Economics – Rational Standard https://rationalstandard.com Free political commentary for the dissenting South African Tue, 14 Nov 2017 20:09:48 +0000 en-GB hourly 1 https://wordpress.org/?v=4.8.3 https://i2.wp.com/rationalstandard.com/wp-content/uploads/2012/01/cropped-RS-Logo.png?fit=32%2C32&ssl=1 Economics – Rational Standard https://rationalstandard.com 32 32 94510741 South African Airways is Not a ‘Strategic Asset’ https://rationalstandard.com/south-african-airways-not-strategic-asset/ https://rationalstandard.com/south-african-airways-not-strategic-asset/#comments Tue, 14 Nov 2017 20:00:44 +0000 https://rationalstandard.com/?p=6733 In this article I am going to give a point-by-point rebuttal to the economic illiteracy expressed in this video. Firstly,  I would like to thank Benji Shulman for posting it on the Renegade Report discussion group and for bringing it to my attention. Below are summaries of the four main points presented in the video: […]

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In this article I am going to give a point-by-point rebuttal to the economic illiteracy expressed in this video. Firstly,  I would like to thank Benji Shulman for posting it on the Renegade Report discussion group and for bringing it to my attention.

Below are summaries of the four main points presented in the video:

  1. There is a demand for South African tourism that tourist operators are unable to meet unless the government provides a “public good”, which in this case is the South African Airways (SAA).
  2. SAA pays more in taxes than what the government spends on bailing it out, so the government does not make any actual losses by giving these bailouts.
  3. The benefits from point 2 above only work if the government owns SAA since it is only the government that can profit from tax revenue.
  4. SAA brings in tourists who cumulatively spend more money in the country than the cost of bringing the tourists to the country.This point is related to the first point but more on that later.

My rebuttals to the above are as follows:

1. This is a classic case of the seen versus the unseen. There is undoubtedly a demand for South African tourism, but why is it not valuable for operators in the tourism industry to collaborate with the aim of bringing in tourists by investing the capital themselves? Even if their cumulative resources are not sufficient to do this, if there is such a strong business case, surely the banks would be salivating at the chance of funding such a no-brainer?

The answer is simply that it is more valuable for tourist operators to invest their money elsewhere. They will take the tourists if we are stupid enough to impose costs on ourselves to bring them here, which brings me to the second point on this.

Government is subsidising the tourism industry (the seen) by taking money that would have been invested elsewhere by us (the unseen). The worst of it is that most of this money would have been invested in the future because, without raising taxes, government has to borrow to fund SAA bailouts.

2. This is just stupid. He is essentially saying government should prop up every company (not just SOEs) that is on the brink of failure as long as the taxes it has received and will receive from this company outweigh the cost of the bailout itself. Following this logic would mean that SAA would still be eligible for a bailout depsite being a private sector entity. Government could just continue to subsidise SAA on the basis that it pays taxes.

What he fails to realise is that money spent propping up an inefficient company is money lost in a productive part of the economy, as I have said in the second part of (1) above.

This is a recipe for a stagnant economy, with higher prices and disincentives for investment and innovation.

3. This third point simply does not hold. As I have said in (2) above, they could just as easily direct money into private companies as long as the overall amount of the subsidy is less than the total taxes paid by the company.

This argument is really an argument for lowering taxes. Why should the state waste time taking away money only to subsidise you later in order to get taxes. For simplifiction’s sake, just lower taxes for everyone and then there will be no need for a subsidy at all. This is far better for the economy because intelligent investment decisions can be made by the market, and not by central planners.

4. I have addressed this in (1). If the cost of bringing in a tourist is outweighed by the money they spend, people who benefit from this could just as well bear this cost themselves. This would clearly be more efficient because everyone who does not benefit from tourism gets to keep their money and invest it where it will work for them.

There is also a reason why the international airline industry is dominated by governments. Governments have over time raised the costs of running these companies to the point where they have to be run at a loss and only governments can do that, which in turn has made international travel more expensive than it would otherwise be.

A major contributing factor to the problem is the political pressure governments have come to feel due the irrationality of human psychology.

Just to take two examples: terrorism and plane crashes. No matter how rare fatal incidents are or how low the average number of lives lost is relative to other modes of transport, because the airline industry relies on scale to operate profitably, each deadly incident has more psychological impact on the voting public than say a thousand deadly incidents related to private automobiles over the same timespan.

So we clamour for the government to impose itself on the airline industry so that we don’t have to endure the horror of hearing that hundreds of people died simultaneously even though a greater number of people die on the road over the same period. A better way to ensure airline safety is simply not to fly on airlines with bad track records. Government does not have the omniscience to predict all possible incidents anyway, so it is in no way a reliable regulator of the industry.

There is a huge difference between money that is handed over voluntarily and money that is taken by force from people.We also need to learn that the market is always better at solving problems than any government ever will be.We must rely on the mechanisms of competition to put forth the solutions.

Lastly, here’s more about why giving SAA our money is such a bad idea.

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Three Monopolies That South Africa Should End https://rationalstandard.com/three-monopolies-south-africa-end/ https://rationalstandard.com/three-monopolies-south-africa-end/#comments Tue, 07 Nov 2017 22:01:41 +0000 https://rationalstandard.com/?p=6754 South Africa has had a murky history with regards to state-owned enterprises. For decades many companies have been subject to the control of the remarkably inept South African government, and it is this chokehold of the markets that has landed us in the most dire of circumstances. Entities that are protected by legislation morph into […]

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South Africa has had a murky history with regards to state-owned enterprises. For decades many companies have been subject to the control of the remarkably inept South African government, and it is this chokehold of the markets that has landed us in the most dire of circumstances. Entities that are protected by legislation morph into monopolies, resulting in a stifling of competition. Time and time again these legislated monopolies bank on taxpayer rands to bail them out of the repurcussions of what seems to be chronic underperformance. Below is a list of industries that are overshadowed by state-run monopolies that, if deregulated and privatised, will yield far greater returns to the citizens of South Africa.

Aviation

The South African aviation industry has, to a certain extent, been deregulated since 1991. This deregulation resulted in great growth within the industry and consequently higher levels of competition between various airlines. This greater competition was to the benefit of South African consumers as prices were kept in balance through this market competition, despite SAA being continuously bailed out by the South African government.

The Airports Company South Africa has also been partially privatised but the final step still needs to be taken. Unfair competition sanctioned by the South African government is being maintained through keeping SAA as a state-owned company. Notwithstanding the fact that SAA has a horrible profit making history, the airline keeps being bailed out by our government. With each bailout, the airline loses incentive to deliver better quality service.

The South African government should look at the successes of airline privatisation as guidance. British Airways, Iberian Air and Air France have all been privatised which in turn led to huge growth and improvement in services. Rather than following in the footsteps of the eight previous “turnaround” strategies of SAA and wasting R16 billion we should look to the worldwide move towards private and competitive airlines as a model worth following.

If the South African government ever decides to take the wise decision to privatise our national airline we will finally see an airline that is dedicated to its customers and not to the deployed boardmembers that sit at the helm of this sinking ship.

Power production

As certain is the perpetuity of time, so too is the granting of Eskom bailouts. One cannot help but wonder at the persistence with which the government continues to pursue failure.

The problem is not a management or structural issue at Eskom, but instead a structural flaw of our energy market. As with the aviation industry and SAA, Eskom has little incentive to pursue innovation and better service delivery when bailouts are all but guaranteed. This state-owned power producer will continue to fall short of the lowest standards of service and innovation as long as it has the indulgence of a guaranteed income and an insured failure.

Independent power producers (IPP’s) in South Africa are our future. If the South African power production market is decentralised more capital will naturally flow into more efficient energy alternatives. South Africa is well placed to reap the benefits from our vast amounts of sunshine and long coastlines for solar and wind power.IPPs that risk capital to develop technologies to produce power should be the competitors of Eskom and not the suppliers where Eskom fails miserably. By privatising Eskom, the power-hungry and short-sighted politicians are eliminated from the equation, and are instead replaced with enterprising individuals who are better qualified to provide quality services.

Railways

South Africa has the tenth longest rail network in the world. Yet the state-created rail monopoly has only resulted in disinvestment and considerable economic damage.

