Written by: Paul Hjul
The extent to which the governments of various African countries can cause the economies of those countries to emulate the economic transformation that took place among the “Asian Tigers” (Hong Kong, Singapore, South Korea, and Taiwan) is a complex and profoundly interesting question. It is, however, a question which lends itself to be answered by way of an author selecting, and often twisting, cherry-picked “facts” in order to construct a narrative. Truth – especially in complex interrelated human affairs – is however almost invariably more nuanced than any narrative can cover. My objective in this article is not to construct a middle path narrative sitting in the middle of an artificial spectrum with positions resembling anarcho-capitalism on the one end and totalitarian statist socialism on the other. Instead, I am going to ask whether there is reason to hope for an improvement in the state of liberty experienced by individuals in South Africa.
Recently, two economists (Mondi and Swana) affiliated with the University of the Witwatersrand penned an article which appeared in The Conversation on this subject. As could be expected, on the article being distributed among a social group of individuals who identify as having an interest in libertarian philosophy and society in South Africa, the label of “socialist” was misapplied to the authors. I am not aware of any reason to presume Mr Mondi to be a socialist (other than the term being used as a meaningless and infantile pejorative) and, to the best of my knowledge, Mr Swana’s only link to socialism is that he is involved in the ICT sector, and it is a truth universally acknowledged that everybody in IT is either a billionaire or a socialist (of course, my tongue is firmly lodged in cheek at this point). Of course, I strongly dislike and disagree with Swana’s argument in “Why Africa could do with a dose of punctuality and cleanliness“, an article which I am sure had many of the individuals decrying him as a “socialist” for one piece of writing cheering at his “enlightenment”.
Some individuals and organizations have tried to twist the facts to support the “Asian Path” as one of “state control” which, quite frankly, distort matters considerably. However, it is equally disingenuous and dishonest to attempt to conceive of the Asian Tigers as having arisen within a backdrop of the wholesale adoption of free market polices. Human history is yet to produce an incident in which the movement towards economic or political liberty does not take place against a backdrop in which there is a shift in the political landscape wherein power is forcibly (and generally violently) taken or negotiated over.
A discussion of the Asian Tigers that similarly canvasses the ground of disagreement between people as to which narrative best fits the fact is quite easy to hunt down – Wikipedia (which is not an academic or authoritative source by any means, but certainly has validity as providing a base point in a discussion).
Mondi and Swana set out a view – in what is a limited public discussion arena (“The Conversation”) – which can be boiled down to (as stated in the conclusion):
“Very few nations prosper without well-organised and strategically focused hard work and sacrifice. Africans need to learn to direct effort and resources with a long-term goal. Leadership is key.”
While I am quite sure several of Leon Louw’s BDLive articles can be found advocating similar propositions, the notion that good work (“organized and strategically focused”) coupled with expressions of support for raising incomes of the general populace and making a case for “state pragmatism” moves the arguments advanced towards adopting the position that a developmental state is accomplished through government intervention fiat in the economy at the expense of liberty. I am going to touch briefly on this argument and why it is both manifestly correct and profoundly wrong. Their view, however, can hardly be equated with socialism or with an argument in favour of intrinsic statism – the very notion of state pragmatism is in direct conflict with statism. Unfortunately, the notion of statism is too easily misunderstood: statism carries a set of normative and almost religious propositions as to the primacy of the state – it is these norms that lead statist adherents down the road to authoritarianism and ultimately fascism. Arguments about how a particular state or government as extant should conduct its affairs to achieve some or another standard of social or economic betterment is not an argument in favour of the primacy or intrinsic value of that state.
My argument is that the article has merit in most of its observation and if one accepts (whether actual acceptance or acceptance arguendo) that economic development and the creation of wealth and prosperity is chief value – if you are a utilitarian…
But I believe the authors are missing (or at least not stating) part of the point. It is perhaps apposite to indicate that I hold the improvement of individual liberty to be the objective which all government action must be measured against.
As I read the article the authors are conveying a few key ideas on the need for “robust national leadership” in order to accomplish a developmental agenda. A person can disagree with the overall development agenda project – on grounds such as the fact that creativity, individuality and self-fulfillment are greater values than the “march of progress” or cautioning the road to serfdom… However, the opening gambit of the article is “What does it take to steer a poor country from Third World to First World status?” and the title is “How to take Africa from Third World to First World in 25 years”, so the answer is different to “how to maximize liberty or happiness”. And so the framework should be taken on its own terms. I can’t imagine that Martin would find himself any less in favour of free market economic policies if it were to turn out that rapid growth took place under “mixed market” policies simply because economic liberty is intrinsically valuable rather than a mere means to the end that is meaningless prosperity.
