Prosperity alone is not enough

Posted On Wednesday, 06 October 2004 02:00 Published by
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THE test of any economic system is the extent to which it promotes human liberty and freedom, as well as prosperity.

ECONOMIC TRANSFORMATION/Tony Leon

THE test of any economic system is the extent to which it promotes human liberty and freedom, as well as prosperity. That is a test communism, in all its forms, has failed. The trouble is that capitalism in post-apartheid SA is in danger of failing it as well.

True, our nation has achieved a degree of prosperity. Our average annual rate of economic growth has been 2,8% over the past decade, up from 1% in the decade before. That is not nearly high enough and comparisons with the final decade of the apartheid siege economy may flatter to deceive, in any case. Still, we have made some progress.

Yet our economy has not advanced human liberty and freedom. Partly this is because the benefits of our nation's modest prosperity have not reached the poor, who therefore cannot enjoy economic freedom. Roughly half of our fellow citizens live in poverty; well over 40% are out of work.

The other way in which our economy is failing to advance and is actually retarding human liberty and freedom is by restricting the liberty of action of individuals within the system. The African National Congress (ANC) government is doing this by reintroducing race as a limiting factor in economic decisions, and by reimposing the heavy hand of state control on the economy.

The challenge the Democratic Alliance (DA) faces, as SA's official opposition, is to support those government policies that are taking our nation forward while opposing those that hold us back. At the same time, we must provide an alternative capitalist model and alternative policies that can work to the benefit of the poor as well as the rich.

This is, in fact, what we are doing. Nowhere is that clearer than on the issue of black economic empowerment. In contrast to the ANC's approach, which puts race ahead of economic logic, and which has enriched only an elite few with ties to the ruling party, we champion policies that put ordinary people first.

Earlier this year, we proposed that companies use employee share-ownership schemes as a means of achieving broad-based empowerment. They have started to listen. Standard Bank's recent empowerment deal included black management and staff, as well as community groups a first for any empowerment transaction in the financial sector.

We also proposed that those who had benefited handsomely from previous empowerment deals should no longer be considered "disadvantaged" and should not qualify for preferential treatment. Not too long ago, the ANC dismissed this idea as "racist", yet last week ANC secretary-general Kgalema Motlanthe announced he now supported it.

There are numerous other cases in which new ideas proposed by the DA have been taken up, on their merits, by the ANC. Recently, it was revealed that Deputy Finance Minister Jabu Moleketi had presented a discussion paper in July to the national executive committee of the ANC in which he suggested sweeping economic reforms many of which closely mirrored DA policies. His recommendations included, for example: rapidly liberalising exchange controls; excluding small firms from collective bargaining agreements between large employers and big unions; extending exemption for firms from certain regulations by raising the size threshold from 50 to 200 employees; and creating a twotiered labour market with flexible wages in the entry-level tier.

Politically, there is no direct benefit to the DA as an opposition party when the ANC pinches our proposals. Yet we are more than happy to overlook our own interests so that our nation's economy may benefit.

Despite convergence in some policy areas, there are still fundamental differences between the DA and the ANC on economic policy. The ANC wants the state to play a dominant and controlling role in every aspect of the economy. It is pursuing a dirigiste "rule by charter" regime that is discouraging investment and draining scarce capital resources. By contrast, the DA believes that while the state has an important role to play in managing the economy, the private sector must drive economic growth and development. The state cannot steer the ship and row the boat at the same time.

What SA needs is not less of the free market, but more of it and a more inclusive, expansive model that provides new opportunities to the poor.

Fundamentally, that will require a shift away from the ANC's obsession with race and redistribution and towards the DA's focus on openness and opportunity.

It will also require a reordering of priorities, such that rapid economic growth and job creation are placed ahead of every other policy goal.

These changes are described in the DA's comprehensive economic policy, It's All About Jobs!, which we released last March. We offer no "quick fixes", but simple and effective measures that would have a powerful cumulative effect.

We believe, for example, that businesses and households should receive tax deductions of up to R3000 a month for hiring new employees. In addition, the government should create export processing zones to promote labour-intensive industry.

Poor people should be given formal title to their land and property, however humble. Public enterprises should be privatised, and shares offered to the poor at reduced or no cost. Skills development should be improved by replacing the wasteful sector education and training authority with one that reimburses firms for money spent on training programmes .

These are just a few of the DA's many proposals. They are inspired by policies that have been applied successfully by other developing countries.

All of them are market-friendly, and affordable; all of them would help the poor become more prosperous and free.

President Thabo Mbeki is fond of saying that SA is a land of "two nations".

I believe, however, that we are one nation that must choose between two roads. One is the road that we are on the road of moderate growth, greater inequality and reduced freedom. The other is the road of rapid growth, higher prosperity, greater liberty and expanded freedom.

The choice is clear.

Leon MP is leader of the Democratic Alliance.


Publisher: Business Day
Source: Business Day

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