The clearest and most recent example of the failures of our national transport company is the Transnet Durban-Gauteng fuel pipeline that opened nine years after starting construction. Costs for this project spiralled from R12.7 billion to R30.4 billion. The recent, and very much controversial, Canada-USA fuel pipeline is twice as long, yet it cost 35% of what the Transnet version cost. This is indicative of the ineffectiveness of Transnet.

Our extensive railway network is vastly underutilised and inefficient. Only two Transnet rail lines make a profit. This loss is made despite a huge demand for alternative logistics and transport options. Furthermore, the commuter routes in our cities and between our biggest cities are not utilised. South Africans instead turn to privately owned bus or long distance shuttle services. The appalling management of the South African railway network has very much contributed to the overburdening of  roads, as well as to the great amounts of interprovincial traffic. Prasa posted a loss of R1.2 billion in 2015 in addition to very many other fiascos, such as the wasteful purchasing of the incorrectly sized train-carriages for our railways.

Ending this monopoly and opening the market brings new opportunities not only for South African businesses, but also for the South African people. We need to get South Africans on the move. We need to get goods moved around and to get our people to work. By getting more freight and traffic onto our rails we will reduce damage to our roads and highways.

Conclusion

Imagine South Africa had only a single grocer where all South Africans had to buy groceries. Imagine that this grocer was placed in this position because legislation placed it there and the same legislation prohibited any other grocers. Imagine this legislation was enacted because the government felt that everyone should be able to have access to groceries.

Why would this company want to have better services for its customers when it is the only or by far the largest grocer in the country with no competition? Why would this company want to sell better, fresher and more products if it knew that by the end of the year government will purely make up for any shortfall or loss that it makes?

It seems ridiculous when we imagine only Pick n Pay as our national grocer. The same ludicrousy exists within the state-legislated monopolies of our aviation, power production and railway industries.

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Recipe for a successful South Africa https://rationalstandard.com/recipe-successful-south-africa/ https://rationalstandard.com/recipe-successful-south-africa/#comments Mon, 23 Oct 2017 20:56:14 +0000 https://rationalstandard.com/?p=6664 Do not kid yourself: South Africa isn’t a great country. We are far from it. And we have never been great. But we can be. This article puts forth some essential plans on how we can progress into not only an African success story, but a global success. Read on for a plan to build […]

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Do not kid yourself: South Africa isn’t a great country. We are far from it. And we have never been great.

But we can be.

This article puts forth some essential plans on how we can progress into not only an African success story, but a global success. Read on for a plan to build a successful South Africa.

Some of these plans do need to work in tandem, but others, even if implemented alone, will go a long way to improving our country. Each point will be brief, but can be investigated more intensely in another article.

Abolish the homelands

We cannot claim to have ended Apartheid when Apartheid’s biggest legacy still lives on by government mandate.

The tribal trust lands are not some protected reserve – if we even needed such a thing – but a relic of Apartheid policy that sought to force African groups to secede from the country.

They serve no purpose but lining the pockets of some well-connected “traditional” leaders.

In these areas, residents can’t legally own land, and, as a result, there are no decent employment opportunities. Leaders also run their own courts with “customary law”. We claim to be a liberal democracy, but we allow illiberal systems of law to function in plain sight. Culture is not a defence here, as the defenceless in our society are abused by this archaic system of law.

In reality, what should be the ex-homelands are a demonstration of modern-day feudalism. If we are to make it into the 21st century and seek a prosperous and free society, we need to liberate our citizens from the clutches of this system.

Legalise dagga

Do I really need to say why? In essence, legalising marijuana/ganja/dagga/weed will lead to economic growth and lower crime rates.

Keeping this substance illegal only feeds criminals in the same way that alcohol prohibition in America fed the Mafia. Legalising it will mean less non-violent criminals in our prisons, less money in gangsters’ pockets and an opportunity for small and large-scale farmers to produce a crop with great commercial demand.

Fix our law enforcement

South Africans live under the vast shadow of violent crime. Murder, rape, home invasions, and assaults are committed daily and to all strata of our society. Any reasonable South African must agree that we need to do something about crime.

The solution is for our government to do its damn job. Instead of wasting precious resources and effort on vanity projects and useless departments, resources need to be redirected to our police force, prison system and judiciary.

Our police need better training, better management, better resources and better oversight. What is needed is a complete reform of law enforcement to ensure the minimisation of corruption and collusion with criminals. Police need to be paid and monitored better so to discourage corruption.

Alongside this better resourcing, manning and managing of the SAPS, we also need better resourcing of our judiciary so to process criminals more efficiently.

Finally, they need to be filtered into a better prison system that can house them while not allowing the prison to just be an extension of gang turf. The legalisation of dagga will help ease the strain on our prison system to make this easier.

To aid law enforcement, private firearm ownership needs to be encouraged through the lightening of the regulations and implementation of a rural militia system to equip farmers to defend themselves where police cannot.

Private security must also be used.

Currently, private security outnumbers SAPS and are one of the final bulwarks defending us from chaos. SAPS needs to work together with private security to counter criminals. Better relations between private security companies and SAPS will solve our personnel problems and lead to less crime overall.

Ensure separation of powers

Currently, South Africa’s political system is structured so that the winner of the elections controls Parliament, and therefore gets to appoint the executive (presidency) and then the President gets to appoint the judiciary. This lack of separation of powers makes state capture extremely easy and guarantees corruption and authoritarianism.

Our constitution needs to be restructured so to separate the powers of the President and Parliament. Moreover, weakening the powers of Parliament and the President on a constitutional level will ensure the same thing. You can’t loot the treasury if you don’t have access to it, after all.

Realise our economic status

South Africa is a back-water pretending to be a capital. We think we’re developed, but we’re un-developing.

All the way back in the 1980s, Eskom was warning the government that too much pressure was being put on gaining academics, at the expense of skilled workers. Mandela did not heed these warnings in the 1990s when he began shutting down teachers training colleges and revoking support from FET in favour of scholarly academics..

South Africa acts like we need scholars when what we really need are welders, plumbers, electricians – skilled, blue-collar workers. It is all very well that we have hundreds of academics saying we need to grow our manufacturing industry when we don’t have any skilled factory workers to man it.

The solution, however, is not to build new trade schools. It is to deregulate our higher education to allow private trade schools to start-up and then begin a cultural shift at a school level that it is okay to be a skilled worker. Instead of being an indebted graduate, rather be a rich plumber.

We are a poor economy and need to build our foundation of skilled workers before we can be allowed to spend resources on thinkers. Until then, we need doers.

Deregulate

Our economy is strangled. Workers, skilled or not, cannot contribute to a successful South Africa because they can’t find jobs. They can’t find jobs because government regulations and union controls disincentivise employment. The solutions are:

  • Encourage businesses to expand by removing the threat of BBBEE.
  • Encourage employment by abolishing the minimum wage.
  • Remove threats of employee mischief by weakening the political control of trade unions and lightening labour regulations.
  • In general, make it easier to start and run a business through removing regulation that inhibit their functioning.

There are countless regulations inhibit our ability to succeed. Scrap them.

Privatise

After deregulation, our nationalised industries and parastatals need to be privatised.

This doesn’t mean that they must be sold to the highest bidder. If possible, they should be parcelled up and sold to prevent monopolies. This must be done after deregulation so that the new private enterprises can function effectively.

Even without deregulation, privatisation at this stage is damage control.

Parastatals like SAA and SABC are just drains on the fiscus and need to be put down. Selling them to the highest bidder will get rid of a cash drain while gaining something for the trouble. And with the virtues of private enterprise – they may even become worthy businesses.

Eliminate and simplify our taxes

Taxation is theft. Plain and simple. But it is going to happen in a country anyway. Might as well make it as painless as possible.

Tax is not and should not be a means to drive forth mentally-bankrupt ideas such as equality. Tax is a fee paid for a service. The problem in South Africa is that we’re not receiving that service. In response to calls for better service delivery, the government just raises tax and introduces new taxes and hidden tax in the form of fuel levies. All this does is strangle an already-flagging tax base.

Developing countries with much less economic opportunities and mineral wealth than we have surpassed us purely by taking advantage of good tax systems. They have abandoned stupid ideas like progressive taxation and have implemented flat rate systems. They have realised that spending needs to be managed, not the private wealth of their citizens.

