The Myth of South African Capitalism

May 12, 2004 • Commentary

In a Mail & Guardian article entitled “The Iron Fist And The Velvet Glove,” Salim Vally attributed the lack of robust economic performance and apparent growing poverty in South Africa to the free market, or as he calls it, “capitalism.” But those familiar with South Africa’s economy know that it is a far cry from a laissez‐​faire, capitalist marketplace. Vally quotes approvingly from An Ordinary Country, a book by Neville Alexander, in which the latter wrote, the “apartheid‐​capitalist system has simply given way to the post‐​apartheid‐​capitalist system.” Having lived in South Africa for a decade, I know that Vally’s sentiments are not unique and that many South Africans share his negative view of the free market.

The South African political scene reflects the above views, and the parties of the far left are successful in portraying the African National Congress as a sell‐​out to some sort of conspiracy of international capitalists. Not surprisingly, Vally’s article is filled with allusions to an unholy alliance between the ANC and international capitalism.

It is not my intention to defend the ANC. But it is wrong to assume that the far left can provide an answer to South Africa’s problems by opposing privatization, advocating more government and wishing to isolate South Africa from globalization. Contrary to the common myth, capitalism is not an enemy of the poor. Likewise, there is no capitalist conspiracy against the poor countries of the world. The world trading system is imperfect and scarred by protectionism in developed and under‐​developed states alike. But despite those imperfections, many poor countries have managed to achieve remarkable prosperity. In 1967, per‐​capita income in South Korea was an inflation‐​adjusted $550. In Ghana it was $800. By 1997, South Korean per capita income reached $10,360. In Ghana it had fallen to $370. Other formerly poor countries such as Taiwan, Singapore, and Hong Kong are today enjoying much higher standards of living.

What ties all of those countries together? They all have burgeoning free market economies. South Korea, for instance, undertook far‐​reaching economic reforms, lowered its import tariffs and opened up to the world. Likewise, Botswana, which has the freest economy on the African continent, enjoyed an average economic growth of 7 percent over the last two decades. Clearly, free market and minimal state intervention are the necessary prerequisites for the underdeveloped countries to prosper.

But a free market economy is exactly what South Africa does not have. With the exception of the agricultural sector, the ANC has not substantially improved on the interventionist record of the apartheid government. Restrictive labor laws and state enterprises abound. Vally is thus correct to talk about the legacy of apartheid. But he is incorrect in defining what that legacy is.

The legacy of apartheid in South Africa is a high degree of central control over the economy and collusion between the government and big business. The economic system under apartheid was not capitalism, but “statism.” The government incentives favored companies perceived as crucial to alleviating the negative effects of sanctions. Many of South Africa’s largest enterprises were thus run less for the benefit of the shareholders and more for the benefit of the apartheid regime.

Today, like in the past, the power of the government to help and to hurt South African business remains largely unchanged. Businessmen vie with each other for government favors because they know that the government can help them or destroy them, dependent upon what it does with regard to taxation, affirmative action and labor regulation. The problem, therefore, is not too little government, but too much. With every new license, the government creates an official who can distribute it in a corrupt and arbitrary way. With every new regulation it creates an official who can be bribed into granting exceptions to it. Let the government get out of running the economy and the corruption, which Vally rightly complains about, will decrease.

The collusion between the government and big business can only be avoided if and when the actions of the government become neutral to the fortunes of individual companies. The separation between political and economic spheres is at the root of the success of the developed countries. The greatest danger to South Africa’s future development does not rest in the excesses of capitalism. To the contrary, it rests in growing government intervention, which is sadly what Vally advocates.

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