High economic growth is a matter of choice not chance or destiny

Liberty is the most important human right. This is borne out by the universal phenomenon that over the ages, people irrespective of their nationalities, race or cultures, have always migrated from countries under oppressive regimes to countries where they can enjoy freedom. It is not surprising therefore that the freest countries attract the greatest numbers of refugees. In SA we see this unfolding. Freedom gives meaning to human existence; it is what we all yearned for when we were under the yoke of apartheid. We wanted true liberty, not only civil liberty but economic liberty as well.

Abolition of apartheid increased SA’s economic freedom and we moved up the Economic Freedom of the World Report rankings to 37th in the world. After 30 years of real per capita incomes that shrank instead of growing – shrinking at an average rate of one per cent per annum over three decades – they once again started growing. This growth was to be expected; the repeal of the initiative-draining racially biased laws was equivalent to feeding the economy growth hormones.

Suddenly for everyone the barriers to advancement had been lifted. The shackles were off and we were free to do anything we liked. The days of entering through the back door and ‘Slegs vir Blankes’ (whites only) signs could be forgotten. The civil liberties that freed us from having to skulk around and constantly look over our shoulders were important, but it was the increased economic freedom that got the economy moving.

A pool of 44 million people could now fill positions that had previously been reserved for 5 million. The sky was the limit for every child born in our free country. Of course we would prosper! How could we not if every person in the country could put her or his talents to the best possible use?

Sadly, it was not to be – our economic freedom rating has started sliding backwards. Today, while the world generally is gaining in economic freedom, SA is saying, ‘Stop the world, we want to get off!’

We hear talk of nationalisation of steel mills and fuel production. Don’t the collectivists know that having public enterprises run businesses is bad for both consumers and workers? Because these state industries are incapable of competing on a level playing field, their political nannies protect them; they prohibit privately owned companies from competing with them, and constantly feed them with extra taxpayer cash even when there is no economic justification for doing so. The result is high prices, poor service, excessive taxes, and constant anxiety for workers.

Collectivists say state industries belong to the people but they refuse to hand over the industries to their ‘owners’. Members of our Foundation have long contended that giving ownership of the public enterprises to the poorest people in the country would represent real BBBEE. We suggested a ‘democracy dividend’ consisting of shares in the public enterprises, and more recently, transferring ownership of hospitals and clinics to the people that work in them, and where appropriate, to the members of the surrounding communities. Utilising the vast assets accumulated by the pre-democracy governments to remedy past wrongs is surely the best way to carry out empowerment without continuing to harm the economy for decades to come.

In the 2006 Economic Freedom of the World Report SA slipped back 16 places in the ranking to 53rd. Countries that have increased their economic freedom ratings substantially are Cyprus, France, Georgia, India, Israel, Italy, Latvia, Malta, Poland, and the Slovak Republic.

There are two major reasons why South Africans should be concerned that we are achieving poorer ratings and slipping down the economic freedom rankings. The first is that all the measures of human welfare show that the citizens of economically freer countries are better off than those in less free countries. Incomes are higher, economic growth is higher, there is less unemployment, life expectancy is greater, infant mortality is lower, there is less corruption, and the people have greater political rights and civil liberties. The second is that freer economies attract more investment capital, which is what we need to increase economic growth and improve the incomes of the poorest members of our society.

Collectivist claims that the ‘working class’ is better off in command economies with high levels of government ownership and control of economic activity are wrong; the truth is just the opposite as the figures clearly show. All anyone has to do is to visit the top ten free economies: Hong Kong, Singapore, New Zealand, Switzerland, US, Ireland, UK, Canada, Iceland and Luxembourg, to understand why they are more desirable places to live and work in than the bottom ten countries in the rankings: Zimbabwe, Myanmar, Republic of Congo, DRC, Venezuela, Guinea-Bissau, Algeria, Burundi, Rwanda, and the Central African Republic.

Free economies do not come about by chance. They are the result of the conscious creation of a business environment that is conducive to a high level of entrepreneurial activity and that has a minimum of bureaucratic red tape. The key ingredients of economic freedom are: personal choice, voluntary exchange co-ordinated by markets, freedom to enter and compete in markets, and protection of persons and their property from aggression by others.

The most important practical steps the SA government can take to substantially improve our level of economic freedom are: reduce government involvement in the economy by disposing of public enterprises; simplify and reduce taxes; stop the excessive increase in the money supply; visibly reduce the crime rate; abolish exchange controls; remove the legislative measures that are causing high unemployment; abolish all price controls; further reduce tariff barriers, and increase the ease of doing business by substantially reducing the burden of regulation.

Carrying out these reforms will make SA one of the freest economies in the world. It will also give us one of the highest growth rates. Government is free to choose – wealth-creation and peace through increased economic freedom is a simple matter of adopting policies that have proved to be highly effective wherever they have been implemented.

Author: Temba A Nolutshungu is a Director of the Free Market Foundation. This article 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 / 24 July 2007 - Policy Bulletin / 02 February 2010