I propose that we abolish all taxes in South Africa and replace it with a flat rate tax of 10-20%. This will make taxation simpler to manage for all involved, ease the burden on our wallets and eliminate many unjust taxes (like grave-robbing).

Alongside this, spending needs to be cut dramatically.

Ideally, it needs to be kept to a minimum everywhere, except for security where it needs to be raised to a sufficient amount.

With lower and simpler tax, more people will be willing to pay. Without capital gains tax, foreign investors will flock to invest in South Africa. With more capital, businesses will be able to start up and expand, employing more people who will eventually be able to pay tax themselves. I wouldn’t be surprised if this new tax system ended up gaining more money for the government, as the economy grows.

Conclusion

What is clear is that a successful South Africa is a free South Africa. We need real economic freedom and freedom from criminals. This must be done through focusing on what matters: Security and the growth of the economy.

I submit that a political party that focuses purely on these solutions will truly connect to the hearts of South Africans everywhere and will win, ushering us into a successful South Africa.

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Why We Need to Bring Back the Gold-Backed Currency https://rationalstandard.com/why-bring-back-gold-backed-currency/ https://rationalstandard.com/why-bring-back-gold-backed-currency/#comments Tue, 03 Oct 2017 22:01:45 +0000 https://rationalstandard.com/?p=6513 When people are confronted with the daunting question of “What is money?”, they usually stare at you like you’ve just asked them to explain the equation for special relativity. Money is anything with inherent value that is used to measure the value people attach to products and services. It acts as a medium of exchange […]

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When people are confronted with the daunting question of “What is money?”, they usually stare at you like you’ve just asked them to explain the equation for special relativity.

Money is anything with inherent value that is used to measure the value people attach to products and services. It acts as a medium of exchange in order to facilitate trade. What started out as people trading physical goods for one another, developed into an immensely complicated modern economic system as more specialised products and services arose. People realised they needed a universal medium of exchange, and this led to the revolutionary invention of money.

There exists an interdependent relationship between money and goods & services: the value of money is measured in the number of goods and services it can purchase (purchasing power) and the value of goods and services is in turn measured in what amount of monies is needed to purchase it (prices). It is a very delicate balancing act which can only be achieved by the invisible hand of the market, which is why the market must be free.

As far as inherent worth goes, gold seemed a pretty solid option to use as money. Here’s why:

The amount of gold relative to the number of people is relatively miniscule; the demand outweighs the supply by far. Gold thus has a lot of value attached to it. Seeing as the global population keeps increasing, the demand for gold also keeps increasing. Hence the rise in the value of gold; it keeps getting relatively scarcer. It thus makes complete sense to use it as a medium of exchange seeing as it keeps its value.

As nations rose and fell and economies grew ever more complicated, governments the world over decided that the best way to maintain gold as the primary means of exchange, but also make it more “flexible” in order to adapt to modern specialised markets, was to have it represented by paper money and coins. Currency was thus invented.

Currency is different from money in that it has no inherent value. It merely represents the real money: gold. Currency is also easily divisible into much smaller units. Currency was essentially a middle man that nudged its way in between gold and domestic products and services. The balancing act became even more delicate. The gold standard was created.

The gold standard is a fool-proof system at worst. The value of the gold is measured in terms of the currency used. The gold backs up the currency and gives it value and consequently purchasing power; another fine balancing act that can only be achieved by the market’s invisible hand. This act determines the purchasing power of the specific currency.

As explained earlier, in the long run the value of gold keeps rising as the level of demand grows at a faster rate relative to the level of supply of gold. The paper currency representing the gold will thus not lose its purchasing power. When the US finally decided that the whole “live within your means” thing wasn’t working for them, Nixon abolished the gold standard in 1971 and replaced it with a fiat currency.

The word fiat’ is a Latin term meaning “let it be done”. A fiat currency is a system of currency that is backed not by anything of value but by a central government’s arbitrary authority. The US Federal Reserve, for example, is allowed to print US dollars non-stop as long as its financial overlords give it the green light. The only difference between a $1 bill and 1 Monopoly bill is that the government sanctions the former as a viable means of exchange. Yet, it has no inherent worth.

Currencies’ worth is now determined by market forces within the money market, the place where currencies compete for domination. The quantity of currency within an economy can now be adjusted by a central government in order to influence the exchange rate, internal interest rates, and thus the value the currency holds. Reserve banks can also influence exchange rates by actively competing in the money market, also known as ‘dirty floating’. It is no mystery why governments keep on printing worthless paper money: massive expansionary fiscal and monetary policies demand it.

Economists such as Michael Maloney keep warning governments and central banks that they’re creating an unsustainable global financial bubble that is going to implode. There is no foundation on which modern economies are based. Money exists no more.

What we now have is an artificial form of “money” with no inherent worth. It is simply not sustainable. The gold standard keeps the economy in a state of natural unison. It is a system that balances itself out. It is a system that works. It is a system that is endowed with foolproofness by its very nature.

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Economics by Cows https://rationalstandard.com/economics-by-cows/ https://rationalstandard.com/economics-by-cows/#comments Thu, 28 Sep 2017 22:01:59 +0000 https://rationalstandard.com/?p=6454 A collection of cattle related political jokes to lighten up your day. Capitalism: You have two cows. You sell some milk, make a profit, buy more cows and make an even bigger profit, and so on. Everyone thinks you are evil for doing this. You know this because you read their mean tweets which they […]

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A collection of cattle related political jokes to lighten up your day.

Capitalism: You have two cows. You sell some milk, make a profit, buy more cows and make an even bigger profit, and so on. Everyone thinks you are evil for doing this. You know this because you read their mean tweets which they sent from their iPhones.

Socialism: You have two cows, both of which are owned by the state. You milk them with inefficient government-sponsored means while being provided with free food. Eventually, when there is no more free food, you starve.

Communism: You have two cows. They wander away because you can’t own property. You starve to death.

Fascism: You have two cows. One day, you wonder ‘What if I had three cows?’ The State deems this violence and shoots you.

Keynesianism: You have two cows. A hurricane rips through your farm and destroys the barn and the fence. You are forced to sell the cows in order to repair the farm. The government gives you another two cows for free. You marvel at the growth in the economy.

Austrian Economics: You have two cows. You devise a cunning theory of behaviour in order to maximise their milk production. You write a book on this theory, but to your dismay, no one is willing to pay for it in gold bars.

Libertarianism: You have two cows. They graze next to you marijuana fields which you protect with an assault rifle. You fall out of favour with other farmers because you don’t know what Aleppo is.

America: You are the most successful cow farmer in the land. You notice a neighbouring farm is using inefficient farming methods. You deem this to be a national security threat and invade and occupy their farm, kill the farmer and remain there until you finish teaching the new farmer how to farm like you do.

Canada: You have two moose. Everyone laughs at your accent. You continue to be polite.

China: You have far too many cows to count, but millions of them die because you don’t know how to farm. After a while, you let the cows find their own pastures and your farm grows rapidly. You offer to build infrastructure on a neighbouring farm if they let your cows graze there in return.

Greece: You have 1 pig, but lie and tell the farmers union that you actually have 200 cows. You party on the beach and borrow cows from other farms until you have to pay them back, at which point they find out you really only had 1 pig and used all the cows to fund your partying on the beach. You convene with all the farm workers and it is agreed that you should party even harder to remedy the situation.

South Africa: You have twenty cows but you cannot use the milking machine because there is no electricity. You call the government numerous times to fix the problem. After months, the government arrives at your farm and deems that you have too many Friesland cows and requires you to replace them with Jersey cows to meet a quota. You do so, but you still cannot milk any of them because the electricity hasn’t been fixed.

Zimbabwe: You have many cows which you promise to distribute to your farm workers. Over time, you realise that you don’t have enough cows to give to all your workers, so instead you give them cardboard cut outs of cows. Realising the worthlessness of cardboard cows, your workers move to another farm.

Israel: You have two (((cows))). You farmland is very hostile to life and has infertile soil, but remarkably you are able to farm your (((cows))) successfully with the help of you friend who runs the most successful farm in the land. All the neighbouring farmers constantly attack you because they only want cows and not (((cows))) to be farmed in this land, but you’re a lawyer and sue them for this.

Donald Trump: You have a few hundred million sheep and promise them that you will build a big beautiful wall around their pastures to prevent cows from grazing on their land. The sheep love you for it. You don’t build a wall, but the sheep continue to love and admire you.

