11 Reasons Why We Need A Separation of State and Economy

The notion that there is and must be a ‘separation of church and State’ is so ingrained within the fabric of Western liberal democracy that it is very rare nowadays to see a serious discussion on the topic. The odd radical atheistic or Christian fundamentalist...

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The notion that there is and must be a ‘separation of church and State’ is so ingrained within the fabric of Western liberal democracy that it is very rare nowadays to see a serious discussion on the topic. The odd radical atheistic or Christian fundamentalist group will still on occasion air their displeasure that the separation has not been absolute in every instance of public policy, but these are isolated cases.

Church and State were, of course, rightly separated, because the role of the State in terms of the so-called ‘social contract’ was never to involve itself in personal religiosity of the people. Indeed, the social contract is a tacit agreement whereby individuals in society give up their right to initiate force against other individuals in pursuance of their own interests. This right is ‘given’ to the State so that the State can ensure nobody goes about furthering their own interests in this manner, and that the State will be the only institution to use force to protect legally recognized rights. In a nutshell, this is the social contract.

But this then raises the question: Where did the State get the power to get involved in consensual market interactions? Obviously, as a libertarian and avowed free marketeer, I don’t think the State has this right at all, and simply appropriated for itself in small bits and pieces the power to intervene in the economy.

In this article I will run through eleven reasons why we should, in fact, have a separation of State and economy. The list that follows is based on Leon Louw and Frances Kendall’s “11 Laws of State Economic Intervention”, from their book South Africa: The Solution. However, I have changed the order and tweaked the items in the list slightly to make it more appropriate for this context.

These are the characteristics of State intervention in the economy, and why the State must promptly remove itself:

1. Intervention Is Said To Be In The Public Interest

The first thing politicians do when a new intervention is announced, is say that it is in the public interest. In South Africa, the public interest is always considered to be that which is for the benefit of the poor and unemployed. When we hear the government talk about new policies and regulations, it is very rarely portrayed as being of benefit to anyone except the poor, at least indirectly. But do not be deceived by the sophistry!

2. These Interventions Benefit The Few At The Expense Of The Many

As has been shown repeatedly, interventions usually benefit either politicians in the form of consolidated power, or big businesses, in that the intervention makes business more difficult for smaller competitors. Small businesses have less resources to comply with new taxes and regulations, and are often crushed under the interventionist burden imposed by the State. More money out of the pockets of South African taxpayers, also means more money into the pockets of politicians and the government bureaucracy. Very rarely do we see the poor rejoicing at the great benefit they have received from new government policies; in fact, despite the fact that welfare and ‘pro-poor’ initiatives have only been on the rise for the last decade, the poor have never been this unhappy with the government since the dawn of democracy.

3. Big Business Often Supports Intervention (More Regularly Than You Think)

Big businesses may lobby the State for less regulation behind the scenes, but when the State makes its unequivocal intention to intervene in the economy known to the public, endorsements from those big businesses start flowing in. We at the Rational Standard write quite often about how South African businesses need to man-up – like they did during Apartheid – and tell the government to back off with its ideological agendas.

But there is also a much more nefarious reason big businesses support new interventions in the economy: They can afford to comply with the new burden, but their smaller competitors cannot! When, for instance, a minimum wage is introduced, big corporations can often afford to pay the new wage, but they know their smaller up-and-coming competitors will not be able to. So, what better way for them to eliminate the competition than by lobbying the State for the minimum wage?

4. Interventions Are Rationalized By Reference To Their Supposed Benefits; But Their Cost Is Never Mentioned

Politicians always like to refer to what they consider to be the benefits of any new intervention. In the case of the minimum wage, they almost invariably only mention how the increase in wages will alleviate the so-called ‘wage poverty’ experienced by many workers; and in the case of new taxes, they rationalize them by saying the State needs extra revenue to provide more and better services. With ‘sin taxes’, politicians can quite easily try to justify them by saying it is to ensure people use less of the product in question.

