Text of speech by Free Market Foundation CEO David Ansara to the Rand Club, Johannesburg, 21st September 2023
The centre cannot hold
26 September 2023
Members of the Rand Club, Ladies and Gentlemen,
South Africa is a vast and complicated country. It has a territory of some 1.2 million square kilometres (almost twice the size of France) and a coastline that stretches some 2,178km. It is the 24th most populous country on earth, but only the ninth largest population in Africa. Its 60 million people encompass various races, ethnicities, languages, and religions.
A relatively young country, the modern South Africa began with the Act of Union in 1910, the year my grandmother was born. Since then, South Africa has been dominated by the politics of the centre, with politicians and bureaucrats in Pretoria mostly calling the shots.
The history of 20th century South Africa was essentially a conflict between two forms of racial nationalism, each competing for control of the apparatus of the state. Since 1994, when the black nationalists replaced the white nationalists, the strength of the state has steadily – and mercifully – declined.
When thinking about the current moment in South Africa, I am reminded of a poem by William Butler Yeats, The Second Coming, written in the aftermath of World War I and the beginning of the Irish War of Independence in January 1919:
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Sound familiar?
My argument tonight is that the highly centralised nature of South African politics as we have come to know it is undergoing a fundamental change. What we are experiencing is the end of an era of the country’s existing political institutions.
The centre can no longer hold, and we at the Free Market Foundation believe that it should no longer hold. But the question then becomes: what, if anything, should replace it?
What does the collapse of the centre of South African politics mean for the future of us South Africans?
Things fall apart
Things are certainly falling apart, at least for the state.
The vertically integrated state-owned energy monopoly, Eskom, can no longer produce enough electricity to power a modern economy, which is rapidly deindustrialising.
Manufacturing, a fundamentally energy-intensive activity, has declined as a proportion of national GDP, from 21% in 1994 to approximately 12% in 2022.
Once a global mining giant, South Africa’s ranking in the Fraser Institute of Canada’s Annual Survey of Mining Companies has placed 57th out of 62. This country – this region, for which this Club is named – was built on the back of mining, and in a few short years policy decisions have put South Africa near to dead last in the world. By contrast, neighbouring Botswana ranked 10th out of 62, and was number one in Africa.
South Africa’s once extensive rail network has been stripped bare by criminal syndicates and critical infrastructure is collapsing.
On 20 July, just down the road from where we sit today on Bree Street, an explosion from a gas pipeline tore a gaping hole in the street, resulting in 41 injuries. On 31 August, also in the CBD, 77 people tragically lost their lives in a fire that engulfed a hijacked building in Albert Street. The immediate cause of the fire is unknown, but the root cause of this avoidable tragedy was a failure to uphold and protect the private property rights of the original owners.
Deliberate policy choices, such as the Prevention of Illegal Evictions (PIE) Act, mean that illegal occupiers of a building are unable to be removed by the owners, who lack the ability to enforce their own property rights. This meant that the rightful owners of the building could do nothing when their property was seized and subsequently ‘rented’ out. The poor tenants who the laws were ostensibly designed to protect, ended up succumbing to what must have been a horrific death.
Meanwhile, on my drive to the office today, I noticed city officials hard at work replacing the road signs of William Nicol Drive to Winnie Mandela Drive. That gives you a sense of where the ANC’s current priorities lie.
Running out of money
The government has effectively run out of money.
Ahead of the Medium-Term Budget Policy Statement on 1 November, the Minister of Finance, Enoch Godongwana, has told his cabinet colleagues that the current spending pattern is unsustainable. At the last Budget speech, South Africa’s public finances were in a less compromised position, having recorded a primary surplus, which excludes debt service costs.
However, that was off the back of a years-long commodities boom, which led to record profits in the mining industry, and which ultimately kept government coffers afloat.
Soon after the Minister announced his tight budget, the public sector unions negotiated an unbudgeted 7.5% wage increase. Consider that the Minister’s call is to trim spending by R25 billion. This might seem like a lot, but it pales in comparison to the extra R37 billion that government workers demanded and received.
In a letter to the Finance Minister, the Free Market Foundation recently suggested that he and the President consider drastically reducing the current cabinet from over 30 ministries to a mere 10 state departments. We aren’t holding our breath.
Meanwhile, sovereign borrowing continues to climb, with the debt-to-GDP ratio set to reach 72% over the next three years. This borrowing is not being directed towards fixed investments, but rather to fund government consumption (such as civil servant salaries). As free marketeers, we are sceptical of Keynesian fiscal stimulus, but what we are seeing here is a long way off even from that. The borrowed money is simply being used keep the state apparatus going.
