JUNE SONA 2019 – Market reforms before new cities, Mr. President

In seeking to enjoy the fruits of liberalised regions and market reforms without actually implementing the reforms needed to bring it about, President Ramaphosa, in his third state of the nation address, completely missed  the point.

The recent SONA painted pictures of modern cities, bullet trains and progress China style. Yet, there is little indication that the current administration is going to undertake the difficult market reforms that could make these possible.

Up to this point, President Ramaphosa has only paid lip-service to reform. At the same time, his administration evidently is holding fast to a course that is generally anti-market, anti-reform and highly suspicious of business.

On a positive note, the president did mention of the need to ‘prioritize’ resources and state initiatives. The priorities as outlined in the SONA, unfortunately, did not include any real steps to appreciably reduce the scale of interventionism, nor did it walk back the most detrimental of government policies. Consequently, costly policy brakes on economic progress remain in place.

Reform, what is in a name?

Let’s think about the term reform. ‘Reform’, as it is now being used, is actually a dubious and elastic term, which rings hollow against true market reforms, which are so sorely needed. It is also worryingly elastic – in  the sense of taking on many meanings – which likely, and sadly enough, preclude to mean reforms in the direction of freer markers.

Nowadays, the term ‘reform’ seem to suggest a mere mixing up of the mix of government interventions.

Government, for instance, will impose new sugar and carbon taxes. When such taxes start to raise costs and eventually depress industries, government will then consider ‘subsidisation’, ‘exemptions’ and ‘protectionism’ (i.e. taxes) all forms of (more) market interference. Doing away with such taxes, the new proverbial sacrosanct non-negotiables, will be out of the question.

Another case in point is the minimum-wage, overseen and signed into law by president Ramaphosa himself and reconfirmed in the latest Sona. This ‘negotiated’ labour intervention, even called ‘labour reform’ by some, is not a market reform.

Another Ramaphosa-era reform is the finalisation of the ‘new’ mining charter, which, while less toxic than the Zuma-era version, still represents substantial state-intervention in mining.  The Charter, rather equivocally serves as a suggested example of ‘policy certainty’.

None of the interventions above, nor the pernicious policy of BEE, were walked back in the latest Sona.

The unfortunate reality for advocates of free-market reforms is that the opportunity costs of the multitudes of charters, codes, legislations, taxes and interventions were not even considered in the latest Sona.

In the end, the so-called reforms of president Ramaphosa, seem to boil down to doing state interference differently than the Zuma-crowd, but broadly sticking to sizable interventionism and political command over markets none the less.

Concerningly, top-down command thinking is now being rebranded as ‘an entrepreneurial role for the state’, which will keep affecting and hampering market resource allocation and which makes market-based cooperation of investors, entrepreneurs, suppliers and labour difficult.

Reforms needed

What South Africa needs are reforms to enable greater freedom in ownership, employment, trade, commerce and investment. Such reforms would require a significant reduction in red-tape and legislative changes in many areas of the economy.

Bold reforms would have to dramatically reduce the State’s hold over commerce, trade and society. Streamlining applications and reducing the cost of state-permits, as suggested in the Sona, is all good and well of course, but the real question is whether the particular permit in question is really necessary in the first place.

In the meantime, numerous extra-judicial bodies, such as the B-BBEE Commission, are rolling forward setting even stricter requirements for commerce.

The short answer, as many have argued, is for the state to do less – not more. Judging by the recent SONA, that is not on the cards yet. The idea is now that government will steer commerce and pick winning industries ‘like an entrepreneur’. Yet, governments that do not earn voluntary revenues and do not risk typical entrepreneurial losses cannot be entrepreneurs in the true market-sense of the word.

Bold reforms?

This may raise the question – what would bold market reforms look like? True market reform would look to strengthen property rights. In SA’s case it would require an overt turning away from expropriation without compensation, in principle.

Market reforms would look to reduce state-maintained monopolies in numerous sectors. Most importantly, it would especially reconsider the legal charters and privileges that keep out market competition in important sectors.

True market reforms would move in a direction of greater consumer choice and would do so in spite of special interests pleading for government favoritism and tariffs.

True reform would look to open up electricity markets by reducing legal red-tape for private provision;  it would most strongly go against a single monopolistic supplier propped up with tax bailouts.

Moreover, even bolder market reforms may even seek to consider allowing consumers to purchase municipal services, such as water, from private providers rather than solely from municipalities.  Such open-market reforms would be a step toward true competition and true de-concentration of the large regional economic monopolies at the heart of our economy.

In sectors, such as tourism, market reforms would look for ways to reduce state-imposed compliance burdens and costs on tourism enterprises and will not set reactionary and haphazard ‘thresholds’ to curb the success of Airbnb rentals.

True reforms would see a liberalization of the labour market that allows, for instance, the 10 million unemployed (in the expanded definition) to voluntarily contract for work below national minimum wages and, heaven forbid, outside of coerced bargaining council rules.

Granted, not everyone likes market freedom – least of all those who have the most to lose because of it.

Bold reforms on the cards?

Rest assured, those against of bold free-market reforms, judging by the recent Sona, have very little to fear as far as I can see. It definitely wasn’t the ghost of Ayn Rand that dictated economic policy last Thursday evening.

It was rather the ever persisting voices of the bureaucrats and interventionists, the government cadres who’ll likely kick in their heels, fighting tooth and nail in principle, against any plan that amounts to sizable reductions in state-managed trade, state-regulated industry, onerous labour and ‘empowerment’ laws and state-subsidization of ‘winning’ industries.

The Ramaphosa administration clearly isn’t doing away with state interventionism, it just wants to try some new ways of doing it. Market reforms are exactly those reforms the Ramaphosa administration still shies away from. Ironically, while obviously not perfect, it were market reforms with greatly reduced state-interference that contributed to China’s recent era of progress.

In South Africa, it’s the state programme of intervention, redistribution and centralisation that the president should stop to enable the economy to get back on track.