All economic plans fail

Martin van Staden / Midjourney
Martin van Staden / Midjourney

This article was first published by City Press on 11 June 2024

As South Africa emerges from the recent general elections, it is crucial to remember that our collective problems as a country are not caused by personalities, but rather by policies. With a majority of the electorate voting for state interventionist policies, it is important to evaluate the impact of the policies we have in place.

First, let’s dispel the myth that South Africa is a haven of free market ideals, or a neo-Liberal paradise – as some opponents of individual liberty may claim. This misconception may stem from the Growth, Employment, and Redistribution Policy (GEAR) implemented during Mr Thabo Mbeki’s presidency.

GEAR followed the Reconstruction and Development Program (RDP), the first policy document of the ANC after it came into power in 1994. Critics of GEAR initially portrayed it as a capitalist utopia and a nightmare for workers, but in reality it maintained interventionist approaches, from grants to the elusive ‘universal healthcare.’

While GEAR did shift towards private sector-led growth and address economic truths about the sustainability of social welfare spending in a low-growth environment, it still advocated for state control over individuals’ lives.

Subsequent policies like the Accelerated and Shared Growth Initiative for South Africa (ASGISA) continued the trend of relying on taxing the rich to support the poor, a common theme in South African policies. The National Development Plan and the Economic Reconstruction and Recovery Plan further reinforced the idea of state intervention in economic development.

The underlying thread in South African policies, as noted by economist Deepak Lal, is the ‘poverty of development economics’. This belief suggests that states need significant public spending to drive economic growth and eliminate poverty, even though states rely on private citizens’ taxes to function.

The state’s involvement in the economy often leads to deficits and debt, funded by current or future taxpayers. This is the case when a state’s revenue is outstripped by its spending obligations. Since development economics centers state intervention especially in poor countries that have a small tax base and thus limited revenue, it always leads to spending outstripping revenue, and necessitating borrowing of some kind.

This reliance on borrowing to finance spending, driven by political ambitions rather than revenue, can have long-term consequences for the country’s financial stability. In South Africa our debt servicing costs are expected to be 21% of our revenue by the financial year of 2026/2027, at a staggering R440 Billion. If the South African state was not indebted, that is money that could be spent domestically instead of it going to the pockets of international bankers.

For the expected retort that the revenue would not have been generated had it not been for the developmental efforts of the state in creating the opportunities – or in this case, outright creating the economic activity itself – I would suggest a thinking about the nature and role of the state. Individuals can and do generate wealth, outside of the state, whereas the state has no way to generate any wealth, without at the initial setting, having to tax someone, who, already has wealth they created obviously without taxing another person.

Past policies like the New Growth Path and the National Development Plan failed to meet their ambitious targets, highlighting the inefficacy of state-led development strategies. As we continue down this path of state control, it is essential to recognise that no single plan can dictate the lives of an entire population.

If there is any fundamental lesson that we must learn from the failed plans of the past is that individuals cannot be dictated to – no matter how well meaning the dictator is. The best way to create prosperity, is by simply allowing people to pursue it (prosperity) however they deem fit without violating the rights of one another. There is no master plan that will be the solution for each and every individual’s economic aspirations; liberty is the only answer.

There will be new plans released in the coming days and weeks; new policies and master plans. If any of these policies still operate under the presumption that the lives of millions of individuals can be planned out and that the state needs to spend more than it can raise in revenue to drive growth, then they will fail.

Until we acknowledge the limitations of state intervention and the importance of individual autonomy, we will remain trapped in a cycle of failed policies and economic struggles – marching down the road to serfdom.


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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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