Minister Godongwana is right: the current trajectory is unsustainable.
Another ongoing crisis is South Africa’s persistently high unemployment. In the second quarter of 2023 the official number of unemployed people stood at 7,9 million (32.6% of the workforce). However, on the expanded definition, which includes those no longer actively seeking work, the figures are a lot higher: 11,8 million (or 42.1%).
Mercifully, many of these people are in fact doing something for money, but they are doing so in an informal, often grey or black, market which the interfering government does not approve of. But flourishing cannot be developed under such circumstances. The law and the economy must work in tandem, not against one another.
As we noted in a statement in August, South Africa’s ongoing joblessness crisis has two causes:
“The first is the government’s overbearing labour regulatory framework, which deters employers from taking a risk on new hires. Trade unionists have successfully lobbied within the Tripartite Alliance to protect their unionised jobs at the expense of the poor, who desperately need new work opportunities.
The second cause is chronic low economic growth and a lack of competitiveness. Jobs are the byproduct of economic activity. If South Africa wants more jobs, it needs to make it worthwhile for investors to commit much-needed capital to this market and make it easier to do business here.”
It is not only job seekers who bear the brunt of the state’s heavy-handed regulation. Thousands of business owners are forced to shut their doors every year, and countless numbers of street vendors are harassed by the police and petty officials on a daily basis.
For most South Africans, the state is a threat to – not a protector of – their interests. It is a hindrance at best, and a wrecking ball at worst.
The current paradox
Here we see a paradox: as the state continues to expand its scope and authority, it is simultaneously unable to perform its basic functions – or even the superfluous new functions it has created for itself.
Much is made by mainstream commentators of the need for a developmental state, but as the Institute of Race Relations (IRR) rightly observed, the state is in fact a detrimental state rather than a developmental one.
From many quarters we hear the refrain that South Africa is a failed state. It is perhaps more accurate to describe it as a failing state. After all, failure is a process and not an end point.
The process of state failure is necessarily disruptive, especially given how dominant the state has been in every sphere of the economy, both before 1994 and after.
However, while the state is failing, it doesn’t mean that South Africa or South Africans must fail.
The collapse of the state need not be the existential crisis that it is sometimes made out to be. Indeed, the failure of the state may be a good thing, but this will depend on how reliant we have allowed ourselves to become upon it.
The idea of the centre no longer being able to hold is rather disconcerting for some people.
If the centre collapses, what will happen next?
Will all social order collapse?
Will we see a repeat of the violence and looting that characterised the July 2021 riots?
Will “mere anarchy be loosed upon the world?”
Not necessarily. Here we have a choice.
Power abhors a vacuum, and what replaces the failing state is essentially up to us. It can either be alternative forms of order, or it can be organised criminal syndicates that fill the void left by the collapsing state.
Political change
The first and most obvious way to stop the decay is at the ballot box. Vote out the rascals who caused the problems in the first place.
The Free Market Foundation is a non-partisan organisation. We don’t support a particular political party, but we do support freedom.
Recently, reform-minded opposition parties coalesced around a common cause to dislodge the ANC from power. We at the FMF were greatly encouraged to see the so-called Multi-Party Charter expressly committing itself to freedom, non-racialism, and an open market economy as part of its founding values. Parties that expressly support freedom deserve your vote, but it remains to be seen whether the Multi-Party Charter delivers on the rhetoric.
We also have to be realistic about the electoral arithmetic. While the ANC has been taking a hiding in the polls, it is probable, if not likely, that the party hangs onto its electoral majority. And as the ANC’s electoral prospects diminish, it will continue to push redistributionist policies that satisfy its voting base at the expense of hardworking taxpayers like yourselves.
Expect to see more populism from the ANC as its power begins to wane.
Calls for a Basic Income Grant, National Health Insurance, and pressures on the independence of the Reserve Bank will continue to grow in the run-up to next year’s elections. To the businessmen and women in the audience: I fear backroom lobbying and social-compacting will not divert the government from this path, so beware and plan accordingly.
My advice is to support reformist political parties but to also hold their feet to the fire. We shouldn’t expect electoral politics to be a panacea for the wide range of social and economic problems facing the country.
While a change in power will certainly be welcomed, the sheer scale of the damage that has been wrought will require more than simply electing new office bearers. Regardless of the outcome at next year’s general election, you should be prepared for more volatility and a continued decline in state capacity in the years to come.
Embrace federalism
One of the major fallacies of post-1994 South African public policy is the notion that the policies are good but implementation is bad.
