Saturday, 17 September
16 Sep
VOICES
The South African state is, for various reasons, committed to the project of transformation.
This means changing the demographic structure of wealth in the country as a response to the centuries of socially engineered outcomes stemming from colonialism. Transformation can take multiple forms, though, and the transformation that will be brought about by deregulation is wholly ignored.
This thrust for transformation has taken the shape of legislation being passed by Parliament, which mandates certain levels of ownership, employment, and supply by historically disadvantaged people for companies wishing to do business with the state; or legislation which sets targets for the demographic outlook of a particular workplace, such as the Employment Equity Act.
READ: Competition Commission’s meddling in mergers: Ownership versus competition
The other end of this spectrum is that even with this legislation with how it is, many would still decry that not only is wealth distribution largely the same with white South Africans sitting atop everyone, but the gap between the rich and poor has also grown wider.
This is because even with legislation, such as the ones passed by our state, the actual man on the street still finds it as difficult to enter a particular market in South Africa. Not difficult in terms of capital outlay – granted those difficulties exist – but difficult because of legislative requirements that inflate the capital outlay for a venture. Whereas for established businesses, they are merely a cost, as they already amassed revenue under a system of no regulations.
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Regulations on businesses in the economy benefit mostly established businesses. Further regulations on businesses will only hurt more those individuals whose compliance with them represents a part of start-up capital than those it is a cost. So, for transformation to be facilitated, the other end of a business environment that will not hamstring small players with unnecessary costs is needed.
In South Africa, we seem to operate under dangerous presumptions. The mainstream thinking is that an economy can grow by being centrally directed, wealth is a fixed pie that must be shared ‘equitably,’ and that the best way to improve living conditions is to have some academics and politicians plan our lives, right down to how much sugar we need in our drinks.
This is contrary to the well-established evidence, as shown in the Economic Freedom of the World Index by the Fraser Institute, which highlights how societies with less state intervention in the economy have higher standards of living.
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Therefore, for prosperity to occur, the top-down social engineering that sees an endless stream of regulations being passed to govern every aspect of people’s lives achieves the opposite of its intended ends. Instead of imposing regulations, which as we have highlighted, benefit the incumbents, deregulate and subject those incumbents to competition from people previously closed out of these markets due to regulations.
READ: Why economic freedom is vital for SA’s future prosperity
The South African state has a history of social engineering. It created a situation wherein one segment of the population has obscene obstacles in their way to capital formation and building. From confiscation of property to regulations that monopolised industries among certain South Africans. The urge to correct this from the state level alone is natural and understandable on my part. I would not question the good intentions of those who act in such a manner.
As such, to achieve the ends of a demographic change in wealth distribution, those who were inhibited from creating and accumulating capital must have all obstacles in their way removed.
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To achieve true transformation, laissez-faire is the way. Allow black South Africans to enter markets, satisfy preferences and accumulate capital. This will not only achieve the transformation sought, but it will also be more worthwhile as the consciousness of wealth building will be fostered. Continuing with the regulatory, administrative state will only exacerbate the problems that seek to be solved, further driving us down the road to serfdom.
Mthembu BA Law LLB (Wits) is a legal researcher at the Free Market Foundation
15 Sep
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