EUSTACE DAVIE: Countries that place their people first do not have state monopolies
SA’s economy must become people-driven and not government driven
The most striking positive evidence for putting the people first is revealed in the amazing results achieved by former communist-dominated countries that have adopted free market policies. We can find them by looking through the Economic Freedom of the World (EFW) annual reports, which provide an overview of the economies of 162 countries for the years 1980 to 2020.
Economic transformation by former communist countries
One such country is Georgia, which is ranked as the 15th most economically free country in the world in the 2020 EFW rankings. This a remarkable achievement. What benefit did the average Georgian reap, if anything, from the adoption by their government of free market policies? And if they did benefit from better policies, what were they? Changes that stand out are:
- A low, flat tax of 10% has been in place for 12 years (since data has been available).
- Government reduced its level of investment.
- A sound monetary policy has been maintained.
- Regulatory restrictions on the sale of real property were reduced.
- The reliability of police increased to almost twice that of SA.
- Consumers and businesses have benefited from a high level of freedom to trade internationally.
- Everyone has gained from a less-intrusive regulatory regime.
The result was that according to the World Bank records Georgia’s GDP per capita, (measured in 2017 constant international dollars) grew in 24 years (1995 to 2019), from $3,244 to $14,989 per annum.
Four other former communist countries are in the top 20 of the world’s most economically free countries — their EFW Rankings and GDP growth per capita, (also measured in 2017 Constant International US dollars) from 1995 to 2019 (24 years) were:
- 11th Lithuania — GDP per capita grew from $10,640 to $37,184.
- 14th Estonia — GDP per capita grew from $12,731 to $36,153.
- 18th Armenia — GDP per capita grew from $2,913 to $14,318.
- 19th Latvia — GDP per capita grew from $9,599 to $31,039.
By contrast, languishing in 90th spot was SA, where GDP per capita grew from $9,830 to $13,852, an increase of $4,022 in 24 years ($167.88 per annum). GDP growth per capita has been extremely low, almost static compared to the average growth of $475.20 per capita achieved by Armenia.
These results send a clear message to South Africans to change course. The policies that are currently being followed are not working for the benefit of the people. What the country is currently experiencing is a transfer of resources among the population, not economic growth.
What must change?
The economy must become people-driven and not government driven. Freed to peacefully pursue their own interests, South Africans can improve their own lives by improving the lives of others. Economist and philosopher Adam Smith described this phenomenon about two and a half centuries ago when he said, “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest.”
Barriers to market entry
For SA to become thoroughly people-driven it is imperative that barriers to entry into the labour market be removed. One of the serious barriers to entry is the minimum wage law, which prevents unemployed people from entering into employment contracts on mutually agreeable terms with employers.
The minimum wage law is probably the legislation that has the cruellest outcomes for the most vulnerable and needy people. An aspect that does not receive enough attention is the disparity of incomes between urban and rural people. The result of the imposition of the same minimum wage across an entire country is that more rural than urban people will be kept out of jobs by the labour laws.
The EFW analysis focuses on biases in the laws of countries that have depressing effects on their economies. Removal of those depressive effects are shown to lead to an improvement in the lives of the inhabitants.
Public officials who work in glass offices tend to provide better service
The first Georgian ambassador to SA revealed that when his country became independent the government took over a police force that was not serving the public. The government encouraged the police force to improve its service by building new police stations. The work areas were entirely enclosed in glass so that police on duty were visible to the public at all times. According to the ambassador, the service to the public improved considerably.
• Davie is a director of the Free Market Foundation. He writes in his personal capacity.
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