Derek Hanekom and Government’s Backward View of Wealth Creation

On 24 November 2020, Tesla’s market valuation breached the $500 billion mark for the first time ever. The company’s stock surge helped its South African-born co-founder, Elon Musk, add $100.3 billion to his net worth this year. With that, he overtook Bill Gates and became...

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On 24 November 2020, Tesla’s market valuation breached the $500 billion mark for the first time ever. The company’s stock surge helped its South African-born co-founder, Elon Musk, add $100.3 billion to his net worth this year. With that, he overtook Bill Gates and became the second richest person in the world.

The usual widespread misunderstandings that accompany this kind of news notwithstanding – that an extra $100 billion plus is now sitting in Musk’s bank account, ready to be spent – his success also elicited a comment from Derek Hanekom, South Africa’s previous Deputy Minister of Science and Technology, former Minister of Tourism, and ironically enough currently serving as a presidential envoy for South Africa mandated to promote investment with a focus on tourism.

Hanekom’s comment is illuminating. His words portray his (and the government’s) view of wealth creation and who truly ‘deserves’ to use people’s wealth. Hint: it’s the government.

I assume by “we,” Hanekom means all South Africans. The success of an individual is not owned by the country of his birth, his country of residence, his tribe, his race, his gender, his community, etc. That a person shares a characteristic with someone else (for example, being ‘South African’) does not infer that the actions, the successes and failures, of that person are owed to a larger collective.

Hanekom’s words imply a feeling of loss, that Musk is not working and building in South Africa. There is also an implicit appeal to duty. I don’t think it is a stretch to assume that Hanekom (and most in the ruling African National Congress and government itself) strongly believe that all South Africans (those who live here and elsewhere) have a duty to ‘give back’ to the country. And who is best placed for the successful and wealthy to ‘give back’ to, to ensure that the wealth ‘given back’ is used well? Why, the government, of course.

An appeal to duty is, effectively, an appeal to a higher authority. In this case, Hanekom is appealing to the concept of the South African society, with the current government as the voice thereof. That Musk was born here, to Hanekom implies that he has a duty that should override his own reasons or concerns for not building, and investing in, South Africa. An appeal to duty is effectively a ‘last resort’ in a moral argument – your duty to a given arbitrary authority or group should supersede everything else. The use of force often follows an unheeded appeal to duty.

The South African government would be well-served to examine exactly what it is about their chosen ideology – and the policies they implement, from aggressive taxation, to BBBEE legislation, to coercive trade unions, to a clear decision to implement expropriation without compensation and render property rights meaningless – that push the innovators, and value and wealth creators, to seek greener pastures elsewhere.

Success – and the wealth and job creation that accompanies it – should never be taken for granted. The government has progressively undermined and restricted economic freedom in South Africa. The concrete effects of lower economic freedom are higher unemployment, lower business confidence, lower capital formation and investment, and an increase of poverty and suffering. With every quarter’s steadily worsening unemployment statistics, we see the devastating effects of the government’s chosen ideology.

Musk is no capitalist paragon. He has received billions in government subsidies. He may well have stayed in South Africa, and received some measure of subsidies here. Regardless of the ‘what ifs,’ though, stands the fact that more people try to go to (and live in), those countries where they will be freer to pursue their goals and dreams. In those countries where freedom is severely restricted, the chance is much higher that their wealth (in whatever form it may take) will be seized at some point.

That you are born on a random patch of dirt on each, does not entail that you have a duty to the people or government who reside there. Where we are born is a mere randomness. What can convince someone to invest and build in a given country, is the extent to which that country’s government – and society – protects individual rights. Right now, South Africa needs as much capital formation and investment as possible. Without capital, all the government’s grand compacts are, at best, words on paper. Further, empty appeals to a person’s ‘duty’ to the country of his birth will never be enough to override the facts on the ground – will his success be protected, or discouraged? Will his wealth be secure, or always at risk of seizure by the state?

Wealth creation (not just brute redistribution between states and groups) is exceptional throughout history. Let us presume that Musk gives the South African government $50 billion. The money that is not siphoned-off through corrupt backdoors, will presumably be redistributed amongst lower-income people. And after that, what? Will the wider conditions for business confidence and wealth creation have been improved? Will we see policy and structural reforms that increase economic freedom? The fundamental point is that, if we are to see widespread, transformational economic growth, the government must realise that it cannot simply redistribute society into prosperity.

Don’t be surprised – never mind outraged – that, when you punish success, people leave for places where they can be more productive and create wealth for themselves and their families. No one born in South Africa owes anything to the government. An individual rights-respecting government will recognise this and will ensure that people’s rights are not infringed upon. History shows us what happens when governments stick to the concept of ‘government,’ properly understood.

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