Antifa: You don’t own any cows and live in your mom’s basement. You see a neighbouring farm doing well. You deem this violence and you dress in black and destroy the neighbouring farm.

Alt-right: You’re convinced by a conspiracy theory that your cows are being killed in and so you bring back farming practices which killed millions of cows in the past in the hope off letting your superior cows survive. You get punched.

1st  wave Feminism: You have one cow and one bull. You treat them equally.

3rd wave Feminism: You have two bulls of the same breed. Distraught, you replace them with two cows of different breeds, one with blue fur and the other with a broken leg. You starve as your cows produce no milk.

Google: You run a very big farm. One day, a farm worker suggests that some of your practices may be inefficient and writes a memo with his suggestions of how to better the farm. You fire him because you know you’re the biggest farm in the land and his opinion is offensive to you.

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‘Buy Black’ If You Want – But It Won’t Do You Any Good https://rationalstandard.com/buy-black-want-wont-good/ https://rationalstandard.com/buy-black-want-wont-good/#comments Tue, 26 Sep 2017 21:30:01 +0000 https://rationalstandard.com/?p=6490 There is nothing wrong with choosing to buy only from black-owned businesses. If that is what you want to do, you should go ahead, but it is a mistake to think that this is the cure to all our economic problems. This kind of thinking comes from a fundamental misunderstanding of how the market works. […]

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There is nothing wrong with choosing to buy only from black-owned businesses. If that is what you want to do, you should go ahead, but it is a mistake to think that this is the cure to all our economic problems. This kind of thinking comes from a fundamental misunderstanding of how the market works.

I mention this because my Facebook feed is often filled with people trying to blackmail me into ‘buying black’. One entrepreneur even had a calculation showing how we could make her a millionaire by buying our toilet paper exclusively from her instead of the big retailers. This entrepreneur, Vusi Thembekwayohas spoken a lot about why this kind of thinking is flawed; but it essentially boils down to asking your customers to provide a service to you instead of figuring out how to serve their needs. This is not the path towards progress.

Consumers drive progress through getting companies to compete to serve their needs. That is why someone like Herman Mashaba could still make money during the dark days of apartheid, because he identified and met a need that was not being catered for by anyone else. That is how the taxi industry was born (though it is now sustained by government’s inability to protect the rights of ordinary citizens) and that is how the funeral industry and the PSL (the Premier Soccer League) came about.

It wasn’t consumers feeling sorry for these people and giving them money because they are black. It was ordinary people doing doing what was in their best interests.

In some ways and rather perversely, democratic South Africa’s focus on ‘uplifting’ black people has created a sense of dependency that is killing the entrepreneurial spirit that was present during apartheid when people didn’t expect government to do anything for them. That is why you get these so-called entrepreneurs who think starting a business is about getting a government handout or blackmailing people of the same race into buying from them.

This attitude of dependence saddens me because I see what it is doing to the place I grew up in. Granted, we face burdensome government regulations and this means that the chances of any business succeeding, unless they are favoured by government, are diminished. But that is no excuse for the true entrepreneur.

I speak of the Somali refugee who has to operate in the same environment but still manages to make it even though the odds against them are much greater. They know that they can’t vote for special treatment from government, so they work harder than everyone else. For instance, in the township I grew up in, Somali shops open a full hour and 30 minutes earlier and close 3 hours later than shops owned by South Africans, they also sleep in the shops in order to cut down on the costs of having to rent a second property and also to mitigate the risks of theft.

The township shopkeeper who thrived during apartheid is almost non-existent now because they’ve been out-competed by poor refugees. You often hear people complain about this even though the business model of pooling your resources to buy in bulk and stay open for longer than your competitors is accessible to anyone. These refugee-owned shops are so brilliant that they are effectively competing against the big supermarket chains for township customers; and I often wonder how much more they could achieve if they had full legal rights.

On a side-note – and I know it’s not popular to say this – President Mbeki was probably right when he said the attacks on foreigners was criminality started by shopkeepers who were unable to compete against these foreign-owned businesses. That makes sense if you think about it: In South Africa race relations are much worse than relations between immigrants/refugees and South Africans, yet the attacks were directed at foreigners instead of, say, Indian people in KwaZulu-Natal. This is because business owners got desperate and promised thugs the spoils from these shops (this kind of thinking is much too common in South Africa, as can be observed in the taxi wars; government is failing at its first duty of protecting our rights), but I digress.

The point is the people who exhort us to buy from black-owned businesses fail to mention that people in the townships are already choosing black businesses instead of the big retail chains. It is just that often these black entrepreneurs were born on the wrong side of a line drawn on a map and they are getting our custom by bending over backwards to give us the lowest prices and convenience without expecting anything in return.

Buying black no matter what is a ridiculous premise to start from. These business owners should be getting together (get together with only black people if they want) and strategising about how to corner the market instead of acting like a bunch of cry babies. Begging is not the route to entrepreneurial success.

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Dispelling the Fearmongering Myths Surrounding the Right to Freedom of Association https://rationalstandard.com/dispelling-fearmongering-myths-surrounding-right-freedom-association/ https://rationalstandard.com/dispelling-fearmongering-myths-surrounding-right-freedom-association/#comments Wed, 20 Sep 2017 20:15:37 +0000 https://rationalstandard.com/?p=6428 Written by: Jacques Jonker Every single individual has the inherent right to associate with whomever they want for whatever reason they deem fit. The right to freedom of association entails by necessity the right to differentiate and discriminate against people in your own personal sphere. It is the flagship of individual freedom.  Unfortunately, people do […]

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Written by: Jacques Jonker

Every single individual has the inherent right to associate with whomever they want for whatever reason they deem fit.

The right to freedom of association entails by necessity the right to differentiate and discriminate against people in your own personal sphere. It is the flagship of individual freedom.  Unfortunately, people do not acknowledge and value individual liberties, until it is their own which is under threat.

To anyone with access to a smartphone and bit of data, the heated debate surrounding a baker in Colorado who refused to bake a cake for a gay couple’s wedding is not news.

The Masterpiece Cake Shop is owned and run by a certain Mr Jack Phillips, who in July 2012 refused to bake a cake for Charlie Craig and David Mullins on the basis that it is in opposition to his religious views. As expected, virtue-signallers on the left pounced on Phillips’ apparent ‘unjustifiable’ discrimination against a gay couple. Apparently, anyone that upsets gay people must be dealt with swiftly by the state. How dare a person decline to render a service to someone based on their religious conscience?

There are a couple of things that need to pointed out.

Firstly, Phillips had to make a choice between extra monies for his business, and his conscience. He chose the latter.

What he did not do, is make a choice between money and the opportunity to degrade homosexuals because he has some phobia of them. A phobia is defined as an irrational fear or hatred of someone or something. Declining to associate with someone on the basis of religious conscience is not a phobia.

Is it bigoted? Perhaps, but we are all bigoted in some way and we have the God-given right to be bigoted. Nobody has the inherent right to force others to accept them as they are; they only have the right to their own freedom.

Secondly, leftists seem to thrive on the false narrative that forced association is acceptable, but forced segregation is not.

Neither of these things are acceptable.

It would, however, be naïve of us to be shocked about the leftist outrage at the Cakegate scandal. Virtue-signalling is nothing new in the world of political correctness. It is therefore necessary that we dispel some common myths surrounding the right to freedom of association; myths that are construed for the sole purpose of fearmongering and to spare ‘muh feelings’.

Myth 1: If businesses don’t have to associate with people, it will lead to marginalisation.

This is simply not true.

Businesses are concerned with turning a profit. A business that discriminates left and right against, say, black folks, gay folks or folks with abnormal unibrows, is simply not going to be as competitive as a business that does not.

It is up to the owner of said business to decide whether or not he or she is willing to make the trade-off between more profit and discriminating against whomever for whatever reason imaginable.

In an economic sense, it would be suicide and at the end of the day it is the discriminating businesses that will be marginalised.

Myth 2: In sparsely-populated areas, the effects of discrimination would be felt more severely as there aren’t more options available to consumers.

If a business voluntarily decides to alienate a market segment, it automatically creates a window of opportunity for new businesses (colloquially known as a ‘gap’ in the market).

