Let's all try hard to look on the regulatory bright side

Are South Africans over-regulated? It surely depends on who you ask, and about what. What about trade and industry? No, let's first take our labour laws - preferably far away!

The UN Economic Commission for Africa correlates our excessive labour legislation with our 30%-plus unemployment and "below potential" 2-3% annual growth, blaming "severe over-regulation of the labour market". Yet only last month Labour Minister Membathisi Mdladlana launched a code of conduct, usable in court to apply the Employment Equity Act, which increases the protection of disabled people in the workplace. He also announced a minimum wage for domestic workers, and will shortly reveal a similar sectoral determination for farm workers. He will "stop at nothing to improve the lot of vulnerable workers", but claims that his department tries hard to make its labour legislation as flexible as possible.

The minister finds support from the International Labour Organisation, whose Juan Somavia reckons our labour market already has a flexibility component in the form of high unemployment levels. What can this mean? Maybe that oversupply – the mighty armies of the unemployed – will bring down wage levels? But how can they? Our labour laws make working conditions a one-way ratchet, guaranteeing ever-rising formal unemployment. Example – last month's amendments of the Labour Relations Act and the Basic Conditions of Employment Act bind the new employer (when a business changes hands) by the old collective agreements and arbitration awards. Of course he can change employment terms and conditions, but only for the better (for the worker).

So, naturally, unionised and employed workers deny the over-regulation that employers and the unemployed complain about. But can we be more objective? Well, the Fraser Institute's 2002 Economic Freedom of the World ratings of Labour Market Regulation put South Africa 29th among 74 countries which the World Economic Forum rated in its Global Competitiveness Report 2000. We got an aggregate 5.5 out of maximum 10 (Hong Kong was best at 7.7, and Germany was worst at 2.9). Our score was pulled down badly by employers' inability (growing by the month) to "hire and fire" like Hong Kong. Absence of military conscription pulled our score up, but "conscription" is progressively re-emerging in peacetime guise – as community service for various kinds of graduating health professionals and (coming soon) teachers.

So what about industry? Sacob's Kevin Wakeford views the state as a burden to economic activity because of over-regulation. He would prefer a minimalist state. What's that? Well that's libertarian jargon for a state that provides nothing but policing, courts of justice and external defence with its (massively reduced) tax take. But Wakeford probably only means more state disengagement from the economy through privatisation, and by deregulation of business.

A 10-country study by London-based Bannock Consulting identified obstacles to enterprise, and overly bureaucratic legislative frameworks, as problematic for sustained growth – then went on to assert that it is not enough to simply advocate deregulation. "The issue is more about appropriate regulation. Under-regulation can be just as problematic." How do they know? What country is under-regulated? But it may hypothetically be so, in some utopian vanishing state with competitive private courts and policing. It depends on one's views about unconstrained human nature, self-regulation, and what sort of "spontaneous order" might emerge in the absence of government regulation.

But utopian dreams are for galaxies far away from our current problems and needs. Around here, the global evidence merely says smaller government and more individual economic freedom gets you greater growth and prosperity. It's the way to go.

And if you listen with selective optimism, government agrees. In July, minerals and energy minister Phumzile Mlambo-Ngucka guaranteed in parliament that the mining bill would not expropriate and nationalise minerals without compensation. This month, trade and industry minister Alec Erwin said government has no wish to intervene in the likes of the advertising industry where a voluntary self-regulatory body is already in place – "we, as government, don't want to legislate heavily, but if you mess up, we'll have to." Self-regulation may work, but he sees government as responsibly championing consumers, social consciousness, the environment, tolerance and transparency.

Aye, Hamlet, there's the rub. Fine words on economic freedom and growth, but politicians will legislate, won't they! Their well-meaning one-way regulatory ratchet leads us down the road to the maximalist over-regulated state instead. Market mess-ups like Masterbond and Enron lead to the FAIS Bill to over-regulate financial advisors, and (God forbid) legislating King-2 corporate governance. Government mess-ups like inadequate policing lead to the over-invasive Firearms Control Act and Explosives Bill.

We need a reverse gear. We – the market, someone, anyone – should deregulate government mess-ups and leave voluntary self-regulation to respond to customer needs. Trouble is – government departments, unions, NGOs, and producers can mount concentrated lobbying for new government interventions. Whereas the "will of the people" in our Constitution's preamble – those dispersed millions of consumer-voters – rarely coalesce to lobby effectively for less government intervention or lower taxes. It's like the downward-inflexibility of wages. Regulations always seem to increase, never decrease.

Is there a bright side? Yes, if you look hard. Example – minister Erwin's Board of Tariffs and Trade, which habitually privileges local producers with protective import taxes on their foreign competitors' goods. Only this month, local manufacturers of valves and high-voltage industrial engines lobbied the BoTT, and on past record it will obligingly raise duties – or, really, sales taxes on imports, providing affirmative action for globally uncompetitive local producers, who will linger longer, no doubt proudly South African. In the process they will make local consumers poorer and less able to buy other things with their money.

But the same Board, apparently off its own bat without consumer (or foreign producer) lobbying, has suddenly announced that it will review taxes on imported booze, and duties may fall substantially. Now we're talking! Most consumers will contemplate overpriced valves and industrial engines with equanimity, though we shouldn’t (ask not for whom the protectionist bell tolls). But cheaper liquor! Suddenly that makes minister Erwin everybody's pal. Let's drink to that and hope for better days!

Author: Dr Jim Harris is a researcher and freelance journalist. 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\17 September 2002