The New Revolution: “A Free-Enterprise Agenda”
“In the process of instituting bold economic reform, the government would (a) make outside sanctions almost irrelevant and (b) set all South Africans free.”
Don Caldwell, South Africa: The New Revolution, Saxonwold, South Africa: The Free Market Foundation of Southern Africa, 1989, 82-92 (Excerpts).
Chapter 7: A Free-Enterprise Agenda
The government likes to say it’s promoting and preserving a free-market economy in South Africa.
Which economy is it talking about?
If this were a free economy, we wouldn’t have high unemployment, low growth, poverty, social upheaval, and high taxes.
If it were really serious, Pretoria could usher in capitalism overnight. It’s just a matter of scrapping costly rules, regulations, policies, acts, boards, committees, councils, and projects.
Even now, facing a hostile world, a committed South African government could put us on the path to prosperity.
In the process of instituting bold economic reform, the government would (a) make outside sanctions almost irrelevant and (b) set all South Africans free. Here are 31 steps the government could take today to bring about a future of free enterprise:
1. Extend property rights. All land and housing should be privately owned. All South Africans must be able to own land anywhere in the country. The law preventing owners of large farms from subdividing their land should be scrapped. Scrap rent control and the Rent Boards. Property rights are the most essential ingredient of prosperity.
2. Abolish exchange control and the dual exchange rate. Whose money is it? Morally, exchange control is an economic Berlin Wall. It prevents South Africans from taking money that is rightfully theirs out of the country.
Practically, exchange control keeps out more capital than it keeps in. Who would want to invest in a country that limits the free outflow of capital? The message of exchange control to potential investors is that this country’s economy is such a shambles that we must cling to whatever old investment we’ve got.
The two-tier rand encourages corruption and lawlessness. What the country needs is a unified rand that freely floats as the flows of exports, imports, and investment change.
At the same time, privatize foreign debt. Scrap the government-negotiated debt-standstill agreement with foreign bankers and remove private foreign-debt repayment from the Reserve Bank’s jurisdiction. Individuals and companies that have foreign debt can either repay it on time or negotiate private arrangements with their bankers. Then it’s clearly their debt, not “South Africa’s” debt.
3. Cut all aid to the independent homelands. When you subsidise bad rule, you get more of it. That’s what’s happening with the homelands.
Subsidies from Pretoria provide the governments of Transkei, Ciskei, Bophuthatswana, and Venda with the revenue they can’t raise themselves. Cut off the funds, and they’ll have to introduce sound economic policies to boost growth. Encourage them to introduce low taxes, low-regulation enterprise zones, free-trade zones, property rights, and private rural land ownership.
Also, homeland residents must be given South African passports and allowed to migrate freely to South Africa. Then, if the homeland governments don’t want to see everybody leave their territories, they’ll have to make them attractive places to live in. A booming homeland might see a net inflow of residents—voluntarily, as it should be.
4. Turn South Africa into a free-trade zone. Brisk trade across boundaries makes as much sense as brisk trade within them. South Africa should turn itself into an international free-trade zone: abolish all import tariffs and all export subsidies. Scrap the Southern African Customs Union (South Africa and the homelands, plus Botswana, Lesotho, and Swaziland), which takes customs and excise duties from the people and gives them to governments.
Open the floodgates of trade and watch our ports become mini-Hong Kongs. South African exporters, taking advantage of cheap imported inputs, would flourish. And South African consumers would be able to buy much more with their rands—especially important to poverty-stricken blacks.
Meanwhile, with money to be made here, foreigners will clamour to trade with us, especially energetic businessmen from the Far East, South America, and the rest of Africa. Some large Western countries might stick with sanctions for a while, trying to prove how righteous they are. But they’ll eventually wise up when they realize what a booming, lucrative market this is.
