Generally, I find business people support economic freedom in broad terms, but in the case of their specific businesses, they think the government should establish huge barriers to trade because those terrible Brazilians or Estonians, or whomever, are just being unspeakable – dumping their goods in our beloved country, destroying jobs and so on. 

Yes, sometimes they are dumping, but often they are just better at making stuff, or giving it to us at lower prices.

People who are against economic freedom think that by supporting the notion, you are siding with those horrible capitalists and against the common good. But often there is an extraordinary consensus between business owners and workers – and consequently between capitalists and trade unions – against economic freedom and open competition. Go figure.

SA has once again slipped in the Fraser Institute’s Economic Freedom Index which was released on Thursday. It’s just inevitable. 

South Africa now ranks 99th out of 165 countries, which means the country has dropped by 50% under the ANC’s economic administration. 

I find ANC politicians almost completely disinterested in this calamitous fall – or they barely notice it. Opposition politicians are actually not much better, and are sometimes much worse. It’s not by chance that both groups are totally clueless about why SA’s economic performance is declining so precipitously.

There is another reason why the notion of supporting economic freedom is not the same as supporting capitalists. Economic freedom works for poor people just as it works for capitalists. It seems extraordinary to make that claim, but the data demonstrates this unequivocally (assuming the Canadian Fraser Institute is measuring it correctly).

The average income of the poorest 10% in the top quartile of economically free countries was about $14,204 in 2020. This compares to $1,736 in the bottom quartile (measured in Purchasing Power Parity at constant 2017 dollars). And this is the incredible part: the average income of the poorest 10% in the most economically free nations is more than twice the average per-capita income in the least free nations. Is that not incredible?

Of course, we have something of a “correlation is not causation” problem here, because most of the world’s economically free countries are also rich… because they are economically free. 

But this is not always the case; there are plenty of poorer countries in the top quartile. Africa’s most economically free country, Mauritius, sits at #9 – a fantastic achievement. But generally, the top quartile consists of the world’s richest countries, so we need to be cautious about the notion that economic freedom equates one-to-one with wealth.

But there are other indicators which strengthen the argument that the road to prosperity for poor people is to have more economic freedom. Not only is the absolute income earned by the poorest decile more in economically free countries (and when I say more, I mean seven times more; see above), but the income share for the poorest is higher. In other words, very poor people generally do better in economically free countries as a proportion of the total wealth available, whatever it is.

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We can see this in our own region: Only today, Daily Maverick carried a story about a Zimbabwean immigrant who earned more in SA as a farm worker than he did as a maths teacher in his homeland. 

Plight and poverty — “I earned more as a farmworker in South Africa than as a maths teacher in Zimbabwe”

Zimbabwe sits third-last on the list; by comparison, SA is the land of milk and honey – no wonder so many Zimbabweans want to live and work here. 

SA could solve its Zimbabwean immigration problem very easily by encouraging the Zanu-PF government to try to take something – anything – from three centuries of economic knowledge.

Interestingly, the poorest decile in third quartile countries – and that would be us – do even worse than in the least-free countries. The bottom 10% earn 2.69% of total income in the less free countries, and they earn 2.15% in countries that rank between 84 and 123. How that happens, I would love to know – it would make a great thesis.

So how do you become economically free? It’s not all about rampant capitalism, although industry and trade are obviously important. The measures are the size of government; having a solid legal system, including the protection of property rights; having sound money; minimising gender disparities and having freedom to trade nationally and internationally.

What has happened in SA is that the government has regulated business up the wazoo, which has in turn encouraged business to beg for tariff protections, which the government has generally granted – on condition that they adhere to more regulations. And so on. It’s a vicious cycle. And consequently, every year, we slide further down the scale.

You know who I think is also at fault here? Teachers and universities. The atmosphere on university campuses is hugely critical of economic freedom, which is just absurd, since there should at least be some passing knowledge of the data.  

But the result of capitalism-hating academies is that teachers graduate either without knowing the first thing about modern economics, or being openly hostile to economic ideas that are common parlance now all around the globe.

And there is one other thing: SA is not only going backwards because it’s going backwards. It’s also going backwards because the world is going forwards – if you get my drift. Apart from the past few years, complicated by the Covid crisis, economic freedom around the world is increasing. Thius means that by standing still, you are effectively moving backwards.

So this is just one study. Importantly, though, it correlates with business competitiveness indices, with the business confidence index – which by the way has been negative in SA now for a decade – and with GDP growth figures. You would think those three together would be enough to at least get some attention in the government. But politicians are too busy jockeying for positions on this municipal council or that water board.

This is all depressing, except that, long term, it isn’t. Given that now the vast majority of countries in the world are striving to be economically free, the ultimate outcome is a given. 

It’s just the getting there that’s in doubt. BM/DM