But do politicians or the government ever mention things like “this new project will destroy thousands of jobs?” Of course not! Yet, this is exactly what the minimum wage is destined to do. Similarly, when new taxes are introduced, the cost of living goes up, because companies need to raise prices (or delay wage increases) so that it can cover the new tax costs.

Remember, every new government intervention in the economy has a cost, and it will usually be up to us to find out exactly what that cost is, ourselves, because the State has a direct interest in hiding it from us. This was evident in the government’s white paper on the proposed National Health Insurance, where the Health Department said we shouldn’t worry too much about how it will be funded; instead, we should just be happy the government is enacting the policy!

5. There Are Always Unintended Consequences!

No government intervention only has the effect that it was intended to have, and this ties in to the previous point.

For instance, the minimum wage has very noble intentions: To raise the wages of all workers so that they can have better living conditions. But, because it is essentially a price control – i.e. controlling the amount of money a worker may charge for his labor – various unintended consequences will be felt throughout the economy. A small businesses which would have advertised, for example, for two part-time cleaning positions, will now only advertise for one cleaning position, or the owner will do the cleaning herself, meaning she has less time to devote to running the business. This means there is both a direct cost as well as an opportunity cost, neither of which were intended to result from a minimum wage.

So, again, always be mindful of the fact that every government intervention in the economy has a cost, but every government intervention also causes distortions throughout the economy. While the South African government has undertaken to do cost-benefit analyses before introducing new measures, we, as responsible citizens, should do our own homework on the matter before we decide to support a new intervention!

6. Interventions Always Create An Apparent Need For More Intervention, With New Side-Effects, Etc.

Perhaps the most perverted aspect of State interventions in the economy, is that they inevitably serve to justify even more interventions! This is mostly because of the unintended consequences which were created by the initial intervention.

For example, in 1998 the government released a white paper on energy policy, which said the State wanted to deregulate the energy market and allow private competition. Several international electricity companies stated their intention to enter the South African market. However, the government never implemented this policy, and most recently stated that there will be no liberalization of the energy market. As most of us know, since 2008 we have experienced various episodes of so-called ‘loadshedding’. This intervention, while loathed, was seen by most reasonable South Africans as a ‘necessary’ measure to ensure our grid is not overloaded. But the intervention was a direct consequence of the State’s prior interventions!

Whenever the government proposes a new intervention in the economy, we should investigate whether or not that intervention was actually just a ‘fix’ for a prior, failed intervention. In this way we can determine whether or not it might not be a better idea to repeal the initial intervention instead, rather than passing a new one!

7. Bureaucracy, Spending, Taxes, Corruption, And Lobbying Are Increased

It follows that with new interventions, spending and bureaucracy increases. Every intervention needs to be implemented by someone, after all, and they need to get paid. Naturally, this means we need to pay more taxes directly, as well as indirectly, by having the cost of living go up as companies increase their prices to comply with the new regulations.

But what we usually overlook is that corruption and lobbying also become more rife when the government gets more involved in the economy.

We have all heard the expression “get money out of politics”, which means big businesses should not be influencing decision-makers to act contrary to the interests of the people. But money is in politics, only because politics is in money! Remember, businesses would not want to lobby the government if they didn’t have a direct interest in doing so, and that direct interest can only spawn out of the government regulating the business sector in question in the first place. Why would tobacco companies want to lobby the State if the State did not regulate tobacco advertising, and tobacco production and distribution? Whether we think the State is justified in regulating a particular thing or not, we must acknowledge that if it does so, lobbying will happen.

This inevitably opens the door for corruption. The bigger the government, the more revenue streams and people administering those streams it has, and this means that the probability of corruption is vastly increased! This, along with the increased lobbying, means that big businesses often have ‘friends’ in the government which they can lean on to change policy.

On a side note, we often forget that trade unions, citizen rights groups, and individual citizens, are also lobbyists. Do not unfairly criticize big companies for doing exactly what everyone else is doing!