5. Eliminate the Department of Customs and Excise. Abolish all levies it collects, thus leaving more money in consumer pockets. South Africans pay more than R2 billion a year in customs costs (duties and surcharges on imports) and R2 billion a year in excise duty (on cigarettes, cigars, tobacco, wine, champagne, spirits, cold drinks, petrol, cars, and tractors). Each time consumers buy a pack of 20 cigarettes, they pay the government 29 cents, not including the general sales tax. For beer, it’s between 34 cents and 45 cents a litre; for soft drinks, two cents a litre.
6. Privatise blacks. Apartheid has nationalized black South Africans: the government owns their land, housing, schools, and hospitals. Pretoria should privatize the townships by turning over government-owned homes to the people living in them, auctioning off undeveloped tracts of township land, and lifting building restrictions. Squatters living on government land should be given the land. Schools should be given or sold to churches, parent-teacher associations, or private education companies. Private companies should be allowed to build housing for blacks anywhere.
Blacks would get the government off their backs. And the government would lose the headaches that come from ruling angry township dwellers.
7. Privatise industry. Government-run monopolies make the economy inefficient and unproductive. As Robert Poole, publisher of the US free-market magazine Reason, warned on a 1988 trip to South Africa: “You’re cutting your throat to have those inputs produced expensively and inefficiently. To remain competitive internationally, you’ve got to have competitive transport and communications costs—not a backward state-run infrastructure. High costs put South Africa at a big international disadvantage.”
Let entrepreneurs deliver mail, set up phone systems, run the airlines, and generate electricity. Buy out nervous workers with shares or cash grants. Give everybody in the country shares. Or sell the companies, and use the revenue to pay off government debt and cut taxes. If there’s money left over, divide it equally among South Africans.
8. Privatise culture and sport. If you don’t like Sunday movies, don’t go to them, or boycott the local theatre that shows them. But don’t use the force of the law to stop other people from making what should be a personal decision. Likewise, government should stop subsidizing rugby, plays, and opera. Sell the State Theatre in Pretoria, and stop giving money to the provincial arts councils. Joe Soap or Sipho Lunchpail shouldn’t pay taxes so somebody else can enjoy subsidized entertainment. Music, drama, dance, movies, books, magazines: these should all live or die on consumer demand and private donations.
9. Privatise the universities. Today, universities are a great welfare scheme for the rich, who are trained for high-paying jobs at the expense of the average taxpayer. Moreover, universities are constantly in conflict with the government because students and academics enjoy state handouts but refuse to be bound by the rules the state sets down. The answer: get government out of education. Universities could be sold to private companies, which would run them as businesses. Or they could be turned over to alumni or current administrators in the educational equivalent of a management buyout. The universities could then find innovative ways to finance themselves: granting loans that students can pay back from future earnings, for example.
It’s bad enough that South African taxpayers subsidise the education of this country’s doctors, engineers, and lawyers who earn more than most of them do. But with many graduates emigrating after varsity, the South African taxpayer is also subsidizing the education of Australia’s doctors, engineers, and lawyers.
10. Privatise race relations. Abolish government-mandated segregation (Group Areas Act, Land Act, Reservation of Separate Amenities Act). But replace it with personal choice, not with government-mandated integration. Most of us want to enjoy a multiracial South Africa, where blacks and whites freely mix. We should be allowed to.
But some people like to mix only with their own. So what? That’s what freedom is all about. Conservative whites, black-consciousness blacks, and orthodox Jews should be allowed to run their own schools or join with friends to keep their neighbourhoods white, black, or Jewish. Likewise, black businesswomen, white businessmen, or red-haired orthodontists should be able to run their own exclusive clubs. Segregation and integration are both acceptable as long as they are done voluntarily by exercising property rights. The right to disassociate protects minorities who feel their lives and culture are threatened. The right to associate lets the rest of us live in multiracial, multicultural harmony.
Though often portrayed as a political issue, repealing the Group Areas Act makes good economic sense: nervous whites should welcome moves that extend private property rights and keep the government out of the economy.
The government, however, must be colour-blind. All laws must apply equally to all South Africans. And the government and courts must never involve themselves in private race matters.
