The only money a government has at its disposal is that provided by private taxpayers. Government domination of an economy curbs economic growth. The unavoidable result of this is reduced tax receipts. If we in South Africa are ever to prosper, it would be far better for government to get out of the way and allow private providers of goods and services to supply the needs of the nation and fill government coffers than to try and take over what the private sector does much better.
That private initiative delivers the goods better than government bureaucracies is a lesson that has been learned in every country that has tried to implement communism in the past. The Soviet Union and Chinese communist regimes found that even the use of brutal force and the death of millions of people could not make a government-dominated economy work. The Soviet Union collapsed clearing the way for independent former communist countries to implement greater freedom. The Chinese regime also reformed by introducing free economic zones based on the policies that work so well in Hong Kong, the freest economy in the world.
There was a time when a notion existed that large infrastructure developments had to be carried out by “government” because it had recourse to much larger resources (the taxpayers) than the private sector. In these modern days the total opposite view is that the private sector should undertake the very large developments and the government should not. “Should not” because, firstly, the view that if private investors believe some particular infrastructure investment is not viable, then it is in the best interests of citizens that it should not be done is valid. And, secondly, that there is no viable contract that cannot be carried out by the private sector.
An example of this “viability” test was adopted by Sir John Cowperthwaite, the Financial Secretary of Hong Kong from 1961 to 1971 who is considered to have been the primary architect of Hong Kong’s economic success. When he was approached with the suggestion that the government should build an undersea tunnel to facilitate travel between Kowloon on the mainland and Hong Kong Island, his view was that if such a tunnel could be justified on economic grounds, private investors would build it. He therefore refused to allow government to get involved and was proved correct when a private company built the Cross-Harbour Tunnel. It opened in 1972, operated under franchise by The Cross-Harbour Tunnel Company Ltd.
We increasingly hear calls for more development in South Africa to be carried out by the state. Does this make economic sense? Almost every day we read in the papers about some new disaster that has befallen the country and is causing large losses because of poor government management and corruption. SA Airways is constantly asking for more taxpayers’ money. Our ports take a long time to load and offload cargoes. The railways are unable to transport the cargoes that firms want to ship from the ports. Government hospitals and clinics are in a sorry state and the schools are letting down the children. Crime levels are still very high.
Eskom asks for price increases well above inflation to keep the lights on. The fact that many of the businesses that buy electricity from Eskom will not survive if the electricity price is increased at such a rapid rate does not appear to be as important as maintaining its monopoly status. If Eskom was a private company and dared to increase its prices at the rate that it is asking NERSA to approve, it would probably be found guilty under the Competition Act and have to pay a massive fine. State-owned monopolies, if they make the same mistakes that would bankrupt a private company, are excused and merely given more taxpayers’ money to carry on as usual.
Despite all the failures of State Owned Enterprises and poor management of government projects, we still have Cabinet Ministers suggesting that the role of the state in the economy should be expanded even further. This makes no practical sense whatsoever. Ideology is being followed instead of sound economics, to the detriment of the economy and the welfare of this country’s people. The influence of the South African Communist Party is increasingly visible in decisions aimed at transferring wealth from the people to the state, which, in the longer term, will lead to increased poverty throughout the country. Do these supporters of communism not know what happened in the Soviet Union and China?
Poor management of tenders occurs in too many government departments, and, whenever something goes wrong, the private sector is blamed. Why? Private sector companies constantly enter into contracts with private suppliers. The buyers in the purchasing company know all the necessary steps to take to ensure that contracts are properly prepared to cover all eventualities; they check the credentials of the suppliers and ensure that they have the necessary skills and resources to successfully complete the contract.
Lower costs for the delivery of government services and improved quality could be achieved by increased contracting out of South Africa’s government and municipal services. Experience has shown that the most obvious and important task that should be contracted out is the writing of contracts and the supervision of performance.
Corruption in this country has increased enormously. South Africa will not prosper as long as this state of affairs continues. Whenever a government official has the power to make a decision that can make someone rich, there is the possibility of corruption. The best way to reduce corruption, therefore, is to reduce the discretionary powers of the executive branch of government. The SACP Deputy National Chairperson, Thulas Nxesi, said at the recent SACP rally in Mpumalanga that, “As the communists, we believe that we cannot have politicians together with the public sector workers having businesses with government. That should be banned and we believe very strongly because that’s what creates the fertile ground for corruption”. This might come as a surprise to many. How is it possible that such activities have been allowed to happen?
If everyone in this country could rely on the proper application of the rule of law and proper functioning law courts, many of our problems would disappear. We need government to concentrate its attention on carrying out its own functions properly and to spend less time trying to tell business people how to run their businesses. We need greater economic freedom. We need the private sector, and especially small businesses, to thrive if the economy is to grow. That is the only way that unemployment and poverty can be rapidly reduced and government can give this nation hope for a better future.
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 Foundation.
