The Minimum Institutions South Africa Must Defend

The minimum set of institutions required to avoid collapse, provide alternatives to bad governance.

Photo by Sasun Bughdaryan on Unsplash

There are three institutions that are critical for South Africa’s economic future and weathering any storms we may face as a country. In addition to these three, we need to move to a decentralised model for managing key infrastructure, i.e. the so-called network industries. The three institutions are: property rights, the judiciary, and the monetary system as controlled by the South African Reserve Bank.

This country will not survive because we get good leaders; there is honestly nothing to find among politicians. You should still vote but in doing so look for politicians who will not harm the institutions that are necessary for the private sector (me and you) to lead this country into prosperity by leading our families and communities into prosperity. These are the bare minimum institutions that any society needs. It does not mean that the situation is ideal if these institutions are strengthened and protected; it simply means there is a path, no matter how narrow, towards progress and avoiding complete collapse.

1. Property rights

The first and arguably most important institution is property rights. This is the institution that ensures that people who take the risk of deploying capital will own the capital they deploy. It is the minimum precondition for any investment to take place. If I build a factory on a piece of land I own, then the factory must be mine until I sell it or lose it because I took on contractual obligations that cede the factory to the other party when I fail to meet my end of the bargain.

Without this condition, no investment is safe. People may still invest by judging the expected return to be sufficiently large that it makes up for the insecurity of property ownership, but it would never be at the same level, with the same conviction, over the same time horizon, as when property is securely owned. Unfortunately, South Africa is currently heading in the wrong direction when it comes to this institution.

The Expropriation Act has introduced into our law the aberration of nil compensation. In the final analysis, this means that courts have now been explicitly empowered by legislation to agree with a government decision to seize someone’s property without paying for it. The listed conditions in the act are, apart from being open-ended in themselves, not exhaustive.

This means that when you buy any property in South Africa – not just land – you simply don’t know when or why it may be taken from you for a total loss. Ordinary expropriation with compensation, as done in most Western countries, is already subject to numerous abuses, but the fact that you would at least be compensated for the loss did limit the loss (even compensated expropriation at market value is still a loss because no one knows what the future value of the land will be). This depresses property prices, disincentivises investment and permanently reduces the potential for economic growth.

The argument for why we need to weaken property rights is so that we can redress the results of weakened property rights in the past. This is not only mistaken; it is a dangerous delusion. There are two components to redress: direct restitution of stolen property and making up for opportunity costs arising from past restrictions on property ownership and a lack of liberty.

Direct restitution does not require weaker property rights. It simply requires identifying the rightful owner of the property and effecting a transfer to them either through a market transaction or an expropriation with market-value compensation. No legislation is required in the few cases where the land being restituted was stolen (with state assistance) by the current owner or their descendants, stolen property can already be seized without compensation.

If the land was stolen by the state itself, the land must be returned to the rightful owner with the current possessor being compensated by the guilty party (the state). Transferring ownership to the rightful owner cannot be subject to delays such as the state has no money. That is why restitution must be separate from the payment of damages to the innocent possessor of the land. The state could also be forced to pay damages through other assets it owns if it does not have enough money.

Redressing opportunity costs for past laws that criminalised the ownership of property or taking up certain jobs by your ancestors is not the same thing as restoring lost property, but it should still be done. It is not an exact science so everyone should be reasonable enough not to expect perfect results, we just don’t know how wealth or income would have been distributed without apartheid.

Providing a good education and turning townships and former homelands into special economic zones, are all components of such redress. When it comes to land specifically, I don’t think there is a better, more efficient option than simply giving the country’s best retired farmers, real estate and other investors a budget and giving them a target (e.g. a certain % of each category of land to be transferred into the hands of people who were previously disadvantaged over a fixed number of years), the target would be agreed with these experts.

Even better if these people (the farmers and investors) still own a lot of assets in South Africa, they would be incentivised to solve this issue which has proven to be a permanent source of political instability. This project must use the once empowered, always empowered standard. So that even if people sell their land or become poorer through their own choices, the state still counts this as successful redress, otherwise our society will be in a permanent state of conflict and that is no way to build a society.

As for strengthening property rights after repealing nil compensation. We should end squatters’ rights, end property taxes, and end asset forfeiture by the state unless a crime has been proven beyond any reasonable doubt. Most importantly, we need a culture of respecting property rights. Something like a castle doctrine which does not impose a duty to retreat on property owners, alongside the presumption of intent to commit violent crime by any trespasser who intentionally crosses the boundary of another person’s property without permission, would help incentivise the creation of such a culture.

The most important point to make is that property rights are necessary for prosperity and to secure our other rights (e.g. freedom of speech, you can only speak freely on property you own or on which you have been given permission by the owner). There is no category of people who benefit from weaker property rights and a government acting as a proxy on behalf of millions of people. Only individual property rights guarantee each person’s ability to act in their own best interests.

2. The judiciary and its independence

Conflict is an inevitable occurrence in any society, especially when economic resources are involved. It is therefore essential that any country have first class dispute resolution mechanisms. Impartial courts are necessary to ensure dispute resolution does not always favour political cronies or even the government itself, more so in a constitutional republic like South Africa where the protection of rights depends on how courts interpret the constitution.

While South Africa has some judicial independence, certainly more than most African countries and many other places around the world, there is scope to improve. The biggest problem is that our process for appointing judges is too politicised, with 15 political appointees out of 23 in the Judicial Services Commission (JSC) - the body that appoints most of our judges.

The president does the formal appointment, but when it comes to Supreme Court and High Court judges, the JSC only recommends one candidate. The president has more discretion for Constitutional Court Judges where the JSC recommends 4 candidates for each vacant post. But don’t feel bad for the president; he appoints a full five of the 15 politically-appointed JSC members and parliament appoints 10 of them.

