Ending rent-seeking and promoting entrepreneurship not a PR stunt - Rational Standard

8 November 2018 - Ramaphosa has a command of the ANC that can no longer be doubted. He can elevator us all up through genuine and urgent land reform.

Gabriel Crouse

Last week, President Cyril Ramaphosa fired Tom Moyane. Very good. But why at that moment? Ramaphosa had “lost confidence in [Moyane’s] ability to lead SARS” back in March and suspended him on the 20th of that month. Nothing stopped him from firing Moyane at the time. Our president likes an ad hoc committee, though – enter Judge Nugent – but that still does not explain it. Nugent recommended Moyane be fired two weeks ago. So why did Ramaphosa pull the trigger when he did?

Well now. The other big event was the Discovery Leadership Summit, attended by the Clintons who turn out to be the first major world leaders to call expropriation without compensation (EWC) a bad idea in public to the president’s face. (To be fair Theresa May warned against EWC, but in more aloof terms). The president managed a great PR coup, however, winning front page coverage of himself with a lip-biting Bill Clinton and adulation for firing Moyane, details buried elsewhere.

The terms of Moyane’s contract are unknown, so whether the firing makes any difference to his still getting paid every month remains one of those curious imponderables. Moyane has probably been paid for most of 2018 to do nothing, and before that to do worse than nothing, the pursuit of which is called “rent-seeking”. Ramaphosa claimed to detest rent-seeking most of all in his speech to the Clintons, but does he really?

The World Bank estimated that Eskom is 66% overstaffed and that its salaries are double the norm. Eskom is good for rent-seekers. That is just what you would expect from an artificial and poorly governed monopoly in the energy sector. But Ramaphosa’s “new dawn” minister of Public Enterprises, Pravin Gordhan, insisted on further wage increases this year and said that capital investment should be sacrificed instead.

Given the fact that all South Africans have suffered at Eskom’s overpriced lack of delivery, streamlining that rent-seekers paradise would surely count as an easy win, as Bill Clinton recommended. Here are some more “low hanging fruit” Ramaphosa could pluck.

The largest monopoly capitalist, at least by land-extent, is king Goodwill Zwelithini, with over 3 million ha in his “trust”. Annual leases are issued, effectively rents, without provision of concomitant services. Entrepreneurs are forced to develop infrastructure on land before they get the right to purchase longer-term leases. The former practice is not ubiquitous but everywhere it occurs it extracts from the very bottom of the pyramid, while the latter shrinks growth.

Expropriating this land without compensation would be both impractical and unjust. But mandating that our most divine monopoly capitalist issue only long-term leases, 99 years or 999 years, to residents should produce an easy win-win. The residential plots must be dirt cheap since market considerations like access to social amenities, work and infrastructure are negligible. Previous lease payments might justly be built into the long-term lease purchase cost, further reducing the burden on ordinary people. Added together, the king will get more money than his already untold fortune and his heretofore vassals will gain the assets needed to accumulate intergenerational wealth.

Townships drip with even lower hanging fruit. GG Alcock is a man who made his fortune by looking at township businesspeople and seeing actual business people rather than basket cases. In his latest book, Kasinomic Revolution, he makes the case that an estimated R30 billion is paid in rent by foreign nationals to South African township dwellers, especially for use of RDP houses, every year. For a sense of perspective, the spaza industry is at least 85% immigrant-operated and turns around over R100 billion per annum.

But, sadly, RDP policy has effectively turned many South Africans into extensions of government – overwhelmed by “corruption and rent-seeking” – the two things Ramaphosa said government is supposed to prevent. It is illegal for RDP dwellers to sell or rent their homes without title deeds. An estimated 5 million RDP dwellers lack title. So any businesses related to these assets, including local-to-local trade, are by definition “corrupt”.

Since it is impossible to sell these assets on the open bonded market, incentives to maintain and develop them are curbed if not totally stomped out. On the demand side – immigrants locked out of formal markets by callous regulations – there is no shopping elsewhere. The upshot is not, to most tastes, as offensive as what goes on at Eskom. A good reason to look on these informal arrangements with sympathy is that immigrant dealers deliver valuable services to townships at extremely competitive rates. Still, on the rental side of kasinomics, the inefficiencies of a distorted market obtain far too pervasively and the future threat of unmaintained collapsed RDP houses looms large.

To right this government-imposed wrong, RDP dwellers must be issued with title. Then they can keep, improve, rent, or sell without dodging the law or fair market forces. Locals would benefit hugely, and legal immigrants would be able to integrate positively by investing directly into fixed assets. The only loser would be the ANC, which would release its eternal carrot of deeds dangled in front of voters. But in any case the carrot cannot dangle forever, it will rot or be snatched.

Bill Clinton might have a chequered past but he is a true statesman. Unlike Obama, he was not afraid to draw critical attention directly towards Ramaphosa’s only major policy proposal, EWC. He gave the world to understand that Ramaphosa has painted himself into a corner by promising to punish those guilty of “original sin” and to grow the economy. The magic is that Clinton still came off as almost complementary.

Ramaphosa’s cheerleaders might think escaping the corner will just require charm too and a stroke of canny timing, vide Moyane last week. That would be a terrible mistake. Ramaphosa has a command of the ANC that can no longer be doubted. He can elevator us all up through genuine and urgent land reform.

Ending rent-seeking and promoting entrepreneurship is not a game of PR. It is a necessity for SA to crawl out of its longest downward business cycle since WWII.

Gabriel Crouse is an Associate at the Institute of Race Relations (IRR), a liberal think tank that promotes political and economic freedom. If you agree with what you have just read then click here or SMS your name to 32823 (SMSes cost R1, Ts and Cs apply).