliver basic services.A single compliance failure may therefore expose a business to parallel processes, separate authorities and cumulative penalties. Has any member of the GNU considered this, one wonders?The consequences are immediate. Payroll systems are typically structured around month end processing, yet the new timetable may require payment before payroll is finalised. Companies must re-configure systems and cash flow management and likely incur advisory costs to interpret and implement the change. Smaller businesses face disruption with little margin for error.Even more significant than administrative inconvenience, is the structural shift: Companies are now accountable to multiple authorities for the very same obligation, each exercising its own mandate, procedures and sanctions, each in defiance of the biblical injunction at Matthew 6:24.This is not an isolated episode. It reflects a broader pattern of our rapidly metastasising regulatory malaise. Rules are added but seldom removed. Government agencies have strong incentives to extend their reach. Political dynamics reinforce the tendency. When problems arise, the languorous response is more regulation rather than re-consideration of what exists. The result is a steady layering of obligations and costs that increase complexity without first verifying commensurate benefit.Company tax compliance alone involves multiple streams, among which are employee taxes, corporate income tax, value added tax, dividends tax, skills levies and unemployment insurance contributions, each with distinct deadlines and reporting formats.Labour legislation imposes further obligations through statutes governing employment conditions, equity, skills development and occupational safety, all requiring continuous reporting and record keeping. Transformation policy introduces yet further burdens with annual verification, scorecards and procurement tracking. Consumer and competition laws impose additional monitoring requirements. Data protection and cybersecurity rules add further layers. Sector specific and environmental regulation, from licensing regimes to carbon related obligations, compound the burden. Financial services under the notorious “Twin Peaks” for example, must also contend with two masters and infinite inscrutable laws, regulations, “Board Notices”, “Standards”, “Interpretive Notes”, “Directives” and the like, mounting almost weekly. The cumulative effect is overwhelming. A medium sized company may face dozens of distinct regulatory obligations each year, translating into literally hundreds of discrete administrative tasks once filings, submissions and internal reporting are counted. Each task consumes managerial time, requires specialised knowledge and frequently necessitates external professional support. Large corporations absorb these demands through dedicated compliance departments. Smaller enterprises regularly cannot.The consequence is a distortion of the role of private enterprise: Businesses increasingly function as administrative extensions of the state, responsible for collecting taxes and enforcing compliance frameworks. Managerial attention is diverted away from innovation, service delivery and growth toward navigating an expanding regulatory maze. Instead of focusing on productive activity, firms are compelled to serve multiple bureaucratic masters.The economic effects are predictable and severe: Compliance costs rise, legal risks multiply and operational flexibility is constrained. Established firms with sufficient resources to manage these burdens gain a structural advantage, while innovative new entrants face formidable barriers. In an economy struggling to generate employment at scale, this translates directly into fewer businesses, weaker growth and fewer jobs.There is also a cultural cost: An environment characterised by overlapping obligations and punitive enforcement fosters mistrust between the state and the productive sector. The government is increasingly perceived not as the enabler of economic activity that it should be but as an intrusive authority, preoccupied with monitoring and sanctioning. When regulation accumulates without discipline, its costs are immediate and visible, while its benefits are commonly uncertain and diffuse.The recent pension fund enforcement changes exemplify this trajectory. They are not an aberration but part of a continuing pattern of incremental expansion. Each intervention is presented as necessary. Taken together, the cumulative burden is far greater than the sum of its parts.The structure that emerges places the firm at the centre of a dense web of overlapping demands. In effect, the system rewards procedural conformity rather than productive performance. Gradual displacement of the common law tradition of reasonableness by exhaustive rulebooks administered by unelected officials occurs. Discretion yields to checklists and judgment to process. This encourages the rise of the penalisation of procedural missteps, irrespective of intention or outcome. The effect is to elevate form over substance and to entrench a culture of compliance over productivity.Escalating fines and sanctions are clearly not evidence of regulatory success but of systemic failure. A system that relies on ever increasing enforcement has already lost sight of its purpose.Industrial activity has therefore migrated toward jurisdictions where regulatory systems are clearer, simpler, limited and predictable. Where compliance is restricted and coherent, investment follows. Where it is expansive and punitive, it recedes. South Africa cannot insulate itself from these realities.The central lesson is clear: A succession of incremental measures, each perhaps defensible in isolation, has produced a system that weighs heavily on enterprise and inhibits economic vitality. Dual enforcement regimes, overlapping jurisdictions and proliferating obligations are not hallmarks of effective governance. They are symptoms of failure and of excess.What is required is not marginal adjustment but institutional discipline. Duplication must be eliminated. Oversight should be consolidated. Processes must be simplified and aligned. Above all, the expansion of regulatory scope must be treated with caution rather than assumed to be inherently beneficial..Read more:.Is the South African state failing or just fragile? - Ivo Vegter.Regulation should be clear, coherent and proportionate, focused on genuine risks rather than the expansion of administrative reach. Without such reform, investment will remain subdued, capital and skills will continue to migrate, and the tax base will weaken yet further. As in the communist world, the South African economy is increasingly serving the machinery of state, rather than the reverse. Until this is corrected, the productive sector will remain constrained, unable to fulfil its essential role as the only engine we know capable of effectively providing growth, employment and broad-based prosperity..*Dr Brian Benfield, retired professor, Department of Economics, University of the Witwatersrand, is a Senior Associate and Board member of the Free Market Foundation.

Brian Benfield: The more numerous the laws, the more corrupt the State

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