SA experiments with socialism at its own peril, as others stop

It appears that the embers of economic freedom in South America will receive much-needed oxygen over coming months and years. They could serve to light the way for other countries around the world who are dabbling in dangerous and immoral statist policies, such as South Africa. The Economist recently noted that both the Cuban and Venezuelan governments are adopting free market policies "to rescue their moribund economies."

In the 2020 edition of the Fraser Institute's Economic Freedom of the World (EFW) report, Venezuela was ranked 162^nd out of 162 countries and jurisdictions measured. Cuba was not ranked. South Africa was ranked 90^th, after a high of 58^th in 2000. Do not attribute South Africa's 11 million+ unemployed only to the COVID-19 lockdown – the steady whittling away of economic freedom for decades if not centuries, and the growth of the state into every aspect of our lives, has fundamentally weakened the economy.

The economic and social situation in Venezuela is dire. As of December 2020, 5 million citizens had left their country to find a better life elsewhere. The country is racked by hyperinflation (money does not go as far as it used to, and people cannot afford to pay for even basic foodstuffs when these are occasionally available), shortages of medicine, and constant power cuts. Opposition politicians are prohibited from standing for office. When economic freedoms are stripped away, political rights soon follow. The grand socialist revolution that started with the nationalisation of the petroleum sector has brought the country to its knees. Now, it appears that the government wants to reverse course, starting with moving state assets to private sector management.

Back in South Africa, along with the proposed amendment to section 25 of the Constitution to allow for the expropriation of property without compensation (EWC), and the aim to monopolise the management of healthcare services and goods in the hands of the state through the National Health Insurance (NHI), we should also take into consideration the ever-growing government debt-to-GDP ratio. This ratio will probably exceed 100% within the next two years.

The ideas and policies that governments implement can have either positive or devastating effects on people's lives. That Venezuela and Cuba, ideologically-committed socialist governments, are questioning – and hopefully, reforming (even if only slightly) – their policies, should serve as a crucial lesson for all other governments and advocates around the world who want their own countries to follow the socialist route. The greater the extent to which one destroys economic freedoms and civil liberties – and increases the power of the state over people's lives – the worse off people will be.

The policies that a given government implements are informed by the ideological worldview of those holding the levers of power. If one believes that the state should be central to people's lives – and that only the state can improve people's quality of life – one will push for policies that, on average, increase government power and control. On the other hand, if one believes that individual rights, economic and civil liberties are the best path to prosperity, one will advocate for fewer controls and a greater focus on the agency of individuals and communities.

The more government power is increased, the more one sees strife between competing interests groups. In this scenario, wealth is static, and only those with the requisite political connections can prosper. A smaller and smaller elite are allowed to partake in the ever-shrinking wealth pie – any chance for ordinary people to create wealth for themselves is wiped out.

To paraphrase Ayn Rand, you are free to ignore reality, free to wish that policies that have failed every time they have been tried will be different this time. But you cannot avoid the consequences of treading such a path. And, more often than not, poorer citizens are forced to bear the ever-lowered quality of life, while those with connections can still travel and enjoy the fruits of more open economies.

Those nations that occupy the top quartile of the latest EFW report had an average per-capita GDP of just over R650,000, compared to R84,800 for nations in the bottom quartile. The average income of the poorest 10% of citizens was over R181,000 in the top quartile of nations, compared to R22,900 in nations occupying the bottom quartile. Increased economic freedom is most beneficial for citizens in lower- and middle-income rungs, as it both ensures greater capital formation and investment – creating more jobs – and ensuring there is greater competition that lowers the prices of goods and improves the quality of services. In a phrase: capitalism is best for the poor.

The longer it takes for South Africa to understand and implement truly radical, transformative policies – not those that increase government power and spending, but rather those underpinned by economic freedom – the higher unemployment will be, poverty and hunger will spread, and progress will be non-existent.

Only time will whether the Venezuelan and Cuban government are serious about implementing serious, pro-economic freedom reforms. Anyone who values human dignity and agency can only hope this proves to be the case. That these regimes that are committed to the false promises of socialism are now even questioning that ideology – and realising what happens when civil and economic freedoms are suppressed – should serve as a lesson to other governments around the world, particularly South Africa's, who are now implementing policies that will lead them down exactly the same destructive path.

This article was first published on City Press on 23 February 2021.

Chris Hattingh

Chris Hattingh is Deputy Director at the Free Market Foundation. He sits on the Foundation's Executive Committee and Health Policy Unit. He is a member of the advisory council of the Initiative for African Trade and Prosperity, as well as a Senior Fellow at African Liberty.

Publish date: 03 March 2021
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Chris Hattingh, Venezuela, socialism, Economic freedom / Growth

The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. This article may be republished without prior consent but with acknowledgement to the author.

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