The reality is that the bad implementation is what protects society and the economy from even worse policies. Had implementation been good, we would be further along the path to where Venezuela and Zimbabwe are today. We would own nothing, but we would be very unhappy.
But this is not a good situation to be in – where incompetence is what saves us from ruin. We want the ‘ineffectiveness’ of bad policy to be a built-in feature of the system, rather than a bug. That is, in many respects, what a strong federalist system is.
Unsurprisingly, the ANC and EFF are against federalism: we’ve known this for a long time. But when considering the prospects of federal decentralisation in South Africa’s future, in particular after the 2024 general election, we need to cast a critical eye to the reform-minded opposition parties.
Some opposition parties claim to be federalist, but this is not really the case. The Democratic Alliance (DA) has only recently begun truly pushing for ‘devolution’, but devolution is not federalism. We believe the DA, and any other party that governs a municipality or province, must stop asking for permission from Pretoria, and do what the Constitution empowers them to do.
With any luck, Gauteng and KwaZulu-Natal will from next year be governed by opposition coalitions, which would be only the second time since 1994 that the opposition governs more than one province. This has the potential to shake things up significantly, establishing a bloc of provinces that support one another in taking more and more power away from the centre.
Privatise and deregulate
That’s the realm of electoral politics and constitutional reform.
In the more day-to-day area of economic policy, the FMF has long championed job-seekers' exemption certificates (or JSECs) to allow the unemployed to exempt themselves from the laws and regulations that keep them in a permanent state of joblessness.
Privatisation, that dirty word, is also close to our hearts.
Transnet, SAA, Eskom, the water boards – take your pick – it should be all be privatised. And there are many ways to do this, which I will not dwell upon, but the key is that the government and politicians must not try to do that which the market necessarily does better. Government might subsidise here and there, but ultimately when it comes to the provision of a good or service, be it education, electricity, healthcare, or even roads, the private sector will always perform better.
What I have been talking about thus far is all within the realm of formal politics. Voting at the ballot box, implementing a more federalised constitutional dispensation, deregulating the labour market, and privatising state functions, are all things that some level of government cooperation will be necessary for.
The Free Market Foundation engages actively in this domain, for example by recently launching the Fraser Institute’s Economic Freedom of the World annual report, which outlines how economic freedom – and the government reforms necessary for it – produces prosperity.
But, like so many others, we at the FMF have lost confidence in the political elite, whether opposition or incumbents, engaging in such a process in a sincere way.
Increasingly, individuals, communities, and businesses should look away from the formal political process, and look inward, and to one another.
State-proof yourself
The best answer to state failure that we think has thus far been provided, is ‘state-proofing’, as the business group, Sakeliga, encourages its members to do. State-proofing is an approach that recognises the state for what it truly is and not what it claims to be.
What does state-proofing look like in practice?
1. Avoid taxes as far as you possibly and legally can
The state is essentially a rent-seeking machine which has shown itself as incapable of upholding its mandate to collect and spend money fairly and judiciously. Lowering your tax exposure can be done through offshoring your business, and if you have the means to do so, acquiring a second passport or residency in another jurisdiction (Mauritius has a double-taxation agreement with South Africa and many South African businesses are incorporated there).
2. Seek the right legal and tax advice to lower your exposure while staying within the bounds of the law.
And please – we implore you – do not provide voluntary financial assistance to government institutions. If you considered leaving a large sum of money to your alma mater state university when you pass away, please reconsider and look to the emerging private colleges.
If there is another pandemic and government sets up another fund to pool money in, please rather consider supporting a private alternative. Help build resilient institutions outside of the tumultuous political arena.
Big businesses should stop supporting the government
The recent Partnership Initiative between big business and government is a way for the government to reinforce its policy agenda. It effectively amounts to indirectly supporting the ANC on the eve of an election.
If you are a business leader and you feel it is necessary to provide support where your interests are being directly affected, you should demand significant concessions and reforms first. Business leaders have so far been very timid in terms of their demands, amounting to essentially unconditional support.
Instead, business leaders should follow the example of Raymond Ackerman, who passed away on 6th September, aged 92. He was one of the few in business to stand up to the state during the apartheid era. For his illustrious contribution to South Africa, Mr Ackerman received the 7th FMF Luminary Award in 2014.
Business leaders should follow the late Mr Ackerman’s good example. He did not let politics silence him or co-opt his good name.
3. Support civil society organisations that are creating alternatives to unbridled statism in South Africa.
The Roman poet, Juvenal, once wrote: Quis custodiet ipsos custodes?
In English: “Who will watch the watchmen?”
