South Africa is buckling under excessive regulation

Of all the obvious things about regulation, that we are over-regulated is the most obvious. Not only is most of the regulatory residue of the control-obsessed apartheid regime still with us but we’ve added 1000 new acts since 1994, along with hundreds if not thousands of provincial laws and municipal by-laws, and countless regulations (perversely called “subordinate legislation”). There are so many new laws, they are so complicated and counter-intuitive, and so few people know what’s in them, that there is an entire new profession called “compliance officers” whose sole job is to help companies comply with the deluge of new laws. Hundreds of millions of rands of additional costs are passed on to consumers as these new professionals help victimised companies avoid prosecution and damages actions for non-compliance.

Many of our laws are formulated by sending swarms of civil servants on costly missions to the world’s most advanced countries, not to ask what they did to develop and prosper but to mimic their post-development regulatory excesses. Our regulators often compound matters by embellishing First World regulations, thus rendering them maximally unsuitable for our development needs.

Our company laws, for instance, have become a nightmare of complex regulation, one effect of which is that “private” companies are no longer private and investors in public companies are lulled into thinking risk-taking isn’t risky. Registering a new company in Canada takes 2 procedures, 2 days and costs the equivalent of 1.5% of per capita GDP, compared with 7 procedures, 30 days and 37% of per capita GDP in South Africa. The Economic Freedom of the World Index shows most economies getting freer, including ours, but a frightening growth in regulation, especially since 9/11. The general regulation index for South Africa deteriorated from 6.6 to 5.4 (where 10 is free and 0 unfree) from 2000 to 2002. Regulation of new business plummeted from 6.9 to a stifling 3.3, and time spent with bureaucracy deteriorated from 6.5 to 5.3.

Mercifully, it’s not all bad news. The ANC got off to a good start by deregulating agriculture, privatising or liquidating control boards, and ending subsidies, to give us the world’s freest market in agriculture. Road freight and airlines were deregulated. Land development and tenure upgrade were streamlined. Low-income housing was liberalised and out-sourced. Most profoundly, GEAR and NEPAD were adopted, committing the country to the rule of law, property rights and a market economy.

COSATU says GEAR should be abandoned because it failed to deliver jobs and growth. In truth, the government failed to implement it purposefully. It allowed bureaucracy to run amok. If we are to go from neutral to first and eventually to top GEAR, and get off our NEPAD knees, government will have to walk its talk. It must reverse the tidal wave of regulatory excess. It resolutely withstood resistance from its alliance partners on the fundamentals of its policies but unless it now implements them, its valiant stand on principle will have been futile.

The case for the tidal wave of new laws does not stand up to scrutiny. Ask the Financial Services Board (FSB) why it introduced the Financial Advisory and Intermediary Services Act (FAIS), and they say: “Because financial services were unregulated”. Why do we have the taxi tax-and-spend “recapitalisation plan”? Well, “Because the industry is unregulated”. The supposed need for regulation is parroted as if its mere absence constitutes an obvious need for it.

The first thing to understand is that everything significant has been regulated for centuries – by common law. And there are thousands of additional laws governing everything under the sun. Without adding FAIS, there are banking and lending laws, fraud and contract laws, insurance and disclosure laws, and much more. Without the taxi recap, there are vehicle licensing and roadworthy laws, road traffic and public liability laws, drivers’ licence and contract laws and much more.

Even so, whilst you read, your taxes are being squandered on an endless quest for more things to regulate more. But there aren’t any, so they regulate and re-regulate regulated things with an increasingly incomprehensible web of overlapping, often contradictory laws, and laws they forget about once passed. When I asked the DTI for the person responsible for the Marking of Prices on Goods Act, I was told – after much enquiry and delay – that no one there knew the law existed. When I asked the Department of Justice why their Short Process Act has never been implemented, they too could find no one who knew it existed.

Often more than one department unwittingly regulates the same activity. In their zeal for things to regulate, regulators often regulate the same thing twice or thrice, like trade coupons.

If you ask for what specific mischief new laws are supposed to curtail, you are usually told about something that is already a crime or delict, like fraud or breach of contract. If you persist, and ask what’s wrong with common law, you get the most important answer of all: it is too hard to enforce common law rights and prosecute common crimes.

Dig deep enough and you find no need for new laws, only for old ones to be enforced. In other words, you find the real problem is an inadequate justice system. The justice system turns out to be the problem. Making more laws compounds the problem because it places extra demands on a failed system.

An OECD study found that over-regulation is the major cause of EU growth being slower than USA growth. But what are the benefits of regulation? The study found “no quality benefits”. We all know that government is costly, but a 75-country study found that regulations usually cost a country twenty times more than they cost the government.

In the face of mounting anti-regulation evidence, the UK passed the Deregulation Act (now the Regulatory Impact Assessment Act), created the Better Regulation Task Force, and has adopted a new Regulatory Reform Bill. The Bill will, for instance, simplify unnecessarily complicated rules and allow partnerships of more than 20 people.

With overwhelming evidence that we and the world are over-regulated and moving the wrong way, and with our commitments to GEAR and NEPAD, it is time for a zero-based regulation policy (ZEBREP), according to which no regulation is presumed justified merely because it exists or because something is supposedly “unregulated”. All existing laws and regulations should be re-evaluated and superfluous ones should be scrapped. In addition, we should adopt measures to halt the proliferation of regulations – usually instigated by self-serving special interests – that are costly to implement, are accompanied by impoverishing compliance costs, and retard economic growth.

All resources now wasted on excess laws and regulations should be left with original owners so they can produce more wealth, while enough of the savings resulting from ZEBREB should be kept for an enhanced, expeditious and affordable court and police service. An efficient and effective justice system would be highly beneficial from numerous perspectives, not least of which would be to prevent us all from being smothered in red tape.

Author: Leon Louw is the Executive 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 Free Market Foundation.


FMF Article of the Week\6 January 2004