Finance Minister Pravin Gordhan has said that South Africa needs ‘new thinking' on jobs and growth. This comes after StatsSA released data last week which showed that formal employment in South Africa declined by close on 3% over a period that saw the economy grow by 1.6%. As Business Day pointed out, this was not ‘jobless growth' but ‘job shedding growth'. It remains to be seen what Mr Gordhan's ‘new thinking' may be, but it may be a good time to consider how South Africa measures up against some of the attributes of successful free market economies.
The first basic attribute of a successful free market economy is that it is the private sector, and therefore private entrepreneurs, that create wealth in successful economies. In South Africa's case, government policy and intervention may have done much to stifle the efforts of the private sector. Here policies such as employment equity, black economic empowerment, and excessive labour regulation are pertinent. Critical commentary on any of these policy areas is met with anger and often accusations of racism. However, no cost-benefit analysis has ever been conducted to gauge the impact that these three critical policy areas have had on the ability of South Africa's private sector to grow and add value to the country's economy.
There is reason to believe that these three areas may have added significant costs while slowing the efficiency of the private sector. Forcing companies, on the pain of penalties, to ensure that their workforces match certain demographics, that their procurement spending does the same, and that their management follows suit must have had the result of slowing their own capacity for growth and expansion. This ‘slow down' may have been a response to the fact that the above policy interventions in effect retarded the free flow of capital within the private sector, which is in turn the foundation upon which the private sector can create new wealth and job opportunities. The effects on smaller and family companies may have been even more severe than on multinationals or super-corporates, which operate on economies of scale large enough to carry the extra burdens imposed on them by the State.
Related to the above is the hostility with which the Government has often treated much of South Africa's private sector. Threats are made to ‘name and shame' companies that fail to comply with government directives, politicians slate companies that ‘have not transformed' and many in both politics and the media repeat the mantra that the private sector in the country ‘resists transformation'. The net result of both the transformation policy, and the threats that accompany it, may have been to create a depressed business environment in which private sector entrepreneurs are often held up as negative examples. To the extent that some in our society would seem to have them apologise for conducting business in South Africa.
Even the deputy president, Kgalema Motlanthe, was guilty of this recently when he welcomed new investment by Volkswagen in South Africa while at the same time rebuking the company for not meeting certain demographic targets.
In their defence, some of these government interventions might at least have been well-intended. But there are other examples of interventions that have been explicitly hostile. An example here was the nationalisation of mining rights. This legislation appears to have had a direct impact on depressing mining investment in South Africa, particularly when South Africa's mining industry is compared to that of China or Australia over the past decade. Read the policy in conjunction with comments from a former mining minister that ‘white' mining companies were thieves that ‘looted' the country, and some of the thinking that gave rise to the nationalisation of mining rights is revealed.