The case for real economic freedom - News24

19 October 2018 - Perhaps it is time to recognise that a properly understood commitment to economic freedom is no less crucial to South Africa’s future than an assault on civil liberties or democracy.


Terence Corrigan

"Economic freedom" is an idea that has been central to South Africa’s political debate for at least a decade, yet, paradoxically, what it means – or should mean – is imprecise and nebulous. 

The implications should be clearly understood.

As political rhetoric, "economic freedom" has become associated with the hard left. "Economic freedom in our lifetime" attracted attention when deployed by the ANC Youth League a decade ago. It was then appropriated in the very name of the party formed from the Youth League’s erstwhile leadership – the EFF.

This brand of economic freedom is built on nationalising the mines, expropriation without compensation, and state "custodianship" of the land. This is economic freedom as an ideological outcome – an endpoint in which freedom is decreed through government action. State discretion to seize and redistribute property will supposedly enable it to maximise developmental potential and eliminate want and poverty.

There is an irony in this approach. It passionately invokes economic freedom as a condition, but is ambivalent about its exercise. Inherent in this approach is that political power will maintain strict discipline over economic activity. Economic freedom is the gift of state.

It is no surprise that private initiative is seen – at best – as a necessary evil. Its ultimate extinction, as a socialist and then communist society comes to fruition, would be no cause for regret. This is a perspective that sees economic freedom as impossible under a capitalist system.

A different approach sees economic freedom not just as an outcome, but as a means of operation. The latter is no less important than the former. Engaging in economic activity and making choices about one’s material wellbeing is a pragmatic as well as a normative issue.

Here, economic freedom is rooted in personal and societal liberty. This perspective sees the freedom to undertake economic activity as an indivisible aspect of a free society. The rewards that accrue to private people and institutions are an incentive to efficiency, innovation, deferred consumption and growth. The elements of a free economy – such as private property rights – make political freedom possible by denying the state a monopoly on the means of livelihoods. 

In so doing, it holds the potential to empower individuals; it is an underwriter of democratic citizenship. True, this is not always the case, and a breed of contemporary politicians have striven to fuse economic freedoms with political authoritarianism, a process perhaps most advanced in China. Yet, ultimately, free economies are compatible with political freedom in a manner that outcomes-based collectivist approaches cannot be.

And while economists debate the role of the state in economies, the evidence is clear that the market and a strong private sector is the bedrock of prosperity. 

Prof William Easterly, an eminent economist and commentator on developmental matters, has remarked that in Africa, the best hope for progress lies in using markets and the dogged entrepreneurial culture of its people, rather than attempting to direct growth through states that typically lack the means to do so. 

As he wrote a few years ago: "Economists involved in Africa then and now undervalued free markets, instead coming up with one of the worst ideas ever: state direction by the states least able to direct. The free market is no overnight panacea; it is just the gradual engine that ends poverty. African entrepreneurs have shown what they are capable of. They have, for example, launched the world’s fastest growing cell phone industry to replace the moribund state landlines. What a tragedy, therefore, that aid agencies have foisted the poorest economics of the world on the poorest people in the world for 50 years. The hopeful sign is that many independent Africans themselves are increasingly learning the economics of how to get rich, rather than of how to stay poor."

Which of these two understandings of economic freedom South Africa will choose is open to question. But a recent publication by the Canadian Fraser Institute, The Economic Freedom of the World, helps to provide an indication. 

Viewing economic freedom from the perspective of liberty, it analyses countries across five areas: size of government; legal system and property rights; sound money; freedom to trade internationally; and regulation. The latest report dealt with data from 2016.

It makes for fascinating reading. In some areas – such as monetary policy and some aspects of regulation – South Africa exhibits pockets of excellence. But in too many others, such as the size of government and, concerningly, the state of the legal system and property rights, it is rated indifferently to poorly. The evaluation of some parts of the regulatory system – such as bureaucracy costs and administrative requirements governing business as well as "extra payments/bribes/favouritism" – are dismal indeed.

What stands out in the report is the gradual decline. South Africa’s score out of a total score of ten (with higher scores denoting greater degrees of freedom) for 2000 was 7.04, for 2005, it was 6.97, for 2010, 7.10. By 2015, it had declined to 6.84. For 2016, its overall ranking was a mediocre 6.65. 

It is well to note that these numbers do not take into account recent developments, such as the government’s stated goal of pursuing expropriation without compensation, and its commitment to maintaining the current state payroll.

Economic freedom, economic liberty, is in slow decline in South Africa. The country was placed 94th of the 162 countries evaluated. Venezuela – a country once held up as a veritable paragon of the statist notion of economic freedom – occupied the last position. It is towards this statist "freedom" that many in authority seem determined to push South Africa. The danger is clear.

Perhaps it is time to recognise that a properly understood commitment to economic freedom is no less crucial to South Africa’s future than an assault on civil liberties or democracy.

- Terence Corrigan is a project manager at the Institute of Race Relations. Readers are invited to join the Institute of Race Relations sending an SMS to 32823 (SMSes cost R1, Ts and Cs apply).