This obviously begs the question: What if people don’t have the necessary resources to fill the gap in the market?

This is the very reason economists emphasise economic growth: It would allocate more resources to the people who need them. But what is economic growth really if you could just let the state steal people’s money and spend it on frivolous things such as war and “welfare”?

The blame rests squarely on the shoulders of government, who keeps on printing away people’s purchasing power, thus destroying their chances of being able to provide for their own economic welfare.

Myth 3: Since the economy in South Africa is controlled mostly by white folk, it would be dangerous to give them even more power to discriminate.

You know what would be dangerous, and immensely stupid? For a business to alienate 90% of citizens and thus destroy their market share and possible growth. It makes no sense to do that.

Those businesses that don’t care about committing economic suicide would simply not survive and be forced to shut down. Which is what the politically correct wants to happen to them, no?  Another win for free market mechanisms.

Myth 4: If businesses could discriminate and survive in pre-1994 South Africa, they’d be able to do so again.

To equate the economic environment of Apartheid South Africa to contemporary South Africa is a false equivalency at best.

Lest we forget that the reason the white segment of the population was able to acquire and hold on to so much wealth was because of the discriminatory policies of government. Businesses could afford to alienate non-whites because the government made sure that there was minimal competition that could oust them.

It had nothing to do with the free market. It had everything to do with an authoritarian state manipulating free market mechanisms to the detriment of innocent people.

Myth 5: Giving businesses free reign to discriminate would mean that institutions such as hospitals would be able to refuse medical assistance to some.

Another blatant lie by the virtue-signalling cult so prevalent among the millennial left.

It is no secret (to those who do their research) that in the South African context there is a logical exception to the rule that the law does not impose a duty of positive conduct on people to help others: When a person has certain exceptional abilities that puts them in a unique position to provide much-needed specialised care to people (e.g. medical doctors), that person bears a duty to act in situations in which an “ordinary” person wouldn’t be able to, and thus wouldn’t have to.

It would amount to gross negligence and, quite possibly, criminal liability if a whole building full of doctors and nurses refused to help someone whose head is hanging by a thread.

The common law elements of the law of delict as well as criminal law already deals with such matters. Mind you, I have never come across people who have studied for a little bit more than a decade in order to be able to help people, who would simply let someone die because his tattoo of Jesus offends them.

Myth 6: Businesses provide a service to people, and it is people’s inherent right to have access to those services.

What’s quite amusing here is that there are numerous not-for-profit organisations set up around the world to specifically cater to certain demographics. But the moment an organisation’s status is ‘for-profit’, they are exempted from the right to provide a product or service to whomever they want.

The hypocrisy is mindboggling to say the least. All persons, natural or juristic, should be able to associate with whomever they want.

It is clear to the sane and the rational that there is false narrative perpetuated by the modern left that the freedom to associate with whomever you want will lead society down a cliff. It is pure fantasy construed to fearmonger people so as to make them gullible enough that they would fall for such claptrap.

For a society to be truly free, the people should be able to associate and segregate themselves without an external element of force involved.

Author: Jacques Jonker is a scholar of law and commerce at the North-West University, Potchefstroom.

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It’s Time to Sell South Africa’s State-Owned Enterprises https://rationalstandard.com/time-sell-south-africas-state-owned-enterprises/ https://rationalstandard.com/time-sell-south-africas-state-owned-enterprises/#comments Tue, 19 Sep 2017 21:45:03 +0000 https://rationalstandard.com/?p=6426 Government is unwilling to privatise state-owned enterprises (SOEs) because it believes that owning these companies gives government, and South Africa by extension, a strategic advantage. In other words, government thinks that by owning these companies it can achieve some predetermined goal that would otherwise be unachievable. That is simply not true. I could put that […]

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Government is unwilling to privatise state-owned enterprises (SOEs) because it believes that owning these companies gives government, and South Africa by extension, a strategic advantage.

In other words, government thinks that by owning these companies it can achieve some predetermined goal that would otherwise be unachievable.

That is simply not true. I could put that in stronger terms, but I do not discuss bovine digestion in polite company.

Firstly, by taking as a starting point the goal of improving the quality of life of each person and freeing their potential (as in the preamble of the Constitution) and how this might be interpreted by a socialist-leaning government, it is clear that owning companies that require billions in extra tax revenue taken from productive citizens does not improve anyone’s quality of life. These companies have consistently displayed a lack of improvement; and this money could be better spent on education, healthcare, and the various welfare cash grants etc. Only the quality of life of people like Dudu Myeni, Anoj Singh and various associates of Jacob Zuma is improved, but I don’t think the writers of the Constitution only had them in mind.

‘Ah’, you say, ‘they clearly said strategic and therefore we must judge this improvement over a longer time period.’

Okay; let’s do that.

If we consider that SOEs are likely to precipitate future tax increases, we see that the only way we can construe this refusal to sell non-performing assets as being strategic is if the companies in question somehow add more money to the pockets of South Africans than would be taken by these tax increases. There are two ways these companies could do this in the future: Either directly through the profit they generate and government distributes to citizens, or indirectly by making such brilliant investments that more value is generated and the economy grows faster than it would have otherwise.

The first scenario can be dismissed immediately. If SOEs were going to turn a profit in the future under economic conditions as yet unknown, what’s stopping them from doing so in the present with conditions that are much better understood? What new thinking has the government suddenly developed that they had no access to in the past? In doing the cost-benefit analysis in terms of the metric we’re using, what case have they demonstrated for the aforementioned risk of tax increases being outweighed by the expected value of future profits? If government had new ideas, we would know about them because of the oversight mechanisms of the Constitution and our government’s inability to keep secrets.

I think it’s safe to assume that government has no new ideas for making these companies profitable enough that we should be expecting profits to outweigh what they have already cost us, never mind what they’re going to cost us tomorrow.

What about the second scenario?

Is it possible that, even though these companies are unlikely to be profitable anytime soon, they’ll somehow still add value to the economy through the investments they make or, alternatively, the operations they undertake? Making good enough investments to add value to the economy requires the same ability to interpret market information that profitability requires, so if you can’t become profitable yourself (they have profitability as one of their stated goals) on what basis would you be able to make profit for others?

Maybe the operations these companies undertake represent a public good?

Even though they won’t positively affect SA’s economic performance through their investments, they might do so by providing goods or services to the South African economy that no one else is willing or able to provide and which in the absence of these state-owned enterprises would represent an added cost to the economy far outweighing the cost of taxing us to prop them up.

Again, this is untrue.

Let’s take Eskom, for instance. If Eskom is the only company willing and able to provide affordable electricity to the SA economy, why does government insist on maintaining their monopoly? As for price, when we had load shedding, being sold electricity at a price higher than the Eskom/NERSA price would surely have been worth it for some people, instead of having no electricity?

The truth is that when it comes to state-owned enterprises, government is showing every sign of what’s called the sunk cost fallacy. They made a political decision to keep pouring money into these companies and, because selling them now would require admitting their mistake, they double down on failures instead, even if it contradicts their own objectives (which I don’t agree with).

Prepare to be stuck with these lemons, barring a massive attack of voter common sense in the near future.

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Competition in the Market: All Sides Are Usually Winners https://rationalstandard.com/competition-market-all-sides-winners/ https://rationalstandard.com/competition-market-all-sides-winners/#comments Fri, 15 Sep 2017 22:00:00 +0000 https://rationalstandard.com/?p=6281 Two Kinds of Competition The word ‘competition’ is used to describe two different things, and while they are not unconnected they are so dissimilar that confusion between them leads to very serious misunderstanding. What makes matters worse is that the form of competition which is most prominent in the consciousness of the average person is […]

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Two Kinds of Competition

The word ‘competition’ is used to describe two different things, and while they are not unconnected they are so dissimilar that confusion between them leads to very serious misunderstanding. What makes matters worse is that the form of competition which is most prominent in the consciousness of the average person is not the form which is most important in the real world.

The word competition comes from two Latin words meaning ‘seeking together’, and refers to the situation when a number of people are trying to gain possession of the same thing, or of similar things. What it does not specify is whether there is only one thing so that of all those who are trying to gain it only one can succeed, or whether there are many so that many or even all of those seeking may gain them, but probably not to the same extent. These are the two kinds of competition.

