Remove impediments to the spirit of enterprise to achieve economic growth

By Temba A Nolutshungu is a director of the Free Market Foundation. By Temba A Nolutshungu is a director of the Free Market Foundation. 

South Africa’s economy is in a mess, to say the very least, and all this is solely and exclusively the fault of policymakers. Everything has gone horribly wrong! Yet it is not all beyond redemption. The overall remedy lies in just simply utilising empirical evidence in the form of studies that demonstrate the close and proven correlation between economic freedom (which means free markets) and high economic growth that in turn translates into increased GDP per capita; high employment levels; better education; increased life spans, in fact all the positive social indicators that collectively amount to a good, contented prosperous life.

The Human Freedom Index (published by Cato Institute), Index of Economic Freedom (Heritage Foundation & Wall Street Journal), International Property Rights Index (initiated by Hernando de Soto and involving the Property Rights Alliance) and Economic Freedom of the World (Fraser Institute and over 100 think tanks world-wide) all attest to the axiomatic empirically verifiable connection between economic freedom and economic growth and the positive social outcomes that emanate from this.

The socioeconomic misery of South Africa is self-inflicted and ipso facto can thus be reversed as illustrated in the Economic Freedom of the World (EFW) report which is evidenced by the above-mentioned studies. The EFW report ranks countries according to measurement of their level of economic freedom. South Africa currently features at position 84 out of 165 countries (Economic Freedom of the World: 2019 Annual Report). After being placed 54th in 2000, South Africa’s measure of economic freedom has gone into a sorry decline, hitting 62nd in 2005 and 79th in 2010.

With the prescience of these empirical 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.

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 with different rankings thereof. They embark on a whole diversity of socioeconomic endeavours to lead 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 his proposal contradicts economic freedom.

“The worst form of inequality is to make unequal things equal” was the incisive wisdom 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. The contemplated policy of expropriation without compensation would clearly be a calamitous socioeconomic disaster.

Economic freedom is defined in terms of the fundamental principles of protection of private property, voluntary exchange, freedom to choose and to compete. Policies collectively defined within these parameters would launch this country on a trajectory of high economic growth, overall prosperity, and happiness.

This is exactly what happened in the People’s Republic of China. Starting at Shenzhen 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 (historically unprecedented) in areas designated as special economic zones. In other words, free trade/market zones. The result, according to the World Bank, has been, within decades, the self-upliftment of over 500 million Chinese from poverty.

Yet it remains a noteworthy paradox that the communist system of China is brutally politically repressive as a one-party state and that under the aegis of Xi Jinping at the helm, economic especially trade policies are being implemented on an aggressive mercantilist path. However, the lesson to be extracted from the Chinese experiment in the Special Economic Zones is that economic freedom (which means free markets) delivers

Yes, it is possible to reverse the damage and set South Africa on a high growth economic trajectory. For the 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 individual white industrialists, is calculated to deflect attention from those supposed leaders and their acolytes and rent-seekers who are wholly responsible for and cause the perpetuation of the mess.

In a nutshell – government just get the damn off the backs of the employment and wealth creators, namely the private sector.