Interventionist realities - when less means more
For the millions of unemployed South Africans, owning a house and a car is but a dream. To turn their dreams into reality, they need jobs.
Interventionist politicians and policy experts see state enterprises and nationalisation as the solution to South Africa’s unemployment problems. They support race-based ownership and employment quotas. They also believe expropriation without compensation can redress past injustices.
If government intervention in an economy worked, there would be jobs for everyone. Prosperity would be the norm. The Berlin Wall would still be standing. So would the former Soviet Union and the socialist states of Eastern Europe. Their economies comprised state enterprises. Instead, popular revolt led to the tearing down of the Wall in 1989. The Soviet Union and East Bloc countries collapsed soon after.
Let us see what happens under interventioinism. To increase food production, China, and the Soviet Union expropriated farmland. Farmers became workers on the land they once owned. Government planners in towns far away decreed what, where, and when to plant, and how much to produce. They knew little about local climate and soils, food needs, and distribution networks.
Collectivised farming led to food rationing and endless food queues, famine, and death. In the Soviet Union, between 1931 and 1933, five million people died of starvation. In China, collectivised farming and adverse weather caused the worst famine in history. About thirty million people died of starvation between 1959 and 1961.
State-led economic planning, enterprises and industrial production led to shortages and rationing. From food, medicines and medical care to bolts, screws, fridges, and televisions. The state mandated what jobs there should be, what job you did, where you lived, and in what type of housing. You needed a passport or travel permit to travel within your own country. The more the state intervened, the worse off the citizens became.
Today, in most countries, the government does not plan or producethe food and the goods we take for granted.
Economic miracles
Interventionists claim Japan, South Korea, China, and Hong Kong as interventionist success stories.
In China, Deng Xiaoping’s 1978 reforms dismantled totalitarian government controls. This included establishing market-based Special Economic Zones (SEZs). In them, taxes were low. Regulations were clear and limited. SEZs became islands of economic freedom within the borders of a totalitarian China. Market-based economic reforms unleashed entrepreneurship and attract foreign investment.
South Korea’s rapid growth under Park Chung-Hee relied on state-backed conglomerates. The state offered export incentives, backed by infrastructure development and legal certainty. Private investment soared. According to estimates, South Korea’s GDP per capita is between 17 and 30 times higher than that of North Korea. North Korea, a totalitarian interventionist state, is forever poor.
The basis of Japan’s post-war economic miracle was pro-market reforms. The Japanese government reduced government controls, encouraging market competition.
Hong Kong, once an economic backwater, became a global financial hub. It combined laissez-faire economic policies with strategic investments. These included infrastructure, public housing, education, and anti-corruption measures. Its administration followed a deliberate non-interventionist approach. Local and global entrepreneurship thrived. Hong Kong became the world's freest economy. Skyscrapers replaced its boat-dwelling past.
The interventionists are right, government intervention worked! But here is the thing. In their examples the governments intervened to reduce intervention! Increased economic freedom led to soaring domestic and foreign investment. Creating environments for domestic and foreign businesses to thrive, created millions of jobs.
South Africa's government must “intervene” to free the economy, not to control it.
The unseen
We do not see the cost of government intervention in the economy. It is the prosperity not created. We do not see the businesses that do not exist because of high taxes and economic regulations. We do not see the jobs not created because of ownership and employment quotas. We do not see the food not produced because of threats of expropriation. We do not see the houses not built because jobless people do not have money to buy houses.
Prosperity happens when the citizens and businesses produce, invent, and trade. For that, they need less government intervention and more economic freedom.
Entrepreneurs create jobs when they are free to decide what businesses to establish. Only they know what jobs to offer and to whom. Individuals are better off when they can decide what work they want to do, who to work for, and at what price. The government and its agencies do not interfere in their decisions.
Businesses use the knowledge and skills of their owners, managers, and employees. They act on real time information, like price signals and sales volumes. This enables quick decision-making and adapting to changed conditions. When a business makes mistakes or misreads the market, it, not the taxpayers, bears the cost.
We fool ourselves believing the government can create productive jobs. Government jobs come at the expense of private sector jobs. Nobody, not even the cleverest economist, knows what the economy should look like. No one knows what and how many jobs there should be.
Government officials and policy makers are distant from economic realities. They make low-information decisions, hampered by bureaucracy and political constraints. When the government gets it wrong, the citizens lose. The jobs not created, and services not delivered, are unseen.
Less intervention, more jobs
To bring prosperity to all, South Africa's economy must create jobs. The government’s obsession with race-based ownership and employment targets limits job creation. These, as well as the threat of expropriation, must be abandoned. When there is rapid job creation, race gender, and ownership issues will fall away.
Only a high-growth, job- creating economy can solve South Africa’s employment problems.
Johan Biermann is a city planner and policy researcher, and an associate of the Free Market Foundation. He is the author of Undermining Mineral Rights - An International Comparison, and South Africa's Healthcare Under Threat.
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