First Type: Winners and Losers

When people talk about ‘holding a competition’ they are normally thinking of an arrangement where there will be one (or a few prizes), for which people will compete. There will be a winner, or a few winners, and the rest will be losers. Competitive sport, which plays a large role in the lives of most people as spectators and followers if not as participants, is always organised on this basis. Games are always about winning or losing, and in addition to the fact that each individual game has a winner and a loser (such games as races, many losers), there are often further elaborate arrangements to produce an ‘overall winner’ or champion – leagues in football and similar games, championships in boxing and golf.

It is worth noting in passing that the arrangements of the leagues and championships is highly artificial. There are in no sense genuine attempts to find out who is best (which is probably a meaningless concept anyway). Their purpose is to produce a winner or a champion and they have to produce one, even if, eventually they have to spin a coin to do so. The point is well illustrated by the refusal of some football leagues to accept drawn matches. Instead, a drawn match is ‘decided’ by a series of increasingly arbitrary procedures, like set shooting at goal.

From the fact that all games have winners it is a small step to believing that the purpose of playing games is to win them. This is dubious. The purpose of most competitions was originally to encourage people to participate in an activity which would benefit them in some way. The Ancient Greeks regarded athletics as a vital part of military training. Its purpose was to strengthen all the participants, not just the winners, and the competitions and the prizes were simply a means to induce people to take part and to do their best.

The idea that games were played for their own sake and not to win was strongly held in some quarters until quite recently, but the thing which has destroyed it is the overwhelming predominance of spectator sports played by professionals. The spectators want their team to win. For them (and they are the huge majority) winning is everything and the professional players have no option but to go along with this attitude. They are paid extra if they win. In games like golf and tennis the prizes for champions are enormous. They are professionals and they are actually playing for money, but the rewards are structured so that they are playing to win.

From this came two ideas which are almost universally held today: ‘Competition is about winning’ and ‘Where there is competition there are winners and losers’. In fact this is only true of the one kind of competition, hardly at all of the other.

Most of the ‘games’ kind of competition is artificial. Special rules are carefully crafted to throw up an unambiguous winner. In real life, outside of sport, there are few such situations. For one thing there are not unambiguous winners. The various pop-singers (or for that matter, concert pianists, or architects, or surgeons) in the world are in competition with each other, but who is the winner? If one asked a group of thoroughly knowledgeable people who is the greatest singer alive today, it is most unlikely that they would agree. There would be dozens of candidates, each with their supporters. And even if they did agree, another group would not agree with them. Real life situations do not throw up champions. Neither, of course, in any real sense, do games. A particular team wins the soccer league this year because the league is structured so that somebody has to win but somebody else will probably win next year.

Second Type: Everyone is Usually a Winner

The competition which is part of a capitalist economy and the competition which was identified by Darwin and his followers as forming part of the basis of evolution has very little in common with the games-type competition.

There are, indeed, some examples of competition which resemble the ‘games-type’ outside the sphere of games. One is the competitive examination when only a limited number of candidates will succeed irrespective of how well they all do. This is like a game with a limited number of prizes and, like a game, it is a situation which has been structured artificially. Another is competition for promotion in a hierarchical organisation. There are always fewer promotion posts than people who can be promoted, so that we have the case of many people competing for few ‘prizes’.

Particular situations can arise which look very much like a game or race. Several identified people are in line for a particular promotion; only one will get it; but even in these cases we are seldom looking at a simple case of winners and losers because those who lose in the one instance have other alternatives. It is not at all uncommon to hear someone say that the best thing that ever happened to him was to miss some promotion because it led him to change his direction in a way which turned out to be more to his advantage. It is only when people are locked into a hierarchy and cannot change their jobs, like in the Mediaeval church or a Communist Party, that such competition is truly internecine.

Such situations are in any case relatively rare. The type of ‘capitalist’ competition which takes place not only throughout human society but throughout animate nature, is something quite different. Let us take as our example a particularly obvious and well-known example of capitalist competition: a retailer operating in a reasonably free market. We can consider later whether his case is indeed typical. The first thing that we notice is that the shopkeeper does not spend his days confronting his competitors or indeed dealing with them in any way. He spends his days dealing with his customers, with his employees if he has any, and with his suppliers, that is to say, with people with whom he co-operates. What he actually does in order to compete is to try and improve the quality of his co-operation – essentially to serve his customers better.

His competitors are not a defined group, like an opposing football team. He may have a competitor next door, but he may not. He may be the only shop of his kind in his particular shopping centre but he is still in competition with others, all over the town and even beyond, possibly with others kinds of suppliers, like mail-order houses. Also, to a vague but real extent, he is in competition with people who sell quite different things. This is not a major factor in the life of a grocer, though it is not quite absent, but a seller of jewelry is likely to be very conscious that he is competing with the seller of sports cars and with the seller of overseas package-tours.

The Vastness and Decentralisation of Market Competition

The fact that ‘the competition’ is a vast and vague mix of different kinds of people, in different places and doing different things, many of whom the retailer does not know personally, and of some of whose existence he may be unaware, is a most important reason why competition seldom issues in overt hostility or conflict (though it can do, as we know from the taxi wars). In the vast majority of cases there can be no question of trying to destroy the competition and indeed of engaging in any kind of active conflict with them because they are too numerous and too largely unknown. In fact, our retailer seldom meets his competitors, and if he does it will not be for the purpose of competing but for the purpose of co-operating as in a chamber of commerce.

Normally, attempts to destroy competitors make no sense because more will simply arise in their place. Grocer’s shops do not buy out the competitor across the street because if they do somebody else will come in. The idea of destroying the competition can only arise in one of two situations. The one is where the number of competitors is artificially limited so that if a certain number are eliminated no more can come in. This was the situation created by the old Liquor Act in South Africa. In a certain area only a limited number of licences were allowed. If you could acquire all of them you eliminated all obvious competition . You had not in fact eliminated all competition. Liquor is in competition with non-alcoholic drinks and with other ways of spending money and people can go to distant places to buy liquor, but you have eliminated enough competition to give yourself a major benefit.

Role of the Law

The other situation where the elimination of competition makes sense is one of lawlessness, where a group of people hope to be able, by violence, both to drive out all existing competition and to prevent any new competition from arising. This policy was followed on a large scale by the European maritime powers in the sixteenth and seventeenth centuries when first the Spanish and Portuguese and later also the Dutch and the British tried to establish monopolies of trade in particular areas and to keep out all competition by violence. The policy did not succeed and led to constant warfare, which in its turn led to the establishment of the rules which govern international trade today.

Among human beings for competition to be a peaceful process requires law but when law is present competition does not (as its critics allege) give rise to a society dominated by internecine conflict. People do not compete by trying to destroy each other; they compete by trying to serve their customers better.

The biological competition to which Darwin and his followers drew attention turns out to be very closely, analogous, not, oddly enough, to human conflict but to human competition under law. How this comes about is very interesting. The Victorians tended to see natural selection in terms of a sort of World Heavyweight Boxing Championship in which all animals fought each other to the death, until only the ‘fittest’ was left, but we now know that this is scarcely ever so. Animals very seldom fights members of their own species to the death. Territorial and mating conflict tends to take place either simply by posturing (as among birds) or by ritualised fighting in which little damage is done (as among horned animals).

Nature is ‘red in tooth and claw’ not in terms of competition but in terms of predation. Animals prey on other animals at a huge advantage so that the risk taken by the predator is negligible. Cats catch mice. (What can a mouse do to a cat?) Several lions together set on a buck, and usually a sick one at that. The difference between human beings and all other animals is that the humans can sometimes, by innovation in weapons, tactics or organisation, put themselves in a position to defeat others at a cost acceptable to themselves. Other animals cannot do this; they have to meet their own kind on a basis of equality, and a fight to the death on a basis of equality is a mug’s game, as was so well illustrated in the battle of the Somme.

So biological competition resembles human competition under law, with the principle that the better part of valour is discretion, universally followed by animals other than human beings fulfilling the role of the rule of law. There is constant conflict between predator and prey, but competitors seldom come into conflict, and indeed, just as in the human situation, often do not see each other or even know of each other’s existence. Snakes and cats both prey on mice and cats are more efficient predators than snakes. If cats arrive in an area where there has previously been only snakes, the snakes will find that there are fewer mice and their own numbers may decline, but they will probably never set eyes on the cats.

