Getting out of the ANC's socialist death-spiral

John Steenhuisen says best approach to funding higher education is through student loan system


17 March 2021

In a recent newsletter, I argued that South Africans face a binary choice between socialism and liberal democracy.

The choice is binary because from our starting point now, we can either move in the direction of more socialism or more liberal democracy. I argued that saving South Africa requires political realignment, where those who support liberal democracy come together to defeat those who support socialism.

ANC members of parliament would have experienced this binary yesterday in Parliament when they had to vote on a DA motion to institute an inquiry into Public Protector Busisiwe Mkhwebane. ANC Secretary General Ace Magashule instructed them to oppose the motion while ANC Chairperson Gwede Mantashe instructed them to support it.

The burning issue of higher education funding provides another excellent case study on this binary choice.

The South African Union of Students has this week decided to shut down all 26 of South Africa’s universities until their demands are met for zero fee increases for 2021 and for all historical student debt to be cleared.

This is perfectly on cue with the “progressive” socialist script South Africa is following.

It’s Scene 10 in a movie which goes something like this:

Adopt a socialist approach to the economy, namely a high degree of ownership and control for the state.

Deploy politically loyal cadres into all institutions of state, to accelerate the “progressive” socialist revolution. (The ANC calls this the National Democratic Revolution.)

Employ as many people as possible in the state and pay them as much as possible, because it is “progressive” (and because it buys political support). Don’t hold them to account for poor performance because that is “regressive”.

When bloated state-owned companies inevitably fail, bail them out by borrowing money (at high interest rates because lenders know how risky it is to lend to socialist countries).

When tax revenues inevitably decline because investors are scared off by the socialist agenda, maintain budgets for social spending by borrowing money (at high interest rates because lenders know how risky it is to lend to socialist countries).

When unemployment inevitably rises, borrow more money to pay social grants and congratulate yourself for this “progressive” achievement of supporting more people on social grants.

When your credit rating hits junk status and it becomes hard to borrow, cut budgets for social spending, but keep bailing out state-owned companies, which cannot be allowed to fail because they are “progressive” (and because they are a great source of patronage to shore up declining political support).

When budget cuts to social spending erode political support and you have no way to deliver real improvements to peoples’ lives, make populist promises that are “progressive”, such as national health insurance, expropriation without compensation and more BEE.

When these promises deter investment in South Africa and raise the cost of borrowing money and reduce tax revenues and increase unemployment, make more “progressive” promises, such as free higher education.

When you don’t keep these promises because it’s getting hard to borrow enough money, and students threaten to shut down universities, “reprioritise” budget from basic education and social grants so that you can try keep your “progressive” promise of free higher education.

Whatever happens, keep bailing out those state-owned companies, otherwise people may get the impression that your socialist agenda has failed.

And so we find ourselves at that point in the ANC’s National Democratic Revolution where qualifying students can’t register, and the entire university system is on hold, because NSFAS is underfunded by R6.8 billion, while the ANC government has spent R27 billion bailing out SAA in the last two years and is needing to spend another R5 billion this year in terms of the Business Rescue Plan. All while the airline is not actually flying anyone anywhere.

If you’ve seen this movie before, it’s because fellow socialist states Venezuela, Cuba, Argentina and Zimbabwe have already screened it, though they’re tiring of it now.

South Africans wanting to get out of this death-spiral need to unite behind the liberal democratic alternative. This is where the truly progressive policies are to be found. Policies which improve peoples’ lives in the real world where it matters.

The truly progressive approach to funding higher education in South Africa is to implement a student loan system where commercial banks via NSFAS provide either full or partial government-backed loans according to household income.

The loan becomes repayable when the graduate gets a job earning above some threshold, with capped repayment amounts, in a system administered by SARS.

Under this system, every qualifying student has full access, regardless of their ability to pay. Higher education is “free” for the poor student, but not for the income-earning graduate.

This income-contingent loan scheme is based on the simple principle that public goods should be state funded and private goods should be privately funded. Higher education is part public good and part private good, since graduate work contributes enormously to both society and to the graduate’s personal income stream.

When it operates in a liberal democratic order with a social market economy and secure private property rights, the likelihood improves that graduates will find gainful employment and be able to repay their loans. This is because economic growth follows opened economies like night follows day.

This approach boosts higher education funding in two ways. First, the recovery rate of student loans is higher. Second, the annual budget for NSFAS and university grants is higher because tax receipts are higher.

It generates a sustainable system which protects not only access to higher education, but also the quality and quantity of higher education on offer in South Africa.

It is based in the reality that fee-free higher education is regressive because it requires cutting budgets for social priorities such as basic education and social grants.

This policy position is not held by the DA alone. It was recommended in 2017 by the Heher Commission into student funding. It is extensively set out in this London School of Economics paper on higher education funding. Universities South Africa (USAf) has also set out the case against fee-free higher education.

In the local government elections later this year, a vote for the DA will be a vote to get South Africa out of our socialist death spiral and onto a liberal democratic path in which every qualifying student has full and fair access to higher education.

Warm regards,

John Steenhuisen