The latest report from Fraser Institute’s Economic Freedom of the World (EFW) has just been released and South Africa continues to lag behind the rest of the world.
This year (which uses 2017 data) South Africa has fallen two places, dropping from 99 to 101 globally on the EFW Index.
The immediate implication of this is that two other countries are economically freer than South Africa, after the nine countries which overtook the country the previous year.
According to the index, South Africa saw improvement in four of the five EFW areas, which is why the index score fell from 6.58 to 6.61.
In the area of the legal system and property rights, South Africa fell from 5.19 to 5.05.
The biggest drop is in the protection of property rights, which is not surprising given the ruling ANC’s decision to adopt land expropriation without compensation as a policy last year.
Indices such as the EFW help measure the progress of policy reform.
Economic freedom is essential to economic prosperity: there are no shortcuts, no way around the laws of economics.
People are more productive when they have the freedom to be productive. Indeed, this is what you see when you look around the world.
The countries with the greatest degree of economic freedom are also those with the highest GDP per capita as well as the lowest poverty levels.
The best argument that can be offered by those who despise freedom is to point out inequality.
Very good, except that the countries with the highest levels of inequality tend to be those in the third quartile (25%) of the EFW.
How can we explain this? Why aren’t the freest countries the most unequal if capitalism causes inequality? Conversely, why are the least free countries not the most unequal?
The short answer is: I don’t know, but I think it’s possible to make some reasonable and logical assumptions about what’s going on.
The freest countries are not the most unequal just because free economies are the most dynamic and meritocratic, it is possible to move from the bottom of the pile of society to the top.
This is why you see billionaires from all walks of life in these countries.
Even a South African laaitjie like Elon Musk, the CEO of SpaceX, can become a billionaire in the United States while in South Africa the only ones who get rich are those linked either to politicians or to someone who is. already rich.
The fourth quartile countries are not the most unequal because by the time a country reaches this stage, the capital base (wealth) has been destroyed so much that everyone is essentially poor, except, perhaps, of a few politically connected individuals.
The third quartile is made up of the most unequal countries simply because they have the greatest government interventions.
Without the state having direct control of the economy as a whole, private capital gets used to financing the cronyism and corruption allowed by state intervention.
EFW is a very useful tool. Our government should consider using it to measure progress towards reform.
Other indices that complement the EFW should also be used.
Not only are the most economically free countries the richer, but they also do not contain, contrary to popular belief, the most unequal societies.
Countries in the EFW’s third quartile, where South Africa is located, tend to be the most unequal.
. Dhlamini is a data science researcher at the Free Market Foundation. The views expressed in this article are those of the author and not necessarily those of the Free Market Foundation.