This article was first published by BizNews on 19 October 2023
Upon a closer study of recent history and the current dispensation, one has come to realize that South Africa’s problems has never been mainly economical but primarily political. Whereas the apartheid government crippled the economy by excluding the majority of black people from active and voluntary participation, the ANC government has done so by pursuing economic growth and development through legislation.
What I mean is that the problem with South Africa (and perhaps Africa in general) is that we are so invested into politics so much that we believe that every problem can be resolved through political decrees and legislation. Another problem with Africa is that the most intelligent guys imbued with the entrepreneurial spirit have left the governance of the continent in the hands of incompetent and kleptocratic average thinking men and women.
They are busy running their own affairs while the fate of the continent hangs in the hands of the administratively incompetents. To be fair, those running the affair of the state in Africa are well-meaning people with good-intentions but the problem with good intentions is that they don’t always translate into good economic policies. This is so because, economic policies are judged not in terms of the intentions or goals which inspired them but the incentives that they create. For example, a benign and benevolent African leader who “cares” about the “people” may wake up one fateful morning and decree that every citizen in his country “has a right to access and own a beachfront house” to applause of everyone.
At the face of it, this may be a good political or legislative decree inspired by good affection for the people but to assess whether it is economic sound, we must judge it against the incentives it will create, its long-term consequences and not lofty ideals stated by the political leader in question. To start off with, the net effects and unintended consequences of such a policy will be to discourage property investors and developers from building more beachfront houses. Moreover, beachfront houses that are already built will be over-crowded and their value will be significantly depreciated. And because beachfronts are generally limited (a scarce natural resource), people will begin to scramble for those available and many others will be left out.
Those who are left out will be disgruntled and begin to threaten and, in some instances, even kill those who already having access so they can have their turn. Political manoeuvring will become the order of the day. The political distributors and allocators of these beach houses will begin to solicit bribes and the poor who were the initially intended beneficiaries of said policy will once again be left out. Ultimately, what was initially a good and well-intentioned policy will have far reaching and unintended consequences for everyone. To give another practical example, most Minimum Wage legislations are generally intended to protect workers from “capitalist exploitation”. Well, that sounds like an attractive and reasonable policy objective that all of us should ideally support but the unintended consequences of such a lofty objective have always been to take unskilled workers out of the job market and to interfere with transactions between adult consent parties wherever it has been pursued.
By way of an example, A may be willing to guard B’s residential property for R2000 per month but because the Minimum Wage Act in South Africa says no one may be paid less than R3 500 per month as a security officer, B will be discouraged from employing A – who will ultimately be rendered unemployed despite his willingness to work. This problem becomes even more pronounced when considering the fact that employers in South Africa are also required to register their employees for Pay As You Earn tax deductions and the Unemployment Insurance Fund contributions, among others legislative requirements, on behalf of their employees.
This is all fair and reasonable on paper, but it poses a serious regulatory hurdle that requires both human and financial resources which most small and medium enterprises will generally do not have. In the end, most of them are likely to find themselves on the wrong side of the law and ultimately taken out of business due to non-compliance. So, what is the solution?
The solution indeed lies in deregulation and limiting the state’s role in people’s economic affairs. The continent’s most prominent and established businessmen and women must also be encouraged and lobbied to actively participate in politics and contest for political office. Politics is too central to the stability of every country to be left in the sole hands of politicians.
In the words attributed to Plato: “One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors”. And to conclude with some of the common libertarian aphorism: no country in the world has ever developed economically through legislation. No one can legislate economic growth into existence.