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Nothing happens in isolation and the failure of our incipient nanny state to provide economic growth and jobs for small and medium businesses is directly linked to the ugly xenophobic violence we’re witnessing in Gauteng and Tshwane. So says Chris Hattingh, Project Manager at the Free Market Foundation, who joins the growing throng of analysts and economists welcoming Finance Minister Tito Mboweni’s new economic strategy paper which will set the cat among the tri-partite alliance pigeons, never mind put President Cyril Ramaphosa on the spot regarding his party’s Nasrec conference policy resolutions. Like all crises, South Africa’s latest economic paralysis requires disruptive, breakaway thinking, the like of which we last saw with FW de Klerk and Nelson Mandela. With nearly a fifth of the population unemployed (by generous estimates), and the Reserve Bank predicting 0.6% GDP growth this year, continuing on a socialist, statist path with increasing regulation of business is downright dangerous. Mboweni’s paper, while not without fault, is a great way to start countering such dead-end thinking, argues Hattingh. Read on for some down-to-earth, common sense rationale. – Chris Bateman
Mboweni sends the right signal
By Chris Hattingh*
Finance minister Tito Mboweni’s new economic strategy paper is a refreshing, much needed breath of fresh air for an economy struggling for oxygen. The paper is replete with common sense proposals all aimed at achieving the economic growth South Africa desperately needs. We have been stumbling along a low-growth path of high taxes, kilometres of red-tape, wealth redistribution, and anti-individualism for far too long. If Mboweni’s paper can be taken as a true step in a new direction, a direction of more individual freedom, South Africa will see green shoots of recovery almost immediately.
Countries with more economic freedom see a marked improvement in quality of life, quality of education, high investment, and strong economic growth. In 2018, South Africa was ranked 110 out of 162 countries in the Economic Freedom of the World index. Instead of adopting policies which would encourage growth and investment, South Africa has consistently given both local and foreign businesses fewer and fewer reasons to invest their capital and time in this country. This is the consequence of government implementing restrictive intervention after intervention for the last 20 years. There is little wonder that there are currently more than 10 million people unemployed. The Reserve Bank is projecting 0.6% GDP growth this year, and tax collection revenue is set to be much lower than initially expected. We have tried the government-led, interventionist, big-spending route. It is clear that does not work, and it is high time for South Africa to try at least a few steps along the right path of economic freedom.
Dumping funding into the failing SOEs has long been a profoundly unsound financial option. The strategy paper’s proposal to unbundle Eskom, and allow households and firms to sell the excess electricity they generate, is a welcome idea, one which lessens the burden on Eskom and gives people real agency to take care of their own energy needs.
While bigger corporates and investors are heading overseas, small businesses are either scaling back or shutting down. Small business and the informal sector are the backbone of the economy, yet people in these areas are bombarded with regulation upon regulation. There is mention in the paper of revisiting the Red Tape Impact Assessment Bill. This would be an excellent start at freeing up the economy and allowing it to stretch its legs and grow. There is also mention of “inflexible labour markets” – scrapping the National Minimum Wage would be another excellent step in giving the power back to unemployed people to negotiate for themselves with potential employers the wages for which they would be prepared to work. Lowering barriers to entry must be a top priority.
That the trade unions have condemned the paper simply reinforces the proposals contained therein. The unions’ philosophy is out-of-date. It is premised on the notion that the state ought to control people’s lives, that it must make our economic and life decisions for us. It also falsely assumes that all wealth is fixed and must only be redistributed by the state. There is no room for individual agency and growth in the statist world the unions would have. The proposals contained in the paper would, if implemented, result in greater benefits and improve the wellbeing of union members a hundred times more than the antiquated zero-growth, authoritarian, government-controlled society they envision.
While there is much to admire in the paper from an economic and individual freedom point of view, there are concerning elements. “Youth employment interventions”, “targeted housing and urban development interventions”, and the concept of the “capable state” place too much power in the hands of the state. These concepts presume that the state is best equipped to make various decisions on behalf of individuals. Such ideas have often been used to justify trampling on individual rights in the name of ‘equality’ and ‘progress.’
For the good will and promise which this paper generates, other policies proposed or currently underway will undercut any serious moves toward economic growth. Expropriation without compensation (doing away with secure property rights), National Health Insurance (controlling people’s healthcare and driving doctors and nurses overseas), and prescribed assets (using people’s savings to prop up failing SOEs) indicate a government determined to control and micromanage our lives. They act as weather-vanes, indicating that the wealth and property we build and accumulate will not be safe from arbitrary seizure, and that the government will be the one to take care of all our needs. These are not the policies of an economically free and strong people – they are the policies of a despondent people reliant on the parental figure of government.
While it remains to be seen whether Mboweni’s proposals are implemented in the form of policies, this paper sends the right kind of signal to South Africans and to foreign investors. It may not be as radical as some desire, but it is a step in the right direction. The policies and philosophies advanced by those opposed to economic freedom and individual freedom will only shrink the GDP further, and no state can provide welfare and other services while there is little to no economic growth.
The violent strife we currently see in Pretoria and Johannesburg is the result of the wrong economic policies and philosophy. People are unable to find work, and many believe what they are told when it is said that their problems are caused by the success of others. If South Africa had at least a modicum of the economic growth that can result from the right policies, these social tensions would lessen.
Given South Africa’s context of mass unemployment and an ever-expanding system of government-control and -spending, Mboweni and Treasury should be applauded for this paper, and South Africans should begin the work of engaging with, and implementing, the good proposals it presents.
- Chris Hattingh is Project Manager at the Free Market Foundation.
Cyril Ramaphosa: The Audio Biography
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