Government would achieve so much more by doing less

Next month Cabinet will plan concrete action about rising food prices. It's not just about what the urban poor spend on basic foods. The big picture is about growth and poverty.

South African GDP has grown about 3% annually since 1994. GEAR's envisaged 6% growth rate would have made us 25% better off by now. With 10% growth we'd have been 70% better off. Such growth naturally depends on much greater economic freedom.

For what gain did we "lose" that fast growth? Well, a popular government in pursuit of various desired transformations has righted many wrongs. And doubtless a democratic majority will re-elect the ANC. Good - but good enough?

Government has failed to meet at least one primary obligation: preventing crime. Meanwhile the Constitutional Court keeps clarifying our new secondary rights - affordable or not - to health, housing, services and employment. Yet, in the absence of credible external threats, Cabinet prioritised defence spending rather than tackling the HIV/Aids pandemic. Growing regulatory damage negates benefits of half-hearted privatisation. New labour rules keep boosting structural unemployment. Old charterist goals to nationalise mines, banks, land and industry re-emerge in legislation, seemingly designed to deter foreign investors. We have lost our way.

As the food price story amply demonstrates, too many lobbies urge Cabinet to do the wrong thing. Local farmers don't want the removal of import tariffs that shield them from competition. Grain SA CEO Steve Shone claims (as he would!) that this would only enrich foreign farmers and force our farmers out of production forever - he'd prefer a state subsidy system with food coupons, and a feeding scheme. The food price task team of the Nedlac 'rusty triangle' bargaining council will also be discussing the problem - its management committee thinks school feeding schemes are a good way to tackle the problem in the short term.

Fortunately for the rest of us, Cabinet has already said it will not "meet short-term emergencies with short-term reactions" or introduce market-distorting subsidies or price controls. But it has asked the Competition Commission to investigate the entire supply chain for price collusion by traders. There's the usual assumption of 'market failure', so much harder to define than 'government failure'. Why can't we point the Competition Commission at legislated government monopolies? By impeding industry just like our obscene panoply of labour laws, the competition authorities do much more harm than good. Scrapping them would boost competition and growth.

Cabinet also contemplates setting up food stockpiles when prices are low, for release when prices are high. When private firms like garages do that, cries arise of 'hoarding', 'gouging' and 'price collusion'. Can government do that in 'the public interest'? Recall the losses and corruption of the Saldanha oil stockpile, and the neglect and burning of the Somerset West sulphur stockpile. Why expect government competence at stockpiling food?

Preventing competition is the mission of the Board for imposing (sic) Tariffs against (sic) Trade. BoTT call imports 'dumping' and stops consumers buying them cheap. Its formula-based wheat and maize tariffs just took months to fall, thanks to a typical 'transmission mechanism' from the Chamber of Milling to BoTT, then DTI Minister Erwin, then SARS, then Treasury, then the Government Gazette. Rather than tinkering with such a ludicrous process, government should clearly scrap all import tariffs and BoTT itself.

We already have a free market in agriculture and, if we're really lucky, Cabinet will scrap all import tariffs on food and agricultural inputs. Food prices are not the real problem. The real problem is our pedestrian growth rate. We are walking when we ought to be running.

Government can do nothing to boost growth, because it is government that retards growth. Whatever active measure it takes - whether building infrastructure or financing training or regulating business - it must first tax away potential growth. Then at best it may partially undo the damage. At worst it uses the money to do further damage. So government has to do less.

Clearly no two people will agree about what government should stop doing first. But that is not the point. With an overriding goal of annual GDP growth of at least 6-8%, Cabinet could simply keep doing less until it succeeds. How it proceeds would be interesting to us all, but only in the 'fiscal tinkering' sense that some of us will feel the effects sooner or more than others.

At core it is how much of our money government takes for its own (mis)use. Like with inflation targeting, Cabinet could set itself an initial goal of taking less than 20% of GDP by 2003 year-end. The Finance Department could help as each surviving ministry makes the required cuts. Wholesale privatisation would raise revenues and reduce costs. Scrapping departments and repealing bad laws would further reduce costs and liberate the private sector from unwanted interference.

But lists of the parts of economic freedom are ten-a-penny, and there's no need to be prescriptive. That's what we've delegated government to implement. Voters did not ask explicitly to get wealthier but it's their evident preference, as your own introspection confirms. And wealthier voters can afford more food. They may also become less disenchanted with government bungling.

Author: Dr Jim Harris is a freelance researcher and writer. This article may be reproduced without prior consent but with acknowledgement to the author. The patrons, council and members of the Foundation do not necessarily agree with the views expressed by the author.

FMF Article of the Week\8 October 2002 - Policy Bulletin / 04 August 2009