Temba A Nolutshungu and Gert Joubert
Nationalisation is a dead duck. The evidence is there: the dramatic collapse of socialist systems across the world since 1989; the overwhelming empirical evidence that proves that nationalised industries and nationalised economies (socialism) fail; the fact that China is now the second biggest economy in the world due to the liberalisation of its economy.
It is baffling that South African policy makers are seriously contemplating such a demonstrably disastrous policy.
However, since they are, it seems in order to reprise some of the arguments against nationalisation and to dispel some of the myths attending it.
First among these myths is that nationalisation entails ownership of the means of production by the people; or alternatively that ownership by the state will result in benefits accruing to the people as a whole, as a benevolent government dishes these benefits out from the centre.
Nationalisation will not result in ownership of the nationalised industries by the people.
Historically, it has never had this result. Wherever this policy has been implemented it has brought the emergence of a beneficiary class of apparatchiks. The personal interests of this class are not compatible with the welfare of the purported beneficiaries.
No incentive
Government employees have no incentive to ensure that the industries they run become productive, thereby generating profits. Their own money and the generous fringe benefits are not at stake.
When nationalised industries fail the apparatchiks are not affected – indeed, they often benefit from additional subsidies, at the expense of the taxpayer. As we saw recently in the case of Eskom, taxpayers’ money is sometimes used to award increases and bonuses to the state appointees involved in failing industries.
Nationalisation is government ownership. That’s it.
Whoever controls the state will control the industries. As for the people, they are tragically hoodwinked into believing that nationalisation will somehow give them a personal stake in the targeted industries. But the reality does not match the rhetoric. Reality begins where the rhetoric ends.
In practice, more deserving government services suffer through nationalisation, as resources are gobbled up by failing nationalised enterprises. A more feasible way for people to own a stake in the economy is for them to own shares in private companies.
The Czech Republic did it with amazing results that brought dramatic improvements in social and economic standards.
Nationalisation, expropriation of land, or any form of property transaction which does away with the principle of willing buyer and willing seller would wreck the South African economy.
Domestic and foreign capital would take flight. Implementation of all three would bring about the socio-economic collapse of our country.
All these policies would require amendments to the property rights enshrined in our constitution.
This clause derives its importance from the fact that the protection of private property makes all other individual rights meaningful.
The consequences for the country of tinkering with property rights would be too ghastly to contemplate.
In this context I would like to draw attention to the 2011 International Property Rights Index (IPRI) (available at: http://www.internationalpropertyrightsindex.org/). This is an international comparative study that measures the significance for economic well-being of the entrenchment of both physical and intellectual property rights covering most countries on the globe.
According to the IPRI index, which covers 129 countries around the globe and represents 97 percent of the world’s GDP, South Africa ranks 32nd. The index shows that the countries in the top 20 percent are eight times wealthier than countries in the bottom 20 percent.
Struggle
More importantly, the index demonstrates the significant relationship between property rights and GDP per capita.
The index also shows that a one point increase in the IPRI score predicts an $8 960 (R60 000) increase in GDP per capita.
The observation is that low-rated countries with improving property rights scores prosper, whereas high-rated countries with declining property rights scores stagnate.
For South Africa this means that the struggle to achieve our position is not over.
We need to constantly improve, or else we risk slipping down the ranks. At this point it is worth reiterating that if property, both tangible and intangible, is not protected, it can simply be expropriated, and if property rights are loosely enforced, there is no economic incentive to invest, improve, or even acquire property.
There is no need to squander resources on costly and absolutely unnecessary studies to look into the merits or demerits of nationalisation.
To the advocates of nationalisation we say: if you want to destroy the economy and impoverish the people, risk a spontaneous revolution and prompt a flight of capital and skilled personnel, simply implement these policies.
l Temba A Nolutshungu is the director of the Free Market Foundation and Gert Joubert is a property developer.