What is not conveyed is the extent to which the Asian Tigers arose within a context of major technology shifts (and technology in the broadest sense – so the means of doing business and the like) where these jurisdictions offered freedom to innovate in various ways. Hong Kong was a special British jurisdiction without a heavy layer of government bullshit that grew out of various political compromises; moreover Hong Kong found itself as a jurisdiction linking to the Chinese manufacturing base. I disagree with the assertion that “States crowded in private capital in support of investment in infrastructure and human capital formation” – not so much because of its accuracy because it could easily be misconstrued as to suggest that there is some magic voodoo that can arise in macroeconomics that causes a mega-investor (such as a state) to not hold a crowding-out effect on sectors where it heavily invests. Instead I would put it as follows: The state as an economic agent managed to position itself as a catalyst for capital formation such that private capital flowed into projects at a rate greater than any crowding out effect. This position was not universal but on the aggregate the private sector developed in tandem and at a greater pace than the government sector.
What is also not canvassed by Mondi and Swana is how new forms of economic liberty and private ownership rose exponentially. While they shine a torch towards the importance of the rise in private savings, they don’t interrogate the manner in which governments are able to either be commercial obstacles (through crowding out) or a benign force: All land may belong to the government in Hong Kong (with a peculiar exception of a cathedral) but the land is readily available to be rented. Consider for a minute the paradox of mainland China property rights:
Imagine a realm in which, as the owner of a parcel of land, you enjoy total domain. Neither sheriff nor constable can enter without your invitation; the land extends to the pit of the Earth and to the edge of the atmosphere (aircraft require your consent to fly overhead) and you may fine or kill trespassers (a strong “castle doctrine”). But, in this realm you may not – and any attempt to do so will render you liable on leaving your land to be executed – enter into a transaction to lease out your land. Are you in a better position than the man in a realm where land ownership does not bring about a right to act against unarmed trespassers and where sheriff and constable may enter with very little good reason? A realm where, to erect any structure, you must convene a meeting of your neighbours and call in the vicar from 30 miles away in order to have a permit to build. But a realm where you may lease out your property with or without a right to sublease at such rental as determined by the parties, and the sheriff can be called upon to give effect to the contracts between parties and the constable will remove trespassers. Which realm provides greater economic liberty? What of a realm where you cannot own land or factories but only own a beneficial interest in that land or factory or where a licence to operate a factory is given with great protections? Where the word ownership is removed but the bundle of rights that you hold and can transact with – and pass down to your children – smells just like ownership. Is the rose by another name a rose?
So, yes, it is an accurate characterization of much of the “Asian Tigers” economic miracle was not a result of adopting “libertopia”-type policies or some sort of spontaneous free market. What occurred was that well co-ordinated, but not “centrally planned”, consensus as to economic development found itself implemented. This meant that markets enjoyed liberalization, politicos moved their exploitative ways into “crony capitalist” projects, and so on. The results are therefore more mixed than simply seeing pure growth, prosperity and happiness. All societies have corruption and all political systems have areas where the cost and weight of political bullshit are most heavily felt.
Further, it is certainly an accurate characterization that the massive increase in the number of individuals with rising incomes in those economies is (and has always been) pivotal to the growth of those economies and that individual savings and investments, rather than the redirection of individual income through taxation to state ownership and control of the means of production, is vital to growth. It certainly is true that democratizing the means of production spurs economic growth – but private ownership, rather than indirect orgiastic arrangements, are true democratization of the means of production. The suggestion, therefore, being that increases in income inequality cet. par. stall an economy. However, the factor that is relevant is the increase in purchasing power and economic choice possibilities among the poor, rather than what the rate of growth among the wealthy is – i.e. if income inequality in an economy is rising because the rich are getting richer faster than the poor are getting richer, there isn’t an obstacle to growth. This flies in the face of “trickle down” arguments, but really reinforces the proposition that giving everybody economic agency (through liberty) is the true way to grow an economy.
In order for South Africa to emulate the Asian Tigers, therefore, I do believe it is necessary for 3 processes to come together:
1. The need for confidence in South Africa as a steady service economy
The “headquarter company” provisions in our tax practice are a promising move, but there is a material deficiency in an overall ecosystem which needs to scope together better. Of course, the necessary ecosystem needs to come from the private sector with private sector bureaucracy working more imaginatively (attorneys, accountants, and the like). Until we start seeing some sort of corporate interconnect with Mauritius (which ties well into the arbitration remark later) and some creative use of the provisions, it really is a small means to retain regional headquarter entities (and makes Port Elizabeth an attractive HQ for the new beer giant, so I am not complaining).
