The Free Market Foundation (FMF) was established in 1975. Its purpose was to oppose apartheid and recommend policy options that would improve economic, civil and political liberties for all South Africans. Together with this objective, an important part of the mission of the FMF was to project a post-apartheid vision that would be characterised by these liberties. This the FMF has done and continues to do. During the four decades since its inception, the FMF has dealt with an exceptionally wide range of issues.
A government of exclusion
Bear in mind that the FMF was opposing an autocratic government that spent its time justifying apartheid, which excluded the majority of the population from freedoms such as the right to own property, enter into business and a host of other exclusions. An organisation with “free market” in its name was not popular under these circumstances, especially with the message contained in its name.
Despite the apartheid government’s general opposition to free market policies, the FMF, and its sister organisation, the Law Review Project (LRP), did manage to persuade the government to relax the licensing laws and allow black traders to operate legally. The LRP drafted the legislation that was adopted by parliament and brought about the change. The release of economic energy was astonishing. The rapid rise in black-owned business and entrepreneurship showed clearly what increased economic freedom for black South Africans would make possible.
Another notable success was the FMF’s role in facilitating the inclusion of the property rights clause in the final Constitution. Doubters need only ask the key members of the Constitutional Committee about the FMF’s role in ensuring the protection of property rights. This was not aimed at protecting those who owned property in 1994, but for the protection of the rights of future generations. The FMF and its supporters continue to fight with undiminished passion for the economic freedom and civil liberties of all South Africans.
Opposition to autocratic government
Those who are unfamiliar with this history of the FMF are unaware that the primary reason for setting up the organisation in 1975 was to promote a free market economy and individual freedom (including non-racism in politics and the economy, giving particular attention to economic freedom for black South Africans) and to oppose the apartheid socialist governance system imposed on the country by the National Party. In 1977, the FMF was re-constituted and NAFCOC, the National Black Consumer Union, SA National Consumer Union, South African Chamber of Business (now SACCI) and other organisations became organisational members of the FMF. It was then that Dr Sam Motsuenyane, our Life Deputy President and Luminary Award recipient, became active in influencing the work of the FMF. Our grateful thanks to Dr Sam for giving the FMF the benefit of his wisdom for so many years.
Confusion over the nature of economic freedom
Philosophical opponents of the FMF constantly misrepresent the nature of economic freedom and the policies we are proposing. They ignore the mass of data accumulated over more than two decades in the meticulously researched Economic Freedom of the World (EFW) reports. Since 1980, these reports have been produced by Canada’s Fraser Institute with support from the Economic Freedom Network, which consists of the FMF and more than 80 similar institutes based in as many countries.
The classical description of economic freedom provided by the main authors of the Economic Freedom of the World reports James Gwartney and Robert Lawson, is:
“Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions.”
As described in the EFW report, the cornerstones of economic freedom are: personal choice; voluntary exchange co-ordinated by markets; freedom to enter into and compete in markets; and the protection of persons and their property from aggression by others. This means that people have economic freedom when individuals can choose for themselves and engage in voluntary transactions as long as they do not harm others or their property.
Milton Friedman’s challenge to free market supporters
The economic freedom research and publications resulted from a challenge issued by Milton Friedman. He had said that proponents of free markets, including himself, claimed that free markets make everyone better off but they were not producing the hard evidence to justify their claim. This led to the initiative that resulted in the EFW reports. This research shows that the poorest 10% of people in the top quartile of economically free economies, have higher incomes than the average per capita incomes of people living in the 50% of least economically free economies in the world. In 2000, South Africa was in 42nd place in the world rankings (just outside the top 25%). In the most recent report South Africa was ranked 96th out of the 160 countries measured – we have slid down from being in the top 40% to being just outside the bottom 40% of countries ranked.
The evidence is abundantly clear – the lives of all South Africans can be improved by a large margin by increasing our economic freedom for getting back to the top 40% in the rankings – the position the country held just 16 years ago.
What needs to be done?
According to the EFW reports, South Africa’s rating, ranking and economic well-being can be improved by making the following positive changes:
• Reduce the dominant role of government in the economy – allow the private sector to increasingly take over the provision of goods and services now provided by government.
• Improve the integrity of the legal system, including the reliability of the police force and reduce the costs that crime imposes on people and the economy.
• Maintain the high quality of the management of the Reserve Bank (sound money is SA’s best rating out of the five areas rated)
• Remove exchange controls and other capital controls bearing in mind that financial markets are the lifeblood of the economy
• Change labour policies so as to increase the demand for labour.
• Remove unnecessary red tape – especially for small and micro business.
• Eliminate corruption.
We know from historical evidence and our own observations that these changes will make a difference. What the EFW studies do is to confirm the historical evidence and our observations, show us which of the factors are having the greatest impact, and suggest what requires the most urgent attention. They also show us very clearly how we are faring as measured against other economies. The recipe for economic success is there; all we need is for it to be followed.
Author: Ayanda Khumalo is the Acting Chairman of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. It is adapted from his report to the AGM of the Foundation.