Let's Think

SA and Economic Freedom report – balance needed

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The latest international report used for doom prophesies on South Africa, Economic Freedom of the World, is in need of some greater balance in its interpretation.

The report, released in SA last week by the Free Market Foundation (FMF), was seized upon by those subscribing to the philosophy – ideology really – that government should not interfere with the free market at all. For them it is proof that government interference has, among other things, a negative impact on economic growth.

If one delves a bit deeper into the details of the report, there is plenty of evidence that things are not all that simplistic.

It is true that SA’s economic growth has stagnated since the global financial/economic crisis of 2008 and that it coincided with the country slipping 54 positions (from 45th in the year 2000 to 96th in 2013, out of 157 countries) on the economic freedom scale of the report. It is also true some undue and counterproductive economic interventions by government have contributed to this situation.

However, to ascribe it only or mainly to government intervention and regulation, is a gross oversimplification. It speaks of selective use of facts when the FMF in its commentary on the report claims government interventions have a “negative impact on growth …”

What is also true, is that the two top African performers in terms of economic growth, the Democratic Republic of Congo (9.2%) and Ethiopia (8.8%) are ranked 144th and 143rd, respectively 48 and 47 positions below South Africa.

There is also the simplistic suggestion that wealth follows economic freedom. An argument can made the other way round as well, that widespread wealth in a country makes economic freedom affordable.

In the United States, for instance, which has slipped by 14 positions from number two to 16 between 2000 and 2013, it coincided with a widening income gap between the rich and the less well-off.

Likewise the linking of increased life expectancy in the wealthier, economically freer countries is an oversimplification. It is something that is to be expected (people who can afford better medical care are not expected to work long hours under unhealthy conditions), considering the fact that many of the wealthier countries have either exported their manufacturing capacity to cheaper labour environments and/or that their economies are to a lesser extent built on a primary manufacturing base.

Varying impact of business cycles

The social impact of global business cycles and restructurings on the various countries is also far from similar, depending on the structure of their individual economies, and placing totally different responsibilities on their respective governments.

A very clear example is playing itself out on the African continent at the moment, where developments in the global economy have dumped the mining industry in deep distress.

Switzerland-based Glencore this month suspended production at copper mines in Zambia and the DR Congo, as the company reels from what it described as the worst commodities market since the financial crash of 2008-2009.

While the social impact in Switzerland, ranked fourth in the Economic Freedom of the World report, is as close to zero as can be, it is dramatically different for the countries where the mines are based.

In Zambia, its Mopani mine, for instance, is the largest employer in the country’s mining sector, with a workforce of 10 000, and copper its biggest currency earner.

While the Swiss government can easily ignore the situation and leave it to the free market do deal with on its own, it would be foolhardy and irresponsible for the governments of Zambia and DR Congo to do the same.

Historic factors

Then there are other historical and ancient environmental issues of which the impact and influence play a role to this day.

Some 30 years ago I shared an office with the late, then already veteran journalist, Gus Cluver, who had a very interesting theory on why Africa has fallen behind Europe in terms of economic and technological development. In short, it amounted to Mother Nature having for many centuries ‘spoiled’ the people of Africa with wonderful climate conditions.

The Africans simply did not need elaborate structures to protect themselves against the elements and to store food for winter. In time of drought they just moved to where grazing was available – developing what he called a “pickup-and-go” culture.

In this well-researched book The Bible as history, first published in 1955, Werner Keller also describes how the great migration of the Israelites eastwards thousands of years ago in the days of Moses, was truly a move to a ‘land of milk and honey’. He traced evidence of a natural environment in the ancient Middle East dramatically different what is found there today. The influence of that history lingers to this day.

Challenges of the day

Economic consultant Cees Bruggemans and Professor Willie Esterhuyse were correct when they, in an article last week, identified a simmering conflict between insiders and outsiders in the SA economy.

One also cannot differ from their assessment that this is “a historic clash. Its resolution, one way or the other, will determine our future for generations to come. There is no certainty on this score, only fear and unease, and a growing clash of wills across many fronts in society.”

The government of the day is so caught up in its own ideological battles that it is not coming to grips with the job at hand of managing the brewing revolution. But that does not mean that a single-minded ideology of a total free market can do the job either.

The challenges posed are far too complex and multidimensional for ideologies to deal with. What is needed is a balanced mixed economic and political approach, led by cool heads.

by Piet Coetzer

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