RICHARD J GRANT: Investment in economic freedom always yields dividends

When WB Yeats gave us the line “Things fall apart; the centre cannot hold” he was speaking to the deepest foundations of our lives. The need for maintenance transcends the layers of our existence.

Just as a mechanical machine, a mere fruit of our civilisation, must be maintained lest it fall apart, so too does the foundation of our civilisation demand our attention. Each layer must fit that foundation and support the layer above. 

We are often told that as our world becomes more advanced and complicated we need a more elaborate and complicated governance structure. Certainly, as new methods and technologies come into use definitions of property rights must be refined and extended. The laws and regulations surrounding the exercise of those property rights must also be refined and extended accordingly. But that is not the same as saying the size and scope of our government must also grow. 

As a population grows one would expect basic services such as policing, adjudication and municipal water supply to expand in rough proportion. Advances in technology, our “know-how”, enable us to do more and produce more with the resources and people we have available. As our productivity increases — as approximated by GDP — we could reasonably expect GDP to grow faster than both the population and the size of the government.

But in SA over the past decade neither has been true. 

Growth implies building on what came before. When we speak of “institutional memory” we speak of the knowledge of how things have been done and of how things should be done. When we fail to pass on essential knowledge we fail to maintain the knowledge base upon which an organisation or society depends for its survival and prosperity. When we fail to pass on essential knowledge on how to maintain electrical generation and distribution networks, we experience load-shedding. If we fail to maintain institutions essential to civil order and co-operation, we risk anarchy or tyranny, or both. Or we experience stagnation in an economy where prosperity is always “just around the corner” but never stays long enough to become familiar. 

Culture can be quite subtle in how it passes knowledge from one generation to another. Much of our know-how is tacit or implicit in our manners and customs. Social harmony gives us a survival advantage. Towards this, it helps also to know what types of knowledge cannot be passed along. Market knowledge — knowledge of prices and what is available for production and trade — becomes part of the emerging historical record and must be regenerated with each active moment of our lives. Such knowledge emerges most clearly when our trade relationships are voluntary and free of coercion. Knowledge of that latter point is perhaps one of the most important endowments we can bequeath to our descendants.

No government official, or even an army of bureaucrats with the latest computing technology, can match the revelatory power of a free people creatively and respectfully interacting with one another. And when we forget this and allow that army of bureaucrats to occupy the high ground of our daily endeavours, the freedom and fertility of the marketplace is rolled under the mud of a political battlefield. Social harmony is among the first casualties. 

Our choice then is to live in a world where prudence and productivity are appreciated and the lives and property of our neighbours are respected, or to continue towards a world where productivity and property rights are subordinated to political power and prosperity recedes into the enclaves of the politically powerful. 

That first world, by far the more prosperous of the two, is the world favoured by those who cherish personal liberty within a constitutional order, both as a precursor to prosperity and, more deeply, as a relationship that allows our humanity to flourish. There is more than one path to such a world. The Free Market Foundation has initiated a process, called Liberty First, to build consensus around an achievable liberty promoting agenda for the current parliamentary session. 

The Liberty First agenda points us to action in five main policy areas: size of government; legal system and property rights; sound money; freedom to trade internationally; and regulation. These are the same policy categories the Economic Freedom of the World (EFW) annual report endeavours to track and measure for every country in the world. Each country is rated on a scale of one to 10, with 10 being the highest level of economic freedom. Then each country is ranked. 

The 2024 EFW report, using the latest data from 2022, shows that SA ranks 81st out of 165 countries. That moves the ranking up to just above the world median. The index rating also improved slightly to 6.65, which breaks a 10-year downtrend. SA’s index rating has fluctuated between 6.4 and 6.9 for most of the past 25 years. 

Of the 48 African countries, including the nearby island states, SA ranks eighth, just below Botswana. The top three African states are Mauritius, Cabo Verde and the Seychelles, with Mauritius being an African outlier, ranking 17th in the world. Almost half of the African countries are in the bottom quartile of economic freedom in the world, with Zimbabwe and the Sudan competing with Venezuela for the lowest ranking. 

SA has risen above the four original Brics bloc countries in the overall rating but not in each of the component scores. Of the new Brics+ entrants, Saudi Arabia and the United Arab Emirates are far higher, while Egypt, Ethiopia and Iran are far lower. 

Of the five broad policy areas, SA’s worst score has long been in Area 2, legal system & property rights, especially with poor policing and the failure to control crime. Weakness in this area harms all the others. It is a core function of government without which legitimacy is lost. The drain of resources into unproductive government consumption and productivity suppressing regulatory interventions deprives such core functions (as policing) of attention and resources, thereby weakening the whole. 

However, even the better performing areas, such as monetary policy, require vigilance. A brief downtrend in the inflation rate can embolden a central bank to reinflate, which is happening now. Just as the move away from a silver or gold standard enabled central banks to inflate with impunity, the push to move away from cash is a serious threat to civil society. Freedom to use cash — that is physical coins and banknotes — is important for the preservation of freedom overall. While digital transactions can often be more convenient and efficient, one should be wary of giving up the flexibility and privacy cash affords. And cash in your pocket is still there when the electricity goes off. 

Maintenance of the best things in life takes time and resources and might at times seem inconvenient, but an investment in economic freedom always yields dividends. 

• Grant, a professor of finance & economics at Cumberland University, Tennessee, is a senior associate of the Free Market Foundation.