Among the 10 parliamentary nominees for the JSC are such figures as convicted criminal Julius Malema. The MK party tried to nominate impeached Judge John Hlophe, but the courts didn’t allow this. Given the dominance of leftist and so-called progressive factions in parliament, it is not hard to see why our courts have systematically undermined property rights by putting the onus on property owners to provide housing for people who illegally occupy their land.

So on paper we have one of the strongest constitutional property rights protections in the world, but they can be rendered ineffective through judicial activism to create non-existent squatters’ rights (we do have a constitutional right to housing, but reading the whole constitution makes it clear this cannot be used to undermine property rights), or to refuse to strike down ‘nil compensation’ in the expropriation act, as unconstitutional.

An independent judiciary will be essential when conflicts arise between entrepreneurs and social activists on one side, and the government and its cronies on the other regarding the former’s attempts to fix the consequence of bad government policy. We must fight against any attempts to erode the independence of the courts any further, while simultaneously pushing for more independence along the lines of the Finnish or similar models.

The main idea is that judicial appointments should be made by learned men and women debating judicial philosophy, not politicians debating whether the applicant has the correct skin colour or private parts, or whether the applicant was progressive enough.

3. Integrity of the monetary system

The ability to exercise ownership over capital is one thing, but equally important is avoiding the state stealthily taxing the capital away through inflation. In South Africa this means we must defend the independence of the central bank, while simultaneously pushing for decentralised money. To be clear, the South African Reserve Bank (SARB), like all central banks, is a tool of the government to steal purchasing power from savers.

There is however a big difference between the theft exercised by our central bank and the American Federal Reserve, and the theft exercised by the Zimbabwean central bank, Weimar Germany or even the Turkish central bank. The difference is between prices increasing by 3% a year or increasing by 50% a month.

So, it is worth defending the independence of SARB as it exists, but we should also push for decentralised and independent money. In most cases this will be a commodity like gold or cattle, but also cryptocurrency. This will be important for our communities’ resilience independent of government. This must be paired with a serious effort to make stokvels into community banks.

Protecting savings from inflation protects community-based, decentralised capital formation and accumulation from destruction through inflation. Looking at how central governments undermined their own countries, inflation has been a major factor.

4. Network industries / connective infrastructure

Unlike the others, network industries are not a single institution. It refers to the infrastructure that makes commerce within a country and between a country and the rest of the world, possible. This refers to rail, roads, telecommunications, ports, airports, the national grid etc. Here we must preserve our ability to create alternatives where possible, and to guarantee private sector access if alternatives are not feasible.

This is why the energy reform to create a national transmission company that will buy power from Eskom and private power producers is so important. This is why the removal of the embedded generation licensing cap matters, but more must be done. We need the government to drop its climate change commitments, these are making it hard for private power producers to compete on a fair basis with Eskom’s legacy coal fleet and to provide baseload power at the local, microgrid level.

I would be supportive of US President Donald Trump if he was pressuring our government to exit from the Paris climate treaty. Instead, he is pushing a discredited white genocide narrative that serves no purpose other than to offend most of the population and worsen race relations within our country. I was hopeful when US Energy Secretary Chris Wright was appointed; he has the right ideas, but these are not making it to foreign policy, energy poverty is one of the key factors behind African poverty in general. US financial institutions would have a massive edge over China and Europe if they were the only financiers refusing to judge energy projects on climate criteria.

When it comes to water, we need a fundamental rethink. Government ownership of water resources is leading us to the same disaster we experienced due to a government monopoly on energy. Government often fails to invest in building more capacity or just maintaining current capacity.

We need to get government out of water by restoring water rights to individuals, linking them to property rights in the first instance, until the property owner chooses to separate them. Municipalities would still own the pipes bringing water to the house but would have to negotiate with the owners of water rights. This allows competition and more importantly, investment in maintaining and expanding infrastructure for supplying bulk water and finding more sources of water and conserving them.

For telecommunications, we should first welcome all satellite ISPs into the country, like Starlink or Project Kuiper (Amazon Leo). The concerns about Elon Musk have no bearing on whether South Africans should be able to voluntarily buy internet services from him; it’s not about him, it’s about the rights of South Africans. There are other satellite ISPs that have a longer history, that operate in geostationary orbit unlike Kuiper and Starlink which operate in Low Earth Orbit.

All should be allowed, including China’s Qionfan and GuoWang. I appreciate the arguments about security risks, but the government does not have to utilise the services of any of these ISPs; the rest of us can make our own judgement.

Telecommunications must be resilient against government censorship. From experience we know it is likely that companies will fold under government pressure. Communities should invest in learning about and building alternatives to traditional telecoms infrastructure, like the Reticulum Network which specifically avoids centralised infrastructure and allows the creation of a peer-to-peer ISP.

Conclusion

The three institutions listed here: property rights, an Independent Judiciary, a stable monetary system, are all necessary for private parties to be able to circumvent the consequences of bad governance. Rather than fighting on all fronts at maximum effort - something that wastes resources - it is important to know which minimum set of institutions must be defended at all costs against government overreach.

If we lose any of these institutions, it becomes difficult and even impossible to overcome bad governance.

Moreover, we must not allow the government to centralise the infrastructure needed to provide water, energy, telecommunications, intra-country and international trade. Where alternatives can be built (solar, boreholes, reticulum etc) they should be built but sometimes it is impossible (roads, rail and the ports) and in those cases we should fight for private access. Advocate for other things but understand what are the non-negotiables that if they were lost, liberty would be lost in a strategic sense.

The future is decentralised.

Mpiyakhe Dhlamini is a libertarian, writer, programmer and an Associate of the Free Market Foundation.