The direct consequences of expropriation of property without compensation

By Temba A Nolutshungu, a director of the Free Market Foundation.By Temba A Nolutshungu, a director of the Free Market Foundation.

Government-mandated expropriation of property, whether introduced via a change in the Bill of Rights or through the back door, by the proposed Draft Expropriation Bill, will have horrific consequences and will irreversibly heighten social and racial tensions.

In this context, the edited collection of essays entitled Security of Property Rights in South Africa is relevant reading. The essays, authored by esteemed public policy experts from several countries, provide irrefutable and irrebuttable empirical evidence regarding the negative socio-economic consequences of expropriation of property without compensation (otherwise known as nationalisation).

Impoverishment will be the direct consequence. If this proposed policy intervention were to be enacted, South Africans would have to brace themselves not just for a more moribund economy than we have at present, but for something worse – an economic abyss.

At a time when frightening statistics have come to the fore, reflecting a seriously alarming situation, it is incomprehensible that the government persists in pursuing such an ill-conceived and suicidal policy.

In January 2022, the investment strategist Magnus Heystek wrote an exotically titled article: ‘Will our Decennium Horribilis turn into a Vicennium Horribilis?’ He provides a miserable catalogue of our prevailing socio-economic ills. It is useful to dwell on a few of his statistical highlights:

The growth rate of the South African economy has been averaging 1.2 % annually. Now if one relates this to the average annual population growth of 1.28% and the average birth rate of 1.67 %, it becomes clear that per capita GDP is shrinking alarmingly. Driving the point home, Heystek states that this economic growth rate constitutes the “lowest average returns outside of a world war scenario”

The current official unemployment rate of 42% is another devastating statistic and many other statisticians and economists state that the actual rate is far worse than that. Nevertheless, from this Heystek infers that there are more people of working age in South Africa who are unemployed than those in employment. It is notable that Statistics South Africa officially records that in the fourth quarter of 2021, the numbers of unemployed increased by 278 000 to reach 7.9 million.

To exacerbate this situation, the Eskom debt has spiraled to R 400 billion. Then Heystek notes that over a period of 5 years R 650 billion has left the JSE.

Just comprehending these facts might be enough for many people, rich or poor, to contemplate jumping in the lake.

Yet all this misery is self-inflicted. It is abundantly clear that the weak growth in GDP and the rising rate of unemployment is a direct consequence of misguided government policy. What is required now is a change in direction: we must abrogate policies that negate the spirit of enterprise. We must urgently create an enabling policy environment which will be conducive to the proliferation of business enterprises, especially in the small business sector.

This would produce a rising tide that floats all ships, big and small. South Africa would at last become an attractive destination for foreign direct investment (FDI) whilst simultaneously stimulating reinvestment by domestic producers.

Removing unnecessary, artificial legislative and regulatory barriers to enterprise would relaunch South Africa on a steep upward trajectory of economic growth.

Yes, the solution is so simple! The sinking ship can be salvaged and turned around in no time. I recall the words of Czech prime minister Vaclav Klaus in 1991: “Never believe politicians when they state that things cannot be done overnight, especially when they are in power.”

If only our makers of economic policy could dismount from the high horses of their ideology and just study what happens in a free economy where the spirit of enterprise is unencumbered by statist interventions and all manner of regulatory obstructions. They will understand that the economies which deliver are those that are characterized by the protection of private property, freedom to compete, voluntary exchange and freedom of choice, with its concomitant of personal responsibility.

Economic policies that are uncompromisingly predicated upon the sum-total of these principles, unleash the spirit of enterprise. Empirical studies such as the Economic Freedom of the World (published by the Fraser Institute together with over one hundred think tanks), Index of Economic Freedom (Heritage Foundation) and the International Property Rights Index (Property Rights Alliance), demonstrate the correlation between economic freedom and economic growth. High growth rates are the empirically proven prerequisite for good socio-economic outcomes such as rising per capita incomes, higher levels of productivity, higher standards of education, longer life spans, inter alia. In short, all the good outcomes that define prosperous and happy societies. In summary, the higher the levels of economic freedom, the higher the economic growth rates and the higher and better the welfare of all the people.

This scenario has nothing to do with any ideology but is based on the reality of human nature.

It is in the DNA of humans that they are impelled to strive in pursuit of their aspirations and that they are further motivated when the fruits of their labour accrue to themselves and their loved ones. Thus, the greater their satisfaction in their personal endeavours, the greater the level of their economic productivity

Alliluyeva Svetlana, daughter of the Russian despot Joseph Stalin, knew this reality when she said: “It is human nature that rules the world, not governments or regimes”

A good start towards a high growth economy would be to do away with the idea of expropriation of property without compensation. The mere fact that parliament is discussing this destructive measure, irrespective of whether it is passed or not, sends a negative signal to domestic and (especially) foreign investors that South Africa is a market hostile to business and therefore not a good investment destination.

The overall solution to poverty and economic decline in South Africa does not lie in state welfare, affirmative action, or borrowing money from international financial institutions. It certainly does not lie in propping up failed state-owned enterprises. Nor in costly exercises such as international investment conferences aimed at seducing wealthy foreigners to invest in South Africa. And it most certainly does not lie in punitive policies which are informed and motivated by envy, covetousness, and an insatiable retributive agenda.

The solution is encapsulated in the words of late President Nelson (Ah! Madiba) Mandela: “As I moved around the world and heard the opinions of leading people and economists about how to grow an economy, I was persuaded and convinced about the free market…”.