2. The need for the South African government to cease attempting to centralize and control aspects of economic activity and the transformation of public enterprises into genuine public enterprises
In the main, government-controlled boards of state-owned companies (consider the SABC and SAA), offer less public-ness to the affairs and conduct of an entity than what arises from a transparently-traded public limited company – whose board is accountable to shareholders and where the company’s interests are aligned with transparency (such as to be able to keep interest in the shares). The Public Investment Corporation (PIC), Treasury, Reserve Bank, and so on, cannot be allowed to be captured by a political faction. I suspect that Mondi, Swana, and I will disagree as to what transformation and transition of the PIC and so on is needed, but what certainly cannot continue is a situation in which massive amounts of capital are misdirected towards mega-projects that are fatally and fundamentally flawed in design (such as the Gauteng Freeway Improvement Project) or are at risk of being misappropriated towards corrupt activities.
Part of this transition will have to be the South African government not funding public utilities through the fiscus, and rather transitioning those entities towards open private market funding, both from abroad and domestically – but the SOC provisions of the Companies Act need to completely revamped for that.
And on this front there is huge news: Despite almost 20 years of stonewalling and opposition from the African National Congress, cabinet finally approved the tabling before Parliament of an International Arbitration Bill earlier this year. Some of the cosmetic effects relate to implementing the UN Commission on International Trade Law’s texts but the profoundly good section is section 5, which binds public bodies. Now this little swing about has taken place after the entire “Promotion and Protection of Investment Act” bullshit, but follows down on what little cracks are taking place behind this monumental era of the threat of state capture and the Zumastration, and look at the possibility of simple cross-jurisdictional protections involving Lesotho, Botswana, and Mauritius and the situation becomes promising in the medium term.
3. The introduction of a culture of labour market responsiveness and flexibility.
This does not necessarily mean abandoning various worker protections or dismantling trade unions or anything of the sort. It requires something more profound and certainly within the description of “robust national leadership”. Unfortunately, so long as Blade Nzimande has the keys to both the higher education and the human capital development machine, this is not going to happen. More importantly, it is gravely difficult for South Africa to experience what needs to be experienced when the head of state is not only lacking in education but is actively disdainful of learning. Jacob Zuma was able to, on being “relieved” of deputy presidential duty, enter the matric program and set a tone. His outright election not to complete the matriculation examinations and inspire thousands of vulnerable young South Africans, speaks volumes of his total unsuitability to hold any sort of public office.
These three processes all require good leadership, however, the leadership must arise both in the private and in the government sector. Good leadership is often about setting a correct example and encouraging others to govern themselves. Now, whether emulating the Asian Tigers and accomplishing massive economic growth is a project worth surrendering other characteristics of a society, is a philosophical and political debate. If you are a utilitarian or are inclined to use utilitarian arguments to make certain cases, then the Asian Tigers do provide a lot more nuance than a simple argument for a “free market” and the shrinking of the state or government – all of the Asian Tigers have actually seen the size of their government increase.
As I’ve said, South Africa can set course to the Asian Tigers route quite quickly after the fall of Zuma (and without a change in which political party is in the majority in Parliament) if this fall is accompanied by a decrease in the influence of the venomous Communist Party members. What is required for the sort of arguments being made by Mondi and Swana to be accepted by the transitioning in administration – and there are strong signs that this is happening underneath the monstrosity of the Zumastration – is evidence in the form of the International Arbitration Bill (discussed earlier) and the sudden support for Special Economic Zones from Rob Davies in 2014. It is, however, a pertinent question of whether we want to emulate the Asian Tigers – or more poignantly, what aspects of emulating the Asian Tigers we wish to embrace and for what outcomes.
Anybody who values liberty – particularly individual liberty – should be concerned with advancing some of the courses of action which the historical record shows to have accompanied the Asian Tigers. With regard to recreational drug use, for example: The Asian Tigers have largely created massively violent drug cartels through an idiotic “War on Drugs” policy. As far as I am concerned, use of recreational drugs is idiotic and addiction is a character defect, but it really ought to be a matter of personal choice within the bounds of harm to others, avoidance of which is generally accomplished through delict principles. Placing freedom of conscience on the altar of economic development is not, in my view, acceptable. However, if you do value liberty, you can also value pragmatic policies that expand the economic possibilities frontier. I don’t imagine that Mondi and Swana will take any offence to it being said “be careful the road to serfdom”, as I am quite sure that they have read Hayek (who I am assuming is dismissed by detractors of academia on the basis that Hayek was in the service of the London School of Economics which is “taxpayer-funded” and established by the great socialists that are the Fabian Society) or at least intend to.
Author: Paul Hjul is the Chairperson of the Libertarian Party of South Africa, and may be contacted at [email protected]