The Impact of Innovation and Change

Most of the time, in both the human and the animal situation, competition is essentially in equilibrium. Competition sets a minimum standard of efficiency which everybody has to meet, and everybody does meet it. It is in times of rapid change, and especially of adversity that competition becomes fierce and potentially internecine. It is important to remember that these situations are exceptional.

Spectacular innovation is a common occurrence in human affairs but very rare in nature because of the slowness of evolution. It can happen, though. When dogs were introduced into Australia (presumably by the first human inhabitants), their superior efficiency as predators led to the extinction of most of the indigenous Australian predators (but not, interestingly, of any of the prey species, which the dogs actually ate). In the same way the invention of the spinning jenny led to the extinction of the spinning wheel. There is a vital difference, however. It was the spinning wheel, not those who used it, that perished. A wolverine could not convert itself into a dog but a woman who earned her living by spinning on a wheel could, and many of them did become workers in a mechanised cotton mill. In wild nature innovation can indeed be catastrophic to some species but among human beings not. In human affairs it is processes, machinery or institutions that become extinct. People learn and adapt.

The other situation where competition becomes fierce and sometimes ugly, is where the external environment changes for the worse and a situation which was formerly in equilibrium is suddenly no longer. The market has contracted, the habitat has become smaller, the weather has changed for the worse, and there is less food than before.

There is a very important point to be noted here. Eugene Marais (the famous Afrikaans poet), in The Soul of the Ape, criticises the conventional view of the evolutionist of his time that the ‘struggle for survival’ is essentially a competitive struggle. The great enemy, as he points out, is inanimate nature, which will kill any living thing which is not able to cope with its challenges. The ‘unfit’ may be so – totally irrespective of any competition. If the climate becomes suddenly much colder some species and some individuals will not be able to survive. Those who were already suited to a colder climate and those that had the capacity to adapt, will survive – the others not. This is not a question of competition. Those who perished would have done so even if those who survived had not existed.

In the same way, by no means all failures in business can be attributed to competition. Many happen because the people concerned simply did not have all of what was required, lacking either material resources or skill or relying on innovations which failed or seeking to seize an opportunity which did not exist. Where successful innovation is highly desired and highly rewarded, unsuccessful attempts at innovation are bound to happen.

Government Intervention in Competition

Having noted all these things, we cannot deny that situations do arise where competition can become very ugly indeed, in situations of catastrophe, like an earthquake, a rare and therefore unforeseeable flood or drought, or a total war. In such situations it is normal for governments to attempt to suspend the process of competition, by such extraordinary means as rationing and price control as well as more indirect measures such as allowing manufacturers to form cartels in order to reduce the severity of competition among themselves.

Few would deny that in situations of true emergency some such measures may be justified but there can be little doubt that in the real world such measures have done far more harm than good because they have tended to be continued after the emergency has passed, and to be applied in situations which were not true catastrophes.

The essence of a catastrophe is that it could not reasonably have been foreseen, and that it will pass. If either of these conditions is not present, suspension of competition is entirely destructive. Where a misfortune was foreseeable, like a ‘normal’ drought or flood, it is most inexpedient that those who foresaw it and took precautions should be punished and those who did not should be rewarded, which is what happens if the impact of the misfortune is to be shared equally. If this is done, it will simply ensure that people do not exercise foresight. This was very much the effect of ‘drought relief measures’ in South African agriculture which led farmers to plant more and more maize in sub-marginal areas where there was little likelihood of getting enough rainfall. Similarly, to compensate people who build on land which is known to be subject to regular flooding is simply to encourage others to do likewise.

When the change is not a passing catastrophe but signals the beginning of a new state of affairs which is likely to continue for the foreseeable future, interference with competition is particularly undesirable. We have noted that the great advantage that human beings have over other animals in facing change is their superior ability to adapt, and the competitive process is a powerful incentive to adapt. Where adaptation is needed the last thing that should be done is to punish those who do adapt and reward those who do not. History, right up to the present, is littered with cases where the effect of government intervention has been to postpone a necessary and inevitable change and in consequence, to make the final adjustment both more drastic and more damaging than it needed to be, like attempting to dam a river and eventually causing a flood when the dam bursts.

Incentive Effect of Competition

The general point is that competition is the most powerful incentive to people to do things right, to be efficient, to render good service, and also to exercise foresight and to make necessary adaptations to changing circumstances. We can live with the suspension of competition for a short time though even then a price has to be paid, but in the long term the price exacted by any interference with competition is itself disastrous.

The incentive effect of competition is, of course, the one point that the two kinds of competition have in common. Competition certainly makes rugby players play harder and runners run faster. That, as we have noted, was what it was originally for. Today it is very far from clear what it is for. If winning is the only thing, what is the point of winning? Why play rugby or run marathons in order to win when you can just as well spin coins? In spite of everything that is said to the contrary, it is difficult to escape the idea that games really are played for their own sake and not to win, although people certainly do care about winning.

Conclusion

To conclude, let us sum up the differences between ‘games-type’ competition and ‘real world’ competition.

1. In games type competition the competitors are face to face, sometimes in actual conflict (as in boxing or rugby), always in direct contact. In real world competition one is only marginally aware of the competition. One is face to face with those with whom one co-operates.

2. Games are about competition and the purpose is to win. Business, or life in general, is not about competition and the purpose is not to win. Competition is part of the overall environment in which we pursue our actual goals – simply to live, to earn a living, to do a good job, perhaps to be famous as an outstanding practitioner of one’s art, but even that is not truly a competitive motive. Beethoven and Mozart were alive at the same time but were they in competition? Would either one be any less famous if the other had not lived?

3. In games those who do not win are losers. In competition there do not have to be losers. Some may fail irrespective of competition, some may fail as a result of competition but the great majority simply ‘hold their own’, meeting the standard that competition sets, being neither outstanding successes nor failures.

Finally we should notice that the idea dear to the sentimental Victorian socialists, like Galsworthy, that the poor are the ‘losers’ in capitalist competition, is hardly ever true. Typically in a developing society, the poor are newcomers who have come from a situation where they were even worse off (in Victorian England and contemporary South Africa, from the countryside to the towns, in modern America, from Mexico or Asia) in order to better themselves, making use of the opportunity which the prosperity of others creates for them. In the contemporary first world the poor are typically people who have been excluded by institutions the very purpose of which is to prevent them from competing (like minimum wages). So far from being the victims of competition, they are the victims of its absence.

Disclaimer: This essay was extracted from O’Dowd’s 1999 occasional paper, “Liberal Reflections”, for the Free Market Foundation. The essay’s name was changed from the original “The Two Kinds of Competition” and the headings were inserted by Rational Standard editors.

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Freedom of Movement and Communication is Crucial for Progress https://rationalstandard.com/freedom-movement-communication-crucial-progress/ https://rationalstandard.com/freedom-movement-communication-crucial-progress/#respond Wed, 13 Sep 2017 22:01:11 +0000 https://rationalstandard.com/?p=6252 Periods of Creativity Nobody who has even a slight acquaintance with world history can have failed to be struck by the occurrence of periods of extraordinary creativity in a few places and for quite short times, which have made greater contributions to human progress than the whole of the rest of the world put together. […]

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Periods of Creativity

Nobody who has even a slight acquaintance with world history can have failed to be struck by the occurrence of periods of extraordinary creativity in a few places and for quite short times, which have made greater contributions to human progress than the whole of the rest of the world put together. It does not matter what aspect of human life you are studying; whether it is literature, or philosophy for fine art or science or technology. We find not only that there are such periods, but that the periods are the same. They are creative not only in one or two fields but in every field of human endeavour that existed at the time.

These periods of outstanding creativity are quite few. There is the classical period of China, the time of Confucius and Mencius, and the other Chinese Sages. At about the same time, there is classical Greece, the age of Aeschyius and Euripides, Plato, Socrates, Aristotle, Herodotus and Thucydides, Phidias and Praxiteles. The next period is less well known since most of its art and literature had perished and the only well known names associated with it are Archimedes and Euclid. It is the period of the kingdoms ruled by the successors of Alexander the Great, especially Egypt, centred on Alexandra, and Syria, centred on Antioch and forming part of the same world, the independent Greek cities of Sicily and Southern Italy, especially Syracuse. To appreciate the importance of this period we have to compare the level of general sophistication, both philosophical and technical, reflected in classical Latin literature with that of “golden age” Greek literature from four hundred years earlier.

