Opinionista Justin McCarthy 5 January 2014

The broken wheel of the revolution

Thousands of tributes, paeans and eulogies have been penned in the days since Madiba died, many of them excellent pieces well worth the hours required to rootle them out from the thick sheaves of bland platitudes. Many writers have acknowledged the great things that Mandela achieved, and some have rightly found fault with aspects of his legacy. A growing number of commentators have pointed out that while he played a major role in delivering political freedom, Mandela failed to deliver the economic freedom that the ANC movement promised.

Some call it Mandela’s unfinished revolution, in reference to South Africa’s racially skewed profile of wealth distribution and the steepening gini coefficient. Predictably, the left wing is trotting out the usual revolutionary claptrap and the EFF and several leading union movements are touting nationalisation as the silver bullet. (A reading of the EFF’s policy document is like a high school scholar’s simplistic version of Communism 101. It’s so entirely devoid of any originality and so totally immersed in long-failed ideology it bemuses a rational reader stranded between laughing and crying.)

That’s almost expected from South Africa’s sometimes outlandish left, but some of the critiques coughed up by columnists and commentators have been equally dismal. There’s no shortage of criticism of government policy, but a great shortage of sage advice. With a handful of exceptions, notably some business and economics-centric media, the mainstream media offers little by way of constructive commentary. If the message of the capitalists doesn’t reach the mainstream, this important perspective will never be heard. Instead, the mainstream is awash with irrelevant rhetoric at best, vitriolic capitalism-bashing at worst.

While capitalism is far from perfect, it is still the most relevant, meaningful and sustainable way to affect an economic revolution in South Africa by a very long margin. There are of course different degrees of capitalism, but I’m referring to the broad principles in the interests of keeping this simple and to the point. And I will buttress this broad capitalist argument against the general socialist stance of the left for the same reason.

A friend recently sent me a story that summed the contrasting approaches up perfectly. It’s most probably mythical, but it matters not.

A university economics professor wrote that he had never failed a single student before, but had recently failed an entire class. This class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor then said, “OK, we’ll conduct an experiment on the socialism principles. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive a distinction.”

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. For the second test the students who studied little had studied even less and the ones who studied hard resented that they were being exploited, so they too put in less effort.

The second test average was a D. No one was happy. By the third test the average was an F. As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else. To their great surprise they all failed. The professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.

This simple parable is a wonderfully accurate depiction of the fundamental flaws of applying socialism, particularly to a non-homogenous society containing huge imbalances as South Africa does. The diminishment of reward results in a proportional diminishment of effort; it’s hard wired human nature. It’s the very same principle that moved us from cave dwelling to space exploration. Human endeavour is the essence of the advancement of the human race, and curiosity, risk and reward are the driving forces behind it.

The fact remains that one cannot multiply wealth by dividing it. Nor can one legislate the poor into prosperity by legislating the wealthy out of it. This is social engineering at its most reckless and destructive. As it is, our government will spend 15,7% of 2013/14’s budget on social grants – the second highest category of expenditure after education and over one and a half times more than it spends on public order and safety. To put a value to it, government will spend over R113 billion this fiscal on social grants. In the last decade (from 2004 to 2013) government has paid out 125 million grants amounting to some R770 billion.

I would argue that social grants are a necessity. Not only do they keep millions of South Africans alive each month, but without them our economy would have shrunk. The majority of the R113 billion this year will be spent on food, settling short term debt, transport, accommodation and communications. As socialist as this policy is, it is a critical component of government engineering. Trevor Manuel understood this very well, and implemented the revised policies. But I doubt he envisaged it ballooning to the scale it is at today, with more than six times the number of beneficiaries today than in 1998. I worry the Treasury will lose the ability to balance the social needs of our economy with the growth needs should Pravin Gordhan retire or be redeployed, which is looking increasingly likely.

The leftist leanings of the ruling party are deeply troubling. There’s no more room for double digit social grant growth when the economy is dragging along at 2% and the tax base is squeezed dry. For every tax payer in SA there are three grant beneficiaries. There’s no more room for massive inefficiencies in government services, gross wastage and the corruption-fuelled grotesque inflation of the infrastructural development cost. There’s no room for a continuation of the ballooning budget deficit (from 27% of GDP in 2008 to 42% in 2012) designed to prop up an electorate. There’s no more room for nanny state pro-labour protectionist regulation that chokes the entrepreneur with fields of weeds. The entrepreneurial spirit is monotonously discouraged through over-regulation, ridiculously high barriers to capital, and an exclusion from aspects of the economy which are reserved for those with political connections but seldom the skills or ambition to deliver.

We have an election looming. The platitudes are emerging thick and fast but an increasing number of disillusioned voters are not buying the ANC’s empty promises any longer. The narrow self-interests and enrichment of those in positions of power is fuelling the dangerous rhetoric of the left, herding voters back to the old school ANC principles fostered in the cold war era of Soviet ideology. While that is hardly politically threatening, it gives greater credence and stature to failed ideology that has the potential to deepen the economic stagnation and indefinitely delay the delivery of a better future for all. DM