South Africa’s Greatest Obstacle Is too Much Government

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Salim Vally attributes the lack of robust economic performance and growing poverty in South Africa to the free market (“The iron fist and the velvet glove”, December 20). His article is filled with allusions to an unholy alliance between the African National Congress and international capitalism.

It is not my intention to defend the ANC. But the far left cannot provide an answer to South Africa’s problems by opposing privatisation, advocating more government and wishing to isolate South Africa from globalisation. Capitalism is not an enemy of the poor, nor is there a capitalist conspiracy against poor countries. The world trading system is imperfect in developed and under‐​developed states alike. Despite this, many poor countries have achieved remarkable prosperity.

In 1967 per capita income in South Korea was an inflation‐​adjusted $550. In Ghana it was $800. By 1997 it had reached $10 360 in Korea, while in Ghana it had fallen to $370. Formerly poor countries like Taiwan, Singapore and Hong Kong today enjoy much higher standards of living.

The successful countries 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. Botswana, with Africa’s freest economy, has averaged a 7% growth rate over the past two decades.

Free markets and minimal state intervention are prerequisites for prosperity — but they are exactly what South Africa does not have.

Except for agriculture, the ANC has not substantially improved on the interventionist record of the apartheid government. Restrictive labour laws and state enterprises abound.

Vally is correct to talk about the legacy of apartheid, but incorrect in defining it. The real legacy is the high degree of central control over the economy and collusion between government and big business.

The economic system under apartheid was not capitalism, but “statism”. Government incentives favoured companies perceived as crucial to alleviating sanctions. Many large enterprises were run less for the benefit of shareholders than of the apartheid regime.

The government’s power over South African business remains largely unchanged. Businessmen vie for the government’s favours because what it does on taxation, affirmative action and labour regulation can destroy them.

The problem, therefore, is not too little government, but too much. Every new licence creates an official who can distribute it in a corrupt and arbitrary way. Every new regulation creates an official who can be bribed into granting exceptions to it. Let government stop running the economy, and corruption, which Vally rightly complains about, will decrease.

Collusion between government and big business can only be avoided if the government’s actions become neutral to companies’ fortunes.

Separation between political and economic spheres is the root of developed countries’ success.

The greatest danger to South Africa’s development rests in growing government intervention, which is sadly what Vally advocates.