Nationalisation is Not the Path to Justice for All

For the first 19 years of its existence, the Free Market Foundation (FMF) argued, cajoled and pleaded for the total dismantling of the apartheid system and the establishment of true democracy in South Africa, with universal suffrage and a constitution that would highlight the principle of limited government, so as to protect the people from ever again being the victims of the pernicious policies of arbitrary government, such as the discriminatory laws that deprived people of their rights because of the colour of their skins.

It is consequently with great sadness that we find ourselves addressing a proposal to nationalise the mines, a proposal which invokes racialism and calls for some of the most important aspects of the Constitution to be tampered with in pursuit of an economically unsound political objective. South Africans are fundamentally sensible people and we are convinced that good sense will prevail

The FMF is committed to contesting the doctrines held by those who propose nationalisation in SA. While we focus upon the debate surrounding nationalisation in SA itself, the arguments the FMF presents have a global relevance and resonance and are backed up by sound historical and empirical evidence that brings into question the morality of the underlying doctrines, as well as their practicality.

We have to ask ourselves how this proposed law, regulation or policy is likely to affect the ordinary people of our country, especially the young, old, poor, unemployed, or otherwise vulnerable. In the FMF, the question of justice for all is always at the back of our minds, whatever issue we may be trying to address. We believe that no measure, no matter how well-intentioned, can be good for the nation in general if it threatens to bring about negative consequences in the longer term for the vulnerable members of society.

Proposed policies, whatever they are, have to be very carefully considered because, as Nationalisation, our recently published study reveals, the long-term negative consequences of a proposed law, regulation or policy are not always immediately apparent and are very difficult to reverse. There is a perpetual struggle between imposed ideology and the spontaneous order of free markets and economic freedom.

In Nationalisation, FMF Executive Director, Leon Louw interrogates the reasons why the ANC Youth League (ANCYL) wants to nationalise mines and other businesses and carries out a thorough and objective analysis of the Freedom Charter and its intentions; an examination not only of the wording of the Charter itself, but also the comments and explanations of the senior members of the ANC who were involved in its drafting.

Louw’s conclusions are surprising and, some might believe, controversial. His unprecedented, rational and dispassionate evaluation will perhaps encourage those who maintain that the Freedom Charter is sacrosanct and therefore should not be subjected to rigorous scrutiny, to revisit the logic and importance of intellectual discourse and its contribution to the intellectual nourishment of society at large.

US-based Professor Richard Grant discusses why privatisation appears to be the most likely eventual outcome of nationalisation, and why so many countries have privatised their state-owned enterprises. The idea of nationalising natural resource industries, he suggests, appears attractive because of an illusion that minerals are just lying around waiting to be picked up, which ignores the demanding and costly processes required to extract, process and market resources, and the specialised skills required in every aspect of the industry. But why is it that as state ownership expands, efficiency throughout the economy decreases?

Alternative policies can be utilised to address poverty and unemployment. True empowerment, FMF director Eustace Davie argues, could be achieved by transferring the accumulated state-owned assets, such as public enterprises and state-owned housing and land, to the people at no cost. Hernando de Soto described state-owned assets as “dead capital”. Turning the assets into “live capital” in the hands of people would alleviate poverty and empower the people in both urban and rural areas. “Denationalising people” can empower the long-term unemployed by giving them the legal right to contract feely with employers of their choice in a manner that will not threaten the job security of the already employed.

According to economist, Jasson Urbach, many of the problems only become glaringly obvious when state-owned enterprises are privatised, as happened when the UK privatised its state enterprises, starting in 1979. Former state monopoly industries complained that they suffered from political interference and were denied much-needed capital. Their managers did not have proper management authority and their workforces were demotivated. Industrial relations were politicised and the industries provided poor services and charged excessive prices to the public. UK privatisation solved many of these problems, principally by introducing competition to improve access to capital and improve service to customers.

Zambia, Venezuela, Bolivia, the Democratic Republic of the Congo, Chile and Ghana all had negative results from nationalisation, while the public-private mining partnership in Botswana reveals that even this seemingly sound arrangement has led to excessive government spending.

Economist Vivian Atud has found that black South Africans have made significant progress since 1994. Freed from the strictures of apartheid, blacks have made progress in most aspects of the economy. They now dominate the public service, comprising 70 per cent of the public workforce compared to 42 per cent in 1994. Though institutions such as pension and retirement funds, unit trusts, and investment companies are owned by a diversity of races, her analysis shows that black ownership has advanced significantly, as it has in residential housing. Blacks own, directly and indirectly, a substantial share of mining companies, which they would lose if all the mines were to be nationalised.

An increase in the extent to which government takes control of economic resources, whether through taxation or nationalisation, reduces consumer sovereignty. Researchers are constantly discovering new correlations between economic freedom and human welfare. The Economic Freedom of the World: 2010 Annual Report, for instance, describes research which reveals that unemployment can be reduced by increasing economic freedom, and that increased economic freedom results in fewer homicides while reduced economic freedom leads to more. In other words, there is a correlation between economic freedom and overall socio-economic progress in terms of all aspects of human development.

Nationalisation does not only analyse and evaluate the issue of nationalisation but also propounds very credible and pragmatic alternatives which, if implemented, would allow the spirit of enterprise to explode and create a rising tide of economic opportunities. The display of courage required to implement some or all of the proposed policies will reveal the difference between the statesman of vision and the short-sighted politician.

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/ 12 July 2011 & Policy Bulletin / 01 November 2011