South Africa is not Venezuela, which ranks low with one of the worst performing economies in the world. But he’s also not near the top of the list and among the best. The Global Economic Freedom Index tells a sad story of South Africa’s decline in recent years.
South Africa is in the lower half, squeezed between the corrupt Russian Federation and Tanzania – which doesn’t recommend it at all.
Why is economic freedom important? Something often overlooked in debates. In terms of performance, it is no coincidence that the freer the economy, the more prosperous people are. Hard data also shows that there is longer life expectancy, greater social tolerance, greater gender equality and a host of other indicators. Why?
One of the main reasons is the difference between bureaucratic management and profit management. In the bureaucratic system, you have small cliques of individuals trying to solve a problem. Often the incentives to solve the problem are rather perverse and many social problems, if solved, would put bureaucrats out of work.
In depoliticized markets, the incentives are quite different. There you are financially rewarded if you solve a problem. The grocer who delivers food to willing customers is rewarded with sales. Also, compared to a small group of bureaucrats half-heartedly looking for a solution, in the markets you may have hundreds, thousands, or tens of thousands of people all working on solutions. The solution that will work is only discovered over time, but the more people who work on it, the sooner it is discovered.
But, politics often punishes the people who solve the problems. Politically managed systems usually create perverse incentives – they reward bad behavior and punish good ones. It is well known in political circles around the world that a government agency that ends the year with a surplus often sees its budget cut the following year, while those that lack funds receive more. Departments that are managed effectively get reductions and departments that waste are rewarded.
An acquaintance who once worked at the US Pentagon said they would rush at the end of the fiscal year to buy anything and everything to use up the department’s budget to avoid cuts the following year. It’s like a doctor gets a bounty if he kills more patients and gets punished if he doesn’t.
If you don’t think that’s what’s going on, explain South African Airlines. She is poorly managed and driving in the red and, most recently, a subdivision of the airline, SAA Technical, had to deny her service due to non-payment of her debts. The government’s solution was to throw an additional R10.5 billion at the “doctors” who deal with this dying airline.
In doing so, they did not please the International Monetary Fund from which they had gone begging for 70 billion rand for the response to COVID-19. A government that proclaimed it didn’t have the money to save lives was happy to throw billions to save inane bureaucrats who imagine the SAA to be a national treasure.
So when the new South Africa first requested an IMF loan, it pleaded poverty over COVID but found billions to squander in a giant economic sinkhole. This is not the way to build confidence and rightly should make future loans more difficult to obtain. Mr Hill-Lewis, the shadow finance minister rightly noted: ‘It now seems likely that the SAA bailout will be funded by cutting COVID stimulus spending on public employment programs and rail infrastructure. . This would be contrary to the letter of intent that the government sent to the IMF when seeking funds.
The reality is that SAA management has no incentive to solve the problems. It’s too much work. All they have to do is keep failing and wait for the next government liferaft, laden with funds earned by the hard work of South Africans. Hard-working taxpayers are then punished again with higher taxes while SAA management is bailed out again.
I admit being puzzled as to why the ANC government is so determined to save this albatross around their necks. As a current US resident, I’m used to a politician who struts too selfish to admit his many disastrous mistakes. But the SAA predates the ANC government.
The SAA is itself a creation of the apartheid regime, a government that at the time had nothing but contempt for economic freedom. So why does the ANC make this problem of the former nationalist government its own special cause? They have often pointed the finger of blame on the National Party and yet, this time when such blame is warranted, they are rushing to embrace the mistakes of the past and make them their own.
This article originally appeared in City press.
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