8. Flip-Flopping Politicians Usually Introduce New Interventions

Louw and Kendall’s book was written during a time when the State still masqueraded as supposedly ‘anti-communist’, even though we know this wasn’t exactly true.

Nowadays, however, politicians feel much more comfortable identifying as socialists (even though they should not), and do not hesitate to articulate their distaste for business-people and entrepreneurs. So this item on the list is less relevant today than it used to be, but it is nonetheless worth pointing out that even in our current political context, every political party, from the left wing ANC, the center left DA, to the far-left EFF, say that they will make life easier for small businesses and entrepreneurship to flourish. Of course, the moment they’ve won the election, this obviously doesn’t happen.

9. Liberty Is Always Reduced With New Interventions

This is not always obvious to the untrained eye, just like the frog which is slowly being boiled alive doesn’t notice until it’s too late!

Any new intervention in the economy – and I must emphasize any – carries with it a reduction in the economic liberty of South Africans. Even so-called ‘consumer protection’ laws and regulations have this effect.

The new burden that the State places on the economy means that money is going where it otherwise would not have gone, if left to natural market processes. These distortions in the market inevitably means that we have less money to spend on the things we want, and businesses have less scope to provide us with what we want. Instead, the government is telling us what we apparently ‘need’, and mandating it.

10. If Civilians ‘Intervened’ Like The Government, It Would Be A Crime!

If you or I as ordinary people decide to ‘intervene’ in the economy in the same way the State does, we would be branded thieves, robbers, trespassers, vandals, or an assortment of other criminal titles.

By virtue of the so-called ‘social contract’ the government has the extraordinary ability to do things which would otherwise be considered gross violations of individual rights. While we acknowledge the need for the government to have this ability, when it uses its violent powers to intervene in the economy, it steps beyond the bounds of the social contract.

11. It’s Easier To Introduce, Than To Repeal, An Intervention

Imagine a politician or a political party announcing that they wish to repeal (abolish) the Consumer Protection Act! The optics on such a campaign will be terrible, and South Africa’s press media will thoroughly sensationalize the matter, with headlines like “No More Protection For Consumers, Suggests Van Staden” or “Van Staden: Take Away Consumer Rights”. Indeed, this is why libertarians are so fierce in trying to stop the new so-called Hate Speech Bill from passing through Parliament. No politician, with an interest in being reelected in this country, will ever suggest repealing that legislation once it has passed, so it should rather not pass at all!

Besides the optics, the State also naturally does not want to cede power which it has already obtained for itself.

Can you even remember the last time the South African government abolished a particular tax? When last was a government department abolished? When it comes to interventions that already exist, current and future governments are very reluctant to take them away, because it might mean the new government will have less revenue than their predecessors, or the new government might fear the possibility of a handicap, if it chooses to repeal those interventions.

This is why it is very crucial to not take a ‘let’s wait and see’ approach to interventions. Do the cost-benefit analysis beforehand, and always err on the side of not supporting new government action!


The market process is a beautiful thing. With no conscious control, millions of individuals from around the world can ‘work together’ to create something which benefits all of them. The parable of the pencil by Leonard Read is perhaps the most well-known articulation of this. A short ‘movie’ of it was also produced!

Government intervention in the economy is always well-intended, but always has consequences which were not intended.

While the social contract is an important ingredient in human civilization, it still has limits. It is not an open-ended tool which the State can use to justify anything and everything it wishes to do. Only when the government protects our individual rights from physical assault and fraud, and enforces agreements which were mutually agreed to, will the social contract be adhered to. This means the notion of government intervention in the economy must be binned.

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  1. Harald Sitta Reply

    Fine! Number 12: Professional politicians are dumb or corrupt or, gullible or all of that! They do not possess the quality to broom the floor and should be kept in distance of every device with more than one button. 🙂

  2. Martin Foster Reply

    Good article! “When buying and selling are controlled by legislation, the first things to be bought and sold are legislators” P.J. O’Rourke

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