In many of these essays on economics I have been at pains to point out that the prosperity of any community, anywhere, anytime, if it is to last, must be based on observance of the guiding principles of free people; free trade; sound money; and small government.
Colleagues sometimes wish to add “low taxes”, but if the role of government is reduced to its natural function of protecting the lives, property and civil freedoms of its subjects, taxation will never be a big deal – as long as it is seen to be equitable rather than penal.
Of course, government could sub-contract the protection of citizens’ lives and property against external invasion by enlisting the services of a private army or police force – indeed, historically, there have been many instances of citizens having recourse to bands of vigilantes for their protection.
Yet this always carries the attendant risk that a vigilante group will come under the control of a corrupt leader, ready to seize power over those who first promoted him – as you will know if you ever saw the film “Viva Zapata”. What starts as a call to defend the lives and property of citizens is insidiously transformed into a thirst for power and its spoils – and the protections initially assured fall prey to the depredations of the leader and his corrupt henchmen.
Relying on the State
We would expect this risk to be avoided by relying on the state to provide protection with a military defence force, conscripted from the ranks of active citizens, and funded from taxes willingly paid for the purpose.
We may sleep easily in our beds in the knowledge that these basic protections are vouchsafed. Yet it cannot simply be assumed that an army of fellow citizens will always respect even the most fundamental purposes for which it is set up, namely the protection of life and property.
What, for example, happens if a majority of people object to a political affiliation with a grouping cobbled together as part of feudal history, but with which they feel no affinity? Did inhabitants of the Basque region of Northern Spain/ South West France benefit from state protection in 2017 when Catalonia attempted to exercise its right of self-determination?
Or watch what happens when impending tax imposts threaten to render basic living costs unaffordable, as is now happening in France? In whose interests are the riot police being wheeled out every weekend? The overburdened citizenry or the economic illiterates inflicting unaffordable tax rises?
The South African disaster
Apart from failures to protect life and limb, the most egregious infringement of citizens’ rights is taking place right now in the country of my birth, South Africa. Absolutely fundamental to economic success in any country are secure property rights. What was recently the continent’s most thriving economy is now pushing ahead with a land expropriation law that allows government to seize farms without paying compensation – exactly the same catastrophic policy that brought Zimbabwe to ruination.
The enduring truth is that without effective property rights no economy can survive, let alone flourish, for long. Earlier this year, when Cyril Ramaphosa took over the South African presidency from the deeply corrupt regime of Jacob Zuma, there were hopes that a free trade, low-tax, pro-enterprise economic template would be installed – with Hong Kong and Singapore as models. Instead, the government changed the constitution. As for the law that prohibited property seizure without compensation, it no longer applies.
The legacy justification
Supporters of this change point to history. It is correct that farmland in South Africa remains unequally distributed as a result of colonial rule followed by apartheid, and consequently most of it is still under white ownership. But this is largely symbolic in a country whose agriculture accounts for a mere 2.8 pc of GDP, the real economy being driven by gold and coal mining, manufacturing and financial services.
Ten years ago South Africa was hailed as one of the 21st century’s top potential economic performers. Yet now unemployment soars to dangerous levels and, after consecutive quarters of diminishing output, it is the only G-20 country to slide into recession. Land prices, share prices, the rand – all are spiralling downward in a race to the bottom. What was once Africa’s largest economy has now been overtaken by Nigeria.
The large-scale seizure of its farmland was what pushed Zimbabwe into hyperinflation. Why should the consequences of land expropriation be any different in South Africa? The lesson is there for the governments of all nations to behold. Depriving owners of their assets without compensation makes a mockery of the norms of civilised society. The natural drive to improve one’s own property is suffocated if it can be taken from you at any time by state decree. Why invest in assets that can never provide any real sense of security?
After the farms
And why would it stop there? When “leaders”, like Maduro in Venezuela, pursue delusional policies (in the “public interest” of course) that succeed only in running the economy into the ground, their capacity for justifying even madder schemes expands in step with their desperation.
Farmland is a mere starting point. What about the mines? Utilities? Factories? Businesses? South Africa today is an object lesson for the whole world, and citizens of the UK should not feel blasé concerning our own increasingly fragile freedoms.
We have heard socialist utterances galore about different forms of nationalisation – de facto expropriation. John McDonnell, shadow chancellor, has spoken openly about potential takeovers of rail companies and water providers into state ownership, and not necessarily to enhance efficiency. As for compensation, we shall see.
In general terms the remedy for slovenly, loss-making public services is to be found in restoring effectively incentivised management, and freeing operations from unworkable shackles of endless regulation.