We have to wait a long time for the next period which happened in the Middle East around 1000 AD in the Arab kingdoms, especially those centred on Baghdad and Cairo. Out of these came remarkable advances in science and mathematics and in architecture. The well-known Moorish architecture of Spain is an offshoot of this. After this, and in some ways directly derived from it, comes the flowering of Renaissance Italy, Michelangelo and Leonardo Da Vinci, Petrarch and Boccaccio, Machiavelli and Galileo.

After this we are approaching modern times in which creativity becomes both more widespread and more continuous, but we can still see a disproportionate amount in Holland in the seventeenth century, in Britain all the way from Shakespeare times to the end of the nineteenth century, and in the United States from the mid-nineteenth century to the present day.

We may also note that right through from the Middle Ages to present day Western Europe as a whole, while not equalling the special periods, was creative in a way in which the Roman Empire, the later Chinese Empires and the Byzantine Empire were not.

Correlation Between Freedom and Creativity

How are we to account for all this? From the sixteenth century onwards it is not difficult to detect the correlation between creativity and (relative) freedom. Though very far from free in the modern sense, the England of Shakespeare’s time, and the Republic of the Netherlands of the same period were not merely the freest countries in the world at the time, they were among the freest that there had ever been. As the seventeenth century went on Britain (now including Scotland) became freer, while the Netherlands, locked in a desperate fight for survival, first with Spain and then with France, became less so. The degree of creativity, especially in philosophy and science, moved accordingly.

Do we find a similar correlation in earlier times? At first sight, the answer to this question is no. None of the states involved in any of the earlier outbursts of creativity upheld individual freedom in principle; even for the members of the upper class. Republics were not necessarily better than monarchies in this respect. Socrates was put to death in the Republic of Athens (by popular vote) for teaching unacceptable ideas, and about sixteen hundred years later Dante driven out of the Republic of Florence and sentenced to death in absentia. But freedom does not have to be accepted in principle to exist in practice. It can exist because those charged with repression are half-hearted, or lazy or cannot agree among themselves. This was more or less the position in Elizabethan England.

Were the periods of unusual creativity also periods of unusual freedom, and if so, how did this come about? I think that the answer to the first question is “yes” and the answer to the second can be found. I gained the clue to this problem in a book describing the society of China under the Tang Dynasty that was one of the high points of Chinese civilisation around 1000 AD. The writer says that the people of the educated class at this time looked back to the time of Confucius as a golden age, forgetting that it was in fact a time of anarchy known as “The Period of the Warring States”, when China proper (that is excluding Tibet, Manchuria and Sechuan) was divided into five separate kingdoms, often at war with each other.

Now we see it, “The Period of the Warring States” would be a very fair description of fifth century Greece. If we started with the assumption that Greece ought to have been under a single government (as the later Chinese assumed about China), it could also be called a time of anarchy. Greece was divided into not five, but dozens of separate states which were often at war with each other. Renaissance Italy is the same story, with at least six major states, and some smaller ones, independent and sometimes at war. The Eastern Mediterranean after Alexander the Great was the same again. There were three major, and several minor, kingdoms all ruled by Macedonians, often at war with each other. The great period of the Arab world saw almost the very same kingdoms, now ruled by Arabs, independent and sometimes at war.

This is not to argue that what leads to creativity is warfare. The periods which we are considering were not exceptionally warlike, it is merely that in them people who might have been expected to be on the same side in war were sometimes fighting each other. There are plenty of examples of states devoted to war, and for a time very successful at it, which were not creative at all.

The great empires have often produced remarkable architecture and works of art, made possible by the accumulation of wealth brought about by conquest but they have never been noted for originality, least of all originality of thought. One can cite the Roman Empire after Augustus, China under the Tangs and the Mings, Spain in its period of greatness, and Byzantium over a thousand years.

Ease of Exit (and Entry)

The thing that the periods which we are considering had in common was not that there was a lot of war going on; indeed it is not clear that there was more war than at other times. It is that in each case, China, Greece, the Macedonian kingdoms, the Arab world, Italy, there were a number of independent states with the same language and the same culture, with the consequence that it was an easy matter for educated people (and others too) to move from one to another. When Socrates was sentenced to death in Athens, he could, if he so wished, and was probably expected to go into exile, which meant moving all of thirty miles to another city where they spoke the same language, had the same culture, and where he was known. When Dante was driven out of Florence, he went to live in Pisa and carried on with his writing. When Michelangelo quarrelled with the Pope in Rome, he went home to Florence and continued with his work. There are references in the Chinese classics to Sages moving from one kingdom to another because they disliked the policies of a particular king.

It is striking how many of these periods of creativity come to an end when “anarchy” was ended and unified government imposed. Particularly obvious, because familiar is the way in which the Roman world started to go downhill from the time of Augustus. The Han Empire in China (which succeeded the Warring State) was powerful and rich, but it was not creative like the time of Confucius and indeed was already looking back to that period as a golden age. The Renaissance in Italy went downhill from the time that Italy was brought under Austrian/Spanish control. The Arab world was destroyed by the Mongols but it did not recover under the unified Turkish Empire.

It is not difficult to see why this was so once we grasp that the precondition for creativity is freedom. When Dante was driven out of Florence he went to Pisa but when the poet Ovid incurred the displeasure of the Emperor Augustus, he was sent to live in the Crimea, just as under the Han or Tang emperors of China, Sages were sent to Hunan, and “dissidents” in both Tsarist and Soviet Russia were sent to Siberia.

By Galileo’s time, the whole of Italy was effectively controlled by Spain. If Galileo had wanted to leave Italy in search of greater freedom, the nearest place where he could have found refuge was Holland where the language, culture and religion were all different from his own. This was a far more formidable undertaking than going from Athens to Corinth or Florence to Pisa, but a lot better than going to the Crimea, Hunan or Siberia. People did move about Western Europe in search of religious or intellectual freedom helped by the use first of Latin and later of French as international languages, whereas in Roman or Chinese Empires there was simply nowhere to go. This no doubt explains the relative creativity of Western Europe as a whole.

We are looking at two things here, although they are closely linked. In the special cases which we have described, the ease of exit which the situation created gave to the people (or at least some of them) a degree of freedom which they could not otherwise have had. Beyond this, it inhibited the rulers’ oppressive impulses for the rulers did not wish to lose their subjects, and on the whole those who could most easily leave were those that they could least spare. Thus additional freedom was also enjoyed by people who did not wish to leave.

It is also possible that there was another factor at work. Because of the ease of movement and communication between these countries, they would have been exceptionally well informed about each other, which would have intensified competition between them and enabled them to learn from each other’s experience in a way which would have been prevented by the imposed uniformity of a large state.

Until the nineteenth century, ease of exit (which of course requires ease of entry somewhere else) does seem to have been the most effective source of freedom. The degree of freedom which is conferred, even in the best circumstances, fell far short of what we expect today and some parts of the population may not have benefited at all; but it was sufficient to make the places where it existed flower above all others in creativity and achievement.

Intellectual Freedom

It is interesting that when we look back in this way, it is intellectual freedom, freedom of ideas which appears to be most important, whereas in our own time we tend to be most impressed by economic freedom. This is a question of time scales. In order to flourish economically, a country needs economic freedom, and for a time it can do without full intellectual freedom, just as long, in fact, as it can base its economic progress on ideas and techniques borrowed from abroad, but in the long run, ideas are the most important. Countries, like Mainland China, that think they can have economic freedom without intellectual freedom will, in the long run, be proved wrong.

Fundamentally, Hegal was right and Marx wrong. Ideas come first as in fact Marx knew or why did he spend his life trying to develop ideas which he hoped would change the world? Even “means of production” are ideas before they are things. Newton’s laws of motion had to come before the Industrial Revolution, just as Einstein had to come before nuclear explosives and space travel.

Freedom is not a luxury that comes at a cost. It is the precondition of all human progress.

Disclaimer: This essay was extracted from O’Dowd’s 1999 occasional paper, “Liberal Reflections”, for the Free Market Foundation. The essay’s name was changed from the original “Freedom is the Precondition of Progress” and the headings were inserted by Rational Standard editors.

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