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Socialism Fails at Socialism

Economist and columnist Sven Larson

~~Sven Larson~~

While the world’s eyes are on Nelson Mandela and his health, no one seems to notice what the ANC has done to South Africa. As I have explained in numerous articles, the ANC government has been an economic disaster to the country, even putting the very future of the nation’s democracy in peril. The only reason why South Africa has not collapsed under ANC’s corrupt rule is that they took over an economic infrastructure that was as rock solid as in any economy based on free markets, property rights and entrepreneurship. (And before anyone accuses me of doling out accolades to the Apartheid regime, let me remind you that I am a libertarian, with everything that goes with this in terms of belief in individual freedom.) But if the ANC is given enough time they will no doubt be able to break the backbone of the remaining parts of the South African economy.

The reason why the ANC has shown contempt for economic freedom and other values that constitute a free society, is that they are at the core an organization built on old socialist principles. the old ANC leadership, including Mandela, were schooled by Swedish socialists like Olof Palme, Pierre Schori and Sten Andersson. Once they got into power they could not wait to put their warped socialist ideas to work.

QED, so to speak. But even if we measure their “success” by their own yardsticks, the ANC has failed utterly. Not surprising, as socialism always fails when confronted with reality. But it is nevertheless important to highlight these shortcomings; there is a disturbing rise in support for socialism in some parts of the world, especially in Europe. The collapse of the Soviet empire is now a generation away in our collective memory, and current examples of socialist failure therefore become even more important. Alas, a story from South Africa’s Business Day:

Wealth in South Africa has become more highly concentrated in the hands of the upper class since the transition to democracy began in 1993, while the lot of the average household has hardly improved, says a study of income distribution published by online economics policy forum Econ3x3. The study casts new light on the much-touted story of the growth of the African middle class, showing that it has come with a marked concentration of income at the very top.

This is not surprising at all. When socialists get into power they want to expand entitlements, force businesses to keep unproductive employees and tax the “rich”. By expanding entitlements they discourage people from working to feed themselves; when they regulate the labor market they make it more risky for businesses to hire people, with fewer jobs available as a result; when they tax the “rich” they take more from hard-working, job-creating entrepreneurs and from people who spend a lot of money on private consumption.

The last point is often under-estimated. Its consequence is that businesses selling high-end consumer products lose sales and have to lay off people. Businesses that specialize in servicing real estate owned by wealthy people lose business, as do high-quality restaurants, importers and dealers of luxury cars, construction companies building high-margin housing, etc. Taken together, socialist policies like these reduce the room for people to work themselves up from poverty to the middle class – and for the middle class to thrive.

The slow income progress of households in the average or middle part of the income spectrum — which includes a large proportion of workers — could also help explain the “rising political unrest and social instability in South Africa”, said the study’s author, Justin Visagie.

Probably not. More likely, that unrest and instability would come from the 30-or-so percent of the workforce that cannot find work in the overly regulated, heavily taxed South African economy. Abject poverty is as epidemic in South Africa today as it has ever been.

Mr Visagie used three nationally representative household studies to show how income distribution has changed since 1993. He divided the income spectrum into three: households living in poverty with incomes of less than R1,400 per person per month; the middle class, with incomes of between R1,400 and R10,000 per person per month; and the upper class, with household earnings of more than R10,000 per person per month. While the middle class, by this definition, would include a large portion of blue-collar workers, it was important to note, he said, that only 25% of the population earned above this threshold. Between 1993 and 2008, the middle class grew from 7.7-million people to 10.4-million — but this was only marginally above the population growth rate, and the share of the population falling into the middle class only increased from 19% to 21%. By contrast, the upper class trebled in size and grew from 0.4% of the population to 1.3%. The number and share of people living in absolute poverty — below a poverty line of R2,060 per month for a family of four — decreased from 56.9% to 51.7%.

I would need to question the adjustment for inflation, if any, in these studies, but beyond that these numbers are quite revealing. In two decades, all the ANC has accomplished with its policies is a marginal adjustment of income distribution. Since the entire idea of socialism is to even out people’s incomes and outcomes in life, we can only draw the conclusion that the ANC has failed even in its own backyard.

We should of course be grateful that socialists cannot even succeed in putting socialism to work (can you say Obamacare?) but their failures also come with a lot of wasted legislative time: with the same time and effort spent on free-market reforms, the South African parliament could easily have created an economic miracle that would have elevated far more people out of poverty than any socialist policies could.

The Business Day again:

During the period under review, both the middle class and upper class underwent a dramatic change in racial composition, hence the story of the growth of the black middle class. The number of middle-class Africans more than doubled from 2.2-million to 5.4-million, while the number of whites shrunk by a third. … The reasons for the declining number of whites in the middle class, said Mr Visagie, were the shrinking white population, high levels of emigration between 1993 and 2000, and the fact that a “small but notable” number of whites had moved up into the upper class.

It is great to see that a formerly oppressed group of people can improve their lives this way, but we should also keep in mind that this improvement is not to be taken for granted. Far from it: the ANC government is jeopardizing their rise out of poverty by recklessly turning a blind eye to two of their country’s biggest problems:

Crime is still an enormous problem in South Africa, with businesses putting the protection of property rights high on their list of concerns as they consider investments;
Government corruption is another factor that raises the cost of doing business, hampers economic growth and makes it more difficullt to create new wealth.

Unless the government addresses these problems thoroughly and swiftly, the journey that 3,.2 million black South Africans have made into the middle class will turn out to be a dead end.

Again, socialism always