11. Privatise public holidays. There’s no need for the government to determine what days we must work and what days we must not. This just invites conflict over what we should be celebrating. Allow employers and their workers to negotiate holidays.
12. Privatise the Central Statistical Service. As a private body, the CSS could sell to businessmen and newspapers its research on things such as price inflation, economic growth, tourism, and hotel occupancy rates.
13. Deregulate the liquor industry. Scrap the Liquor Act. Abolish all restrictions on selling liquor. Allow anybody—general dealers, hotels, restaurants, supermarkets, bottle stores, shebeens—to sell beer, wine, and spirits without a licence. There’s no reason for liquor to be treated differently from pencils or shoes.
14. Deregulate agriculture. Pretoria’s agricultural policy would warm a socialist planner’s heart. There are some 22 agricultural control boards, including the Banana Board, Chicory Board, Cotton Board, Deciduous Fruit Board, Dry Bean Board, Lucerne Seed Board, Potato Board and Rooibos Tea Board. Though they differ in minor respects, the boards generally restrict competition, fix or regulate prices, dispose of larger-than-expected harvests, and govern exports and imports. Many also restrict middlemen or appoint monopoly agents to process and distribute crops.
“The Egg Board has a permit system which prohibits you from keeping hens without their permission,” explains Effective Farming editor Symond Fiske. “The Tobacco Board won’t let you grow tobacco where you want without a quota. Then you have to sell it through them; you can’t sell it to a small cigarette manufacturer. The Maize Board stops farmers from selling maize to each other, so small livestock producers can’t buy maize from the next-door neighbours even if it’s the cheapest place to get it. The Wool and Mohair boards force you to sell your wool and mohair at auction through an appointed agent. And the Wheat Board restricts your right to get into and operate in the milling and baking industry.”
Some commodities don’t fall under boards but are severely restricted by other laws. Sugar, for example, has its own act of Parliament. So does wine.
Restricting who can own land and who can grow crops is a great way to impoverish a country, as Zambia has shown. Scrap the control boards, and lift all land-use restrictions.
15. Deregulate bread. Scrap the bread subsidy, price controls, and the Wheat Board. Allow anyone to buy and sell wheat, operate a bakery, and bake and distribute bread.
16. Slash the retail petrol price by 47 cents a litre overnight. Eliminate all government levies on petrol. Win applause (and votes) from consumers, truck drivers, and taxi drivers by eliminating on each litre of petrol the 32-cent tax, 4-cent duty, 4-cent insurance levy, and 7-cent contribution to the equalization fund. Then, lift the controls on the petrol price and allow service stations to compete.
17. Balance the budget. Constitutionally mandate that the government cannot go into debt—annual deficits of 3% or 5% or 7.5% of gross domestic product, as some misguided economists recommend, are unacceptable. The figure should be 0%. The government must not spend more than it raises in direct taxes: no borrowing or printing money. Taxpayers could easily see the real cost of government. And government borrowing wouldn’t drive up interest rates and squeeze out private borrowers.
18. Legalise hawking and backyard businesses. No restrictions are needed on these activities except simple, common-sense nuisance laws: no blocking traffic, no pounding sheet metal at midnight. Any other restrictions are imposed only to protect lazy businessmen who would rather restrict competition than beat competition.
19. Turn the Competition Board into a Deregulation Board. The board’s sole task should be to uncover government regulations that prevent people from trading freely, owning land, and going into business. It should ensure that no law is passed that offers protection for established businessmen or workers. It should not concern itself with how companies set their prices or run their affairs.
Cartels and monopolies that arise in the marketplace are not a problem, because they can survive only as long as they deliver the goods. The government cannot legislate the “proper” size of companies or the “correct” number of firms that must produce any given product. This does not mean that government-protected monopolies and cartels are acceptable. A proper government “competition policy” concerns itself with two things only: (1) that there are no barriers to entry, such as zoning laws, permits, and licences and (2) that import competition is not restricted by quotas or tariffs. As long as there is the threat of competition from inside or outside the country, large industries cannot raise prices at whim and abuse customers.
