Idiot?s Guide to Nationalisation

July 31, 2012

Free Market Foundation

Critical Debate Its important to take the nationalisation debate seriously like the debate about whether the earth is flat and rivers run uphill.

Nationalisation defined – Nationalisation is a process whereby people who dont produce wealth confiscate wealth from those who do, by buying their assets and transferring them to people who have a proven propensity to turn formerly productive assets into ones that are net wealth consumers.

Government failure – Since the inability of private enterprise to achieve sustained wealth destruction at the expense of wealth producers is called market failure, one might expect nationalised enterprises that succeed in becoming net wealth creators to be called government failure, but this phenomenon is so rare that theres no recognised term for it.

Baffling Truth – Informed people are baffled by calls for nationalisation because they know that countries with less nationalisation and greater respect for property rights (as measured by recognised indices) are more prosperous. Theyre especially baffled when nationalisers say they care about the poor yet ignore the fact that the poor are better off in countries with less nationalisation. The poor are more perspicacious than pro-nationalisation pseudo-intellectuals; they migrate in one direction only, from countries with more nationalisation to ones with less.

The Case For Nationalisation – Opponents of nationalisation dont realise that its perfectly rational for at least three reasons: (1) misinformation, (2) self-interest and (3) sado-masochism.

Misinformation – Some advocates of nationalisation are in good faith. Theyre decent people who mean well and really want to help the poor but just dont know enough about it to see through seductive shibboleths such as private enterprise places profits above people, raises prices by adding profit, and accumulates capital at the expense of labour. If youve never met such people, its because youre mixing with those who know what nationalise means and that its a bad idea.

Self-interest – Many people espouse nationalisation simply because its good for them. They expect rich rewards from the patronage, privilege, power, status or corruption. Theyre seldom disappointed because theyve seen protagonists of policies rewarded with impressive benefits from the bureaucratic empires they create, usually as high-paid CEOs.

Sado-Masochism – Since nationalisation, at least in South Africa, coincides with pain inflicted on society, people who espouse it may be masochists (those who enjoy pain), or sadists (those who like inflicting it). We have to assume everyone must realise nationalised enterprises inflict pain, after all everyone must be aware of the parlous state of nationalised education, health care, roads, corruption, policing, electricity, water, postal services, telephones, SAA, SABC and so on. What we do know is that not all victims are masochists because of recurrent protests, demonstrations, boycotts and riots against government failure.

Consumers Cause Shortages – If shortages occur in the private sector (which is rare without price control), its called market failure and the producers/suppliers are blamed. But when theres insufficient government supply, its the consumers who are blamed for supposedly consuming too much. Theyre urged to consume less of everything supplied by the state. They must save electricity and water, use busses instead of cars, make Telkom calls at night, and fight crime. Thats like de Beers and Pick n Pay begging people to buy fewer diamonds and groceries. Huge fines are planned for not saving electricity. Thats like Checkers and Edgars imposing fines on their customers for overspending. Incredibly, nationalisers have convinced people that manifest absurdity is cosmic virtue, and that innocent victims are culprits.

Nationalisation Fantasy – What do nationalisers dream of? Given the catastrophic performance of whats nationalised (with rare exceptions), it may be a world in which politically appointed CEOs of nationalised mines, banks and retail stores find ways to lose millions and in return get paid millions for doing so, as with SAA and Eskom. It may be a world in which shopping malls have potholes like roads, and nationalised schools have teachers who dont teach, yet cant be fired. Perhaps its the prospect of private security being as disastrous as national policing. Nationalised shopping malls could simulate road-blocks (which delay and harass innocent motorists) by having mall-blocks (to delay and harass innocent shoppers). Nationalised security services could result in more crime and generate more thrilling news reports.

Mines and Minerals Minerals nationalisation was followed by falling investment, production, employment, exports, productivity and forex earnings. Not satisfied with their accomplishment, nationalisers now want to nationalise mines too. They apparently want them run like state hospitals, post offices, the railways and schools. Since most of our mine shares are now foreign-owned, the idea is to pay billions of Rand to foreigners and convert efficient businesses into inefficient bureaucracies.

The Reserve bank – It comes as a surprise to many people that the Reserve Bank has private shareholders, surprising because everyone knows Governors are politically appointed, and the RB creates money (and thus inflation) out of thin air primarily for government. Having seen whats possible in Zimbabwe, nationalisers want to divert taxes that would have been spent on schools, hospitals and policing to buying RB shares and give an unconstrained hand to whoever ensures accelerated debasement of the currency.

What Should Really Be Nationalised? – If nationalisers want to nationalise, here are a few suggestions. Since SA cant afford the catastrophic effects of nationalising important things like housing, education, food, health and electricity, why not privatise them to ensure massively increased efficiency, and especially delivery to the poor? What about using massive nationalised assets inherited from the apartheid regime to empower its victims by giving them free shares in privatised assets. Blacks would benefit twice over: thousands of Rands of assets per person and improved delivery. And instead, to replace these, nationalisers can go wild and nationalise things like fashion, cosmetics, sport, hairdressing, entertainment and the chewing gum industry.

Author: Leon Louw is the Executive Director of the Free Market Foundation. This guide may be republished without prior consent but with acknowledgement to the author. The views expressed are the authors and not necessarily shared by the members of the Foundation.

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