As I wrote in December 2022:
“[a] constitutional state is one where power is necessarily decentralised. However, power should not only be decentralised within and throughout the different spheres of government, but also decentralised outside of the government… In a constitutional state, social formations like professional associations, trade unions, religious organisations, and community groups, all carry with them a measure of political power in a broad sense. These formations serve as coordination mechanisms for citizens, allowing them to act as a counterweight to government power.”
Organisations such as Sakeliga, the FMF, the IRR, Solidarity, AfriForum, Outa, and Gift of the Givers and dozens of others all play an essential role in upholding the constitutional state. They operate often on limited budgets and could use your support.
Roll up your sleeves
The sad reality is that most middle-class South Africans experience double taxation.
Not only are they coerced into supporting public healthcare, education, and police – and get nothing in return – but they also have to provide their own medical aid, send their children to private schools and hire private security guards to protect their homes and businesses.
While this is a lamentable drain on resources, it is no good whining over the proverbial braai about why your local municipality has not fixed the growing number of potholes on your street. Why not fix the pothole yourself?
I know a gentleman who works for a large financial services firm who spends his Saturday mornings filling potholes with his friends in his northern Johannesburg suburb.
I also know a mining lawyer – who I shan’t name – who spends his nights patrolling mines armed with an automatic rifle. He is literally putting his life on the line to protect his industry and his way of life.
To be a viable and sustainable solution, these initiatives need to be scaled. Private companies like Discovery are also filling potholes and providing firefighting services. We need more companies to do this.
Shift your mindset
Above all, the best way to stateproof is psychological. This entails changing your attitude and your preconceived assumptions about the role and nature of government.
The first mindset shift is to realise that government and politics is not the best answer to whatever problem you might be faced with. When confronted with a seemingly intractable social or economic problem, your first port of call must always be to ask what individuals, voluntary communities, and business can do, before defaulting to the idea of approaching the state.
We are too used to outsourcing our problems to somebody else. Instead, we should narrow the locus of control to the local and the particular. Living in a truly free society entails taking personal, communal, and commercial responsibility for the greatest number of things.
The state was never meant to be ‘responsible’ for everything, like we think it is today, and hence the state is predictably failing.
Sometimes, letting the problem simmer is a better approach than asking the state to solve it. The state, after all, is not neutral. It is made up of a variety of groups with overlapping and competing interests. It is seldom, if ever, attuned to the so-called ‘public good.’
Avoid defeatism
We do not find ourselves in a totalitarian state. The very harmful South African government is not an all-powerful institution. The majority of South Africans treat it with the contempt it richly deserves.
While we in the suburbs were cowering in our houses with our masks in 2020 and 2021, most South Africans were out and about, keeping the economy going. The harms of the government can be mitigated and eventually eliminated if we mentally take the state off of the pedestal we put it on.
We are ‘governed’ by our inferiors. All the power they have is the power we perceive them to have – it is not real.
However, societies in far more dire situations than we are in South Africa today have turned the corner in recent history.
The East European bloc is the best example of this: Georgia, Estonia, Latvia, Lithuania, Poland, Hungary, and many others, are all states that were absolutely ravaged by totalitarian communism for decades.
When the Iron Curtain came down and those societies rejected communism, they became prosperous within a generation. Why? Because they embraced individual freedom and free markets and allowed ordinary people to take their destinies into their own hands rather than expecting some vanguard to do so on their behalf.
One can also think of so-called ‘communist’ China and Vietnam today. These ‘communist’ states have in fact adopted a plethora of market-based reforms that have led to a significant improvement in socio-economic conditions. Remember, only a few decades ago, China experienced a ‘cultural revolution’ that led to the deaths of tens of millions due to communist misplanning. Today it is an economic powerhouse.
Don’t succumb to disaster porn: there is no ‘point of no return’. Things can get better, and get better quickly.
People who are defeatist do not say ‘no’ – they say ‘whatever’. I worry that we are starting to say ‘whatever’ in South Africa, and that – defeatism – will be the death of us.
Let’s rather adopt the power of ‘no’ with smiles on our faces, optimistic about a future where we can all prosper.
Interregnum
The Marxist political theorist, Antonio Gramsci, wrote from a prison in Fascist Italy in the 1920s that, "the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear."
South Africa finds itself in such an interregnum.
Our political class has failed and there is no shortage of morbid symptoms all around us. However, out of the ashes of this crisis, we have the opportunity to choose something better, more durable. This will entail radically decentralising decision making and empowering everyday South Africans to set their own course in life.
The centre cannot hold, thank goodness.
David Ansara is Chief Executive Officer of the Free Market Foundation.