Not surprisingly, the overpriced, low-service monopolies South Africa suffers from today are all government-legislated monopolies: post, telephones, electricity, SA Airways, and so on. These are the monopolies the newly named Deregulation Board should concern itself with. Lift the laws that protect them from competition, and they will no longer be monopolies.
In sum, to determine whether a company is “competitive” you don’t look at how big its market share is (it doesn’t matter whether it’s 60%, 73%, 98%) or how many other companies it competes or cooperates with. You look at whether there is any law preventing another entrepreneur from entering the field. Freedom of entry is the key to competition.
20. End inflation and save the rand. The Reserve Bank should be privatized, and banks and money companies should be allowed to issue competing currencies. But for now, the Bank should freeze the money supply—that is, stop printing rands—and stop manipulating either interest rates or the rand. This will end inflation and reverse the rand’s collapse.
Also, open the banking system to robust competition, by allowing foreigners to open banks here. Today, foreign banks are restricted to a minority holding, which is a financial sanction imposed on ourselves.
21. Deregulate labour. The agreement between a worker and his employer should be no different from any other contract. The contract should spell out conditions of service: hours, overtime, pay, benefits, holidays, grounds for dismissal, role of unionized workers, policy toward strikes. Then if a worker believes an employer has not lived up to the conditions, he can take the employer to a regular court, as with any contract dispute. Likewise, the employer can take the worker to court for violations. Or, companies and workers can agree to in-house arbitration to settle disputes.
There is nothing special about the labour contract that requires government involvement. Government intervention in hiring and firing serves only to inject politics into the workplace and, in the case of restrictive labour laws, protect the employed at the expense of the unemployed. Scrap the Labour Relations Act and the Labour Relations Amendment Act, the Industrial Courts, minimum wages, the Department of Manpower, government training programmes, job reservation, affirmative-action rules, and all other government laws that interfere with the worker-employer contract.
Companies should have the right to recognize or reject unions; workers should have the right to boycott companies that don’t treat employees well.
22. Cut and simplify taxes. Only two taxes can be justified to raise revenue, both highly visible so we can see how much money the government is taking from us: sales tax and income tax. The one that’s picked should be at a low rate.
For example, impose a sales tax of just 5%, or institute a low, flat personal income tax of, say, 10% on earnings over $10,000 a year. Scrap all other taxes, duties, and surcharges. To balance the budget, cut government spending or sell state assets.
23. Abolish shop-hour laws. Laws that restrict shop hours protect lazy shopkeepers from stiff competition. Consumers should vote with their rands on when they want to shop. If it doesn’t pay to be open on Sunday, stores won’t open. The law should allow (but, of course, not require) 24-hour trading.
24. Scrap hire-purchase regulations. Typical of Pretoria’s costly, arbitrary rules are HP restrictions, which were changed again in August 1988. Buyers of appliances, jewelry, watches, clocks, and televisions must make deposits of at least 15% and pay off purchases within 18 months. For radios, VCRs, and TV games the figures are 25% and 12 months. For commercial vehicles, 30% and 42 months. Who comes up with these figures? The government spends taxpayers’ money promulgating and enforcing HP guidelines that individual banks and retailers are quite capable of setting themselves. The government shouldn’t concern itself with how we pay for our TV sets.
Likewise, scrap the maximum finance charges allowed under the Usury Act. It’s none of the government’s business how much interest a borrower and lender agree to. Furthermore, enforcing arbitrary Usury Act rates is a waste of taxpayer money.
25. Legalise gold. Allow South Africans to own as much gold as they’d like in any form: coins, jewellery, bullion. End the government monopoly on minting gold coins, thus allowing anybody to produce competitors to the Krugerrand.
26. Stop Subsidising the Consumer Council. The South African Coordinating Consumer Council, today largely financed by the state, should survive through individual or corporate donations. People shouldn’t be forced, through taxes, to pay for what some see as a wasteful, pro-regulation lobby: those who, for example, think the council understands nothing about economics (it attacks interest-rate increases and imports) and spends tax money on pointless “consumer” pamphlets (Do not use two cars when one will do: one is cheaper and helps avoid traffic congestion”).
