RICHARD J GRANT: Perils of rising state power and dwindling personal rights
Much of SA history over the past century can be explained by a simple observation: not all corruption is due to socialism, but all socialism brings corruption.
Apartheid was not a market phenomenon but a statist intervention to thwart the market relationships that would have brought people together in co-operative endeavours. The same is true of the current form of apartheid that is called, euphemistically, BEE and denoted by an evolving chain of Bs and Es. Corruption of language and thought is both a side effect of socialism and a deliberate technique employed by its vanguard or promoters.
The notion that “the people shall share in the country’s wealth” could imply that people are free to produce goods and services and trade some of their product for the different products offered by their fellows. The better the productive service to one another, the greater the mutual benefits each person can enjoy. Production and exchange in a culture of mutual respect for each fellow’s property, with the right to trade that property, is the true source of wealth. But the socialist portrayal of such wealth is that of a generic mass divorced from the ideas and efforts of the individuals who produced it yet owed equally to those who did not. And as we see each day, those with political power are more equal than others.
The power to tax, the power to regulate, and the power to spend public funds each entails the power to redistribute wealth by influencing incentives, prices and the flow of resources. The holders of such power have something to sell, and it should be no surprise that politics tends to attract those who are willing to sell it.
This is not the only reason socialism and other statist interventions bring corruption: the inevitable failures of any socialist project and the human suffering that comes with it can be sustained only through official lies and increasingly overt oppression. As Friedrich Hayek observed on “why the worst get on top”, only the worst among us would have the ruthlessness and callousness to inflict the injustices and oppression required to maintain a socialist system through which they enrich themselves at the expense of all those outside the ruling class.
None of this is mitigated when implemented by leaders with good intentions. As the SABC recently reported, “government has given the assurance that it has put in place mechanisms against corruption and nepotism to protect its plan to revive the economy”. But the plan itself will increase the incentives and scope for even more corruption. Rather than allow people to produce and trade among themselves in a natural manner, the “state is preparing to embark on various infrastructure investments as the country faces a deepening economic crisis, job losses, and a recession which has been worsened by the coronavirus pandemic”. Thus, the cause of the problem is proposed as the cure.
Any expansion of state power implies an attenuation of private property rights. As government rules and regulations reach more deeply into our lives, citizens lose their freedom to act and to conduct business without the permission of some government official or bureaucrat. Getting that permission can be costly, whether through the adoption of less-efficient business practices or through the offering of some consideration to gain the favour and permission of the government official as gatekeeper.
As one loses control of one’s property to the regulatory and redistributionist state, there is a more than commensurate loss of one’s personal and economic freedom. At the limit, this loss of control becomes indistinguishable from outright confiscation and, unless there is hope of restoration, it is of little consequence to be listed as the titular owner. Though it is gradual, it is still a form of expropriation without compensation. Nevertheless, there is a qualitative difference between this form of confiscation, with its variability and hope of reversal, and the direct expropriation of title to the property.
Direct expropriation of title can come suddenly and more completely than the indirect, and more general, form of expropriation through selective regulations and taxes. Such direct expropriation can also be targeted at specific properties or types of properties and, more frighteningly, at specific owners. Expropriation, once it is available as a policy tool, will bring the temptation and ultimately the act of expropriation decisions based not only on race, but also against political opponents and the politically weak. It will become a tool not only of political cronyism and personal enrichment, but also of power consolidation. The price of political opposition can be raised to the point that such opposition diminishes to irrelevancy.
Expropriation can be undertaken with or without compensation. In practice, the compensation could be quite different from what might have been realised in the marketplace. The lower the compensation, the greater the loss to the (now former) property owner and the lower the cost to government decisionmakers. In the looming prospect that section 25 of the SA constitution could be amended to allow expropriation without compensation of some classes of real property, all relevant property values would be depressed as if a tax were imposed upon them. And given the discretionary nature of such expropriations, the values of property held by politically unfavoured groups and political opponents, facing a higher likelihood of expropriation, would suffer relatively greater depression.
Any investment in real property or improvements to that property could result in a greater than 100% loss. Any activities, business or otherwise, that depend on the use of that property could also be in jeopardy. The uncertainty and the danger of total loss would destroy the basis on which economic decisions are taken and the uses of property are determined. Property usage would now be determined by the politically powerful rather than those who are entrepreneurial, creative or productive — or even by those who would wish to live a decent and peaceful life. Many of the latter will leave the country, thereby reducing the productivity of those who remain, and standards of living will fall.
The Economic Freedom of the World: 2020 annual report offers us considerable insight into where those productive and creative people might go. Countries that score highest on the Economic Freedom of the World (EFW) index are also the countries that tend to have the highest standards of living and are most attractive to those with an incentive to migrate. A government that creates such incentives and becomes a net exporter of its most talented people is presiding over a country in decline.
The EFW tracks these conditions in the current report, which shows the latest available data through 2018 and employs newly revised data reaching back several decades. Economic freedom in SA has been declining for over 15 years, from an index rating of 6.95 in 2005 to 6.73 in 2018. Relative to other countries, SA’s ranking fell from 67th in 2005 to 90th in 2018. Given this, it is not surprising that the economic growth rate has also declined to levels that might be described, not unkindly, as stagnant. That this economic weakness continued through 2020 left South Africans with fewer resources with which to overcome, or even to withstand, sudden threats such as the viral pandemic.
The EFW report shows detailed data for each of the five major categories of economic freedom. It shows SA’s perennial weaknesses: government spending, whether called consumption or investment, continues to be harmfully high; the legal system has serious weaknesses, especially the unreliability of the police; international trade is hindered, especially by capital controls; and business regulations are generally seen to be horrendous, especially in the area of labour relations. It also shows relative strengths, such as monetary policy, which has maintained its target range and has contained inflation. Such areas of good performance should be protected.
For 20 years after the transition, the protection of property rights slowly improved. But over the past five years the trend has reversed and the EFW score for that category is approaching pre-transition levels. If the current threat to constitutional property protections is realised, especially if it permits expropriation without compensation, the “protection of property rights” index would likely fall to apartheid levels and suppress freedoms in other categories as well. In such a scenario, even the “winners” would be losers.
• Grant is professor of finance & economics at Cumberland University, Tennessee, and publications editor of the Free Market Foundation.
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