South Africa at a Tipping Point

Tuesday, July 17, 2012 - 11:19
In this article, the author offers tips on how South Africa could grow its economy and create job opportunities to lift the poor out of extreme poverty


Temba Nolutshungu is correct in arguing that “South Africa is at a critical stage of its development.” However, the reasons why our “bright post-1994 future” is “disintegrating around us” are not the reasons he advances and the recommendations he makes likely to get us out of that morass. Indeed, they are more likely to exacerbate inequalities and make the dream of development with equality less and less likely. The fact that other African countries have overtaken South Africa in implementing free market economic policies is the incorrect measure of success unless one is a free market dogmatist. Zambia, Uganda, Kenya, Namibia, and Ghana may have overtaken SA on the economic freedom index but in doing so, they have exaccerbated the gaps between the haves and the have-nots in their society. Namibia, for example, enjoys the dubious honour of being the country second to South Africa, of having the largest component of health care delivered through the private sector in the world. The two tier systems of private health care for the rich and public health care for the rest, as we know so well in South Africa, is hugely inefficient, inequitable, unsustainable, and contrary to the commitment to universal health care coverage being promoted by the World Health Organisation. Life is not better just because there is more opportunity to make a profit – what makes life better is a better quality of life. Ask ordinary Ghanaians if the massive profits flowing in from the extractive industries to the economy are making their lives better and you will hear a resounding NO. High expectations, yes, precisely because of the spurious promises made by free marketeers like Nolutshungu, but no change on the ground in the daily struggles they face to make ends meet. It is somewhat mischievous to imply that “economically emancipating policies” are somehow going to finally dispense with apartheid-era “discriminatory laws and actions.” If anything, the so-called economic emancipation of the new black elite has simply changed the face of the economic exploitation of the black majority – it was black capitalists who left black miners at the Aurora mines starving and destitute while they dragged their heels in paying workers out their entitlements – entitlements which, in Nolutshungu’s perspective, would be impediments to the boss’s freedoms to run the mines as profitably as they could. Nolutshungu promises us “… high economic growth, full employment, significantly reduced poverty, all taking place in a harmonious, cooperative environment” through a set of proposed actions. However, the actions he lists are ones for which there is no reliable evidence. Indeed, there is plenty evidence to the contrary. For example, removing “all barriers to entry into the competitive private provision of goods and services currently supplied by public enterprises” has been the recipe for the fundamental crises in health systems around the world. Colombia, touted as having high rates of health care coverage, has a system which effectively denies poor people access to basic health care needs. The call to let funding “follow the students in government schools on a capitation basis” is disingenuous. South African housing policy post 1994 did exactly the same – through housing subsidies to individuals who would go out to the market to get their houses – advice provided to the State by the World Bank at its free marketeers. Ask any of the estimated 12 million people still waiting for decent homes if Nolutshungu’s advice has been helpful. As much as glassy-eyed ideologues like Nolutshungu proclaim it, the market is not a foolproof mechanism to achieve development – in fact, in most contexts, it is a wholly bad manner to distribute public goods. In particular, the idea that public-private partnerships are a panacea for the crisis in our health system does not address the fundamental drivers of the crisis – precisely the inherent inefficiencies in private provision and the failure to prioritise equity in the system as a whole. Lastly, the notion of “tax exemptions, reduced taxes and removal of restrictive labour laws and regulations” being likely to attract investment and bring about accelerated growth is a widely held fiction that is not based on any evidence. The mantra that labour laws are ‘restrictive’ is simply a tired piece of rhetoric which does not stand up to the even the slimmest of examinations. There is a growing civil society movement that is arguing that we need Tax Justice, not tax exemptions; we need public leadership, not private appropriation; and that the activities of the private sector should not be described as ‘economy-enriching’ but are better characterised entirely geared to private profit. Whether private profit enriches the economy depends on the whether the state plays its developmental role effectively, through, for example, fair and effective taxation, rather than choosing to “stand back and make way for private companies.” It is, indeed, a mystery to me why SANGONET should even entertain such nonsense on its website, since the arguments presented are wholly at odds with the ethos and values of NGO’s and Civil Society. In one thing I agree with Nolutshungu – if we get it right to ensure a state that addresses the needs of “people desperate for shelter, food, work and dignity”, the benefits will, indeed, “be dramatic.” However, it is how we get there that I, along with the People’s Health Movement and millions of other South Africans fundamentally disagree with Nolutshungu’s evidence-free, ideologically-driven and hackneyed solutions. Leslie London, People’s Health Movement
And also the culture of managers who must manage the workers and manage relationships within the corporate body and the supply chain makes the situation more unstable. but I'm not sure about the free market Temba, it seems to have only led to greed.
The market is not a mechanism that works for public good, such as health. The current crisis in global markets is evidence enough that the private sector, unregulated, will logically lead to an accumulation of private benefit at the expense of public good. Anybody who believes that "government should rather stand back and make way for private companies to bid for ..." projects that improve the conditions for the poor and unemployed ..." is simply repeated discretied dogma for which there is zero empirical evidence. In fact, the converse is true - plenty evidence that the privatisation of water provision and basic services have led to an exacerbation of misery for the poor, but fantastic profits for the rich. Enough of this nonsense. The Free Market Foundation is entitled to peddle its propaganda, but recognise it for ideologically driven, evidence-free opinion. The world is suffering deeply as a result of this fabrication
South Africa (SA) is at a critical stage of its development. The bright future that beckoned post-1994, promising the growth of a free, multiracial and prosperous nation has been disintegrating around us. There is a general state of anxiety among the country’s people as to what will happen next.