The government should protect consumer rights by strengthening the common law against fraud, breach of contract, and shoddy or dangerous goods and by ensuring that the court system can handle consumer-business dispute quickly and efficiently with no legal red tape.
27. Shrink the civil service. Impose a public-sector hiring freeze and offer 24 months’ salary to civil servants who quit.
28. Abolish corporate welfare. All subsidies and protection to businessmen and farmers should be scrapped: export incentives, subsidized loans, import tariffs, decentralization incentives, export incentives (the Directorate of Export Promotion, a cornucopia of corporate welfare, gives companies cash grants to pay for overseas exhibits, overseas warehousing, visits of foreign buyers, and export market research).
The bodies that funnel money to business—Industrial Development Corporation, Small Business Development Corporation, Development Bank, homeland investment companies—should be privatized so all investment is done on economic, not political, grounds. Companies should survive only as long as they are delivering the goods and services that consumers vote for with their rands.
29. Abolish the Department of Trade and Industry. The department interferes with foreign trade by preventing consumers from buying cheap imports (to “protect” inefficient local industries) and by giving taxpayers’ money to exporters. These schemes make the country poorer.
The department has also come up with a “local content programme,” by which its central planners dictate how South African automakers should build cars. South Africa doesn’t need central planning. Suggest to all who work in the department that they get jobs in trade or industry.
30. Scrap the Decentralisation Board and the Department of Development Aid. The government should not try to “stimulate development” or lure companies from one part of the country to another using tax money. Abolish corporate taxes and deregulate zoning and labour laws, and South Africa will have plenty of investment wherever it’s needed.
31. Dismantle much of the central government. Keep a lean and efficient defence force, foreign-affairs office, police department, and justice system.
Maintain one small home-affairs department for all other, miscellaneous tasks: collecting the sales or income tax; overseeing parliament and voter registration; running the State President’s office; and issuing passports and visas.
Abolish or privatize the Department of Agriculture, Bureau for Information, Office of Administration and Broadcasting Services, Department of Constitutional Development and Planning, Department of Economic Affairs and Technology, Department of Mineral and Energy Affairs, Department of education and Training, Department of Education and Culture, Department of National Education, Department of Environmental and Water Affairs, Department of Finance, Department of Water Affairs, Department of National Health and Population Development, Department of Manpower, Department of Posts and Telecommunications, Department of Public Works and Land Affairs, Department of Transportation, and any other government departments, councils, and boards you find in the Pretoria telephone directory (Public Investment Commissioners, Publications Appeal Board, Housing Advisory Council, State Language Services, Wage Board, and so on).
The Underlying Message
It’s beyond the scope of this book to analyse every rand the government wastes and every inefficient project it backs. What’s important is the underlying message: sanctions or no sanctions, the government shouldn’t try to control the economy.
By getting out of the economy, Pretoria would set South Africans free and unleash prosperity.
All the above steps could and should be taken immediately, but intermediate steps would be better than nothing: create free-trade ports as the first step toward a free-trade South Africa; institute low-regulation enterprise zones to put the unemployed to work, as a prelude to deregulating the whole country; begin phasing out import tariffs and corporate taxes under an announced timetable to scrap both entirely.
But beware of taking half-steps. The problem with timetables is that they are always abandoned under pressure from vested interests. Speedy, drastic deregulation is politically wise because (a) it doesn’t give vested interests time to organize into a powerful reactionary political opposition and (b) it causes an immediate burst of economic growth so the majority of people will see that free-market reform is the road to wealth.
Given the threat of growing unemployment, slower growth, and greater unrest—plus capital flight, emigration, and a conservative white backlash over the stagnant economy—a wise government wouldn’t delay economic reform.
The government could appoint a blue-ribbon panel to report back in 18 months with a five-year plan for reviving the economy. Or it could act boldly overnight.
The choice is between poverty and prosperity.