Governments face difficult decisions in formulating economic policies. Not only do they receive conflicting advice from economists and policy analysts putting forward very different, even totally opposite solutions to economic problems, they also have to contend with sometimes ill-considered or partisan pressure from their political supporters.
Politicians are subject to perverse incentives
Modern representative democracy has evolved in a manner that places excessive demands on politicians, leading them to promise more than they can or should undertake to deliver. Politicians wend their way through a political and policy morass that can sometimes induce them to adopt policies that are counter-productive to the interests of citizens, even when they are fully aware of the probable negative consequences. Individual career politicians set out to retain the support of party constituencies and seats in the halls of power, and these objectives gain precedence over the real interests of the general electorate.
Energies of political parties become directed at retaining or gaining control of government instead of being directed at co-operating to produce legal systems that will endure and serve the best interests of citizens. The contest between political parties deteriorates to one of “buying votes” by making the most expansive promises to electorates based on the power of government to legislate, regulate and levy taxes that burden current and future taxpayers. Even worse, some politicians seek to gain support by promising to trample on constitutions, the rule of law, and the best long-term interests of all law-abiding citizens by undertaking, if they are elected, to seize assets (with or without compensation) from one group of people (citizens and non-citizens alike) for the supposed benefit of the poor.
SA government faces critical policy challenges
South Africa’s government today faces critical policy challenges from within its governing party that are consistent with some of the worst occurrences in constitutional democracies. Proposals being made are that the fundamental principles of our Constitution should be disregarded and the ownership of the mines be transferred to the state. If these proposals were to be adopted by the ANC and forced through Parliament, including the abandonment of the protection of property rights contained in the Bill of Rights and implicit in the principles of the rule of law, it would herald the beginning of the end for the South African Constitution. It would threaten the purpose for which all constitutions are enacted: the protection of the people from tyrannical government. Such a development would have far-reaching consequences for the nation, not merely in the short term but for future generations.
At first, nationalising the mines might sound attractive, especially to people with low incomes who are told, with no explanation as to how this is to occur, that they will benefit if ownership of the mines is transferred to the state. The FMF book Nationalisation provides information to government, the media and the people of South Africa on the nationalisation of the property of private firms. It discusses the merits of the case: whether the benefits of such an act for the nation are likely to exceed its costs, especially for the poor who, according to those who support the nationalisation of the mines, are to be the chief beneficiaries. Will the people of South Africa, including the poor, agree to have their constitutional property rights protection eroded if they realise that weakened property rights could allow future governments to take the property of their children, grandchildren, and great grandchildren without compensation or with inadequate compensation?
Government policies must improve the lives of the poor
Government needs to adopt policies and institute actions that will improve the lives, as rapidly as possible, of those members of our nation who are poor, unemployed and face a future that appears to be without any apparent hope of improvement. However, their plight should not be used as an excuse to tamper with the Constitution and the rule of law in South Africa. There are alternative and vastly superior and non-destructive policies that can be instituted to assist the poor.
In making policy decisions, good governance demands that government should examine all aspects of the impact of its actions on the broader society. In considering whether nationalisation of the mines will have positive or negative consequences for citizens, government should weigh up both short and long term consequences.
Negative consequences of interventionist policy proposals
Short-term consequences of proposals such as the nationalisation of the mines include the paralysing effect they have on the sector of the economy concerned. For example, the period between the first mention of nationalisation of mineral rights and the point when the legislation, regulations and departmental procedures were put in place, was one of great uncertainty for mining companies. New developments were placed on hold and business planning was disrupted for a long time and, as a consequence, the entire economy suffered.
Long-term considerations should take into account the way in which changes to the country’s legal system will necessarily affect the future functioning of not only the sector concerned, but also the entire economy. When proposals to change a country’s constitution are contemplated, to make possible a currently unconstitutional government action, it is not a matter of dire concern to the affected economic sector only, but to the entire nation. Constitutions are adopted in an attempt to protect citizens from ill-considered government actions motivated by short-term political initiatives. History has shown that if citizens are not protected by sound constitutions and legal systems, they all too easily become the victims of populist tyrannies.
Regulatory Uncertainty
When a radical idea is thrown into the political arena, a short-term consequence is massive uncertainty. Loose talk by a junior politician can cause much uncertainty if the government fails to quash the notion he is putting forward and reassure the nation. When such radical ideas go forward for serious discussion by the governing political party, the level of unease increases substantially and untold harm is done to the economy. For any economy to flourish, regulatory certainty is essential.
All industries in South Africa are attempting to overcome the effects of a worldwide recession. Mining companies have already endured a trying minerals nationalisation episode, and now, after a brief interval of being able to operate under moderately improved conditions, face a renewed threat and are once again hampered by a suffocating pall of uncertainty.
Government owes its citizens good governance, which includes the creation and maintenance of a regulatory and policy environment that is conducive to sound business decision-making. The nation depends on its business firms to utilise resources efficiently, make profits with which to expand their operations, employ increasing numbers of people to absorb the millions that are unemployed, and be the major source of the taxes utilised in governing the country. The nation therefore deserves to be given a stable environment that is marked by regulatory certainty in which its firms can flourish and provide the jobs, goods, and services the people expect of them.
AUTHOR Eustace Davie is a director of the Free Market Foundation. This article, which is an edited excerpt from the book Nationalisation, published by the Foundation, may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.
FMF Feature Article / 25 October 2011