One of the major causes for alarm is that the country’s decision-makers do not appear to have a positive forward-looking philosophy. In this they are out of step with the leaders in Africa who are transforming their countries by implementing free market economic policies. Zambia, Uganda, Kenya, Namibia, and Ghana have all overtaken SA on the economic freedom index. And other countries are going to overtake us in the next few years if they continue to become more free while ours persists in its slide down the index; in the past decade we have dropped 42 places, down from 42nd to 84th place.

However, all is not lost, what is broken can be fixed. All that is required is a change of direction from negative to positive, from less free to more free, to harness the talents of all the country’s people. Their energies can be released by embracing the kind of freedom that most of us had in mind in 1994 and rapidly implementing economically emancipating policies so that discriminatory laws and actions can finally and forever be dispensed with.

After discussions with my colleagues, Leon Louw and Eustace Davie, we decided to draw up a bold plan of action which, if adopted and implemented, could make SA a truly winning nation. A plan that would allow us to reverse direction, climb back up all the indices and achieve those goals that everyone agrees we need; high economic growth, full employment, significantly reduced poverty, all taking place in a harmonious, cooperative environment.

Some proposed actions are:
  • Transfer ownership of the many state-owned industries accumulated by the apartheid government (or the proceeds from the sale of such assets) to the poor. Poor people having shares in these enterprises will mean real, direct and personal economic empowerment. At the same time, remove all barriers to entry into the competitive private provision of goods and services currently supplied by public enterprises. (The Czech Republic implemented a shares-for-the-people programme with dramatic, positive results.);
  • Upgrade all apartheid-style leasehold to full freehold title or other inferior rights to housing, at no cost to the occupants;
  • Transfer ownership - on application, of all state-owned hospitals and clinics to the people working in them, including doctors, nurses, cleaners, catering staff, and administration personnel, and, where appropriate; to residents of surrounding communities, with government contracts for the supply of medical services to the poor on a private-public partnership basis that are dependent for renewal on the delivery of efficient services;
  • Let funding follow the students in government schools on a capitation basis to create competition between schools, provide school choice, and improve the quality of schooling. (Parents will be empowered and enabled to send their children to schools that post good results. A consequence of this will be that schools which start to lose students will urgently implement the necessary measures to turn around their performance.);
  • Utilise the large government landholdings to give every homeless urban family freehold title to a 200 square metre plot of land, and, in rural areas, with the cooperation of communities, give freehold title to families in respect of their homes and yards. (The one-family-one plot scheme will result in ownership by millions of the economic asset most prized by people. Most beneficiaries, once they own them, will improve their properties, thus increasing their value and creating opportunities for trading and openings for skilled and aspiring artisans.);
  • Declare all former “homeland” areas to be Economic Development Areas. Special cost-reduction benefits, such as tax exemptions, reduced taxes and removal of restrictive labour laws and regulations for a period of (say) ten years, will attract investment and bring about accelerated growth in those areas;
  • Give jobless people who have been unemployed for six months or more Job Seeker’s Exemption Certificates (JSEC’s), valid for at least two years, that allow them to enter into employment contracts with employers on any conditions and wages that, in their sole discretion, are acceptable to them. (This measure will expedite the employment of desperate people for whom accepting less favourable employment terms is far better than being unemployed.).
For any of the above, massive wealth transfers and other benefits to succeed, in fact before the lives of our people or the economy of our country can improve, we need the rule of law to be fully applied and all provisions in laws, regulations and policies that conflict with the ‘equality before the law’ requirement in the Constitution to be removed.

The current situation in SA is characterised by, among other things, an unacceptably high unemployment rate (7.7 million unemployed) that is not getting better; high crime levels despite the best efforts of the police services; a low economic growth rate; a chaotic education system with some schools yet to receive textbooks and classes being conducted under trees; and a curtailment of economic growth due to an inadequate electricity supply. People are growing increasingly unhappy and swift, appropriate action has to be taken to avoid even more undue hardship, especially among the poorest members of our population.

Government keeps putting forward grand plans for large developments which will increase its role in the economy. No matter how involved government becomes, nothing it does that taxes or restricts the private sector, will succeed in improving conditions for the poor and unemployed. Government should rather stand back and make way for private companies to bid for, fund, own and carry out these projects. Its task then, will be to concentrate on the difficult, time-consuming but important task of transferring wealth; not from the economy-enriching activities of the private sector, but from an over-burdened and over-stretched government to a people desperate for shelter, food, work and dignity. The benefits will be dramatic.

- Temba A. Nolutshungu is a director of the Free Market Foundation. This article was first published on the Free Market Foundation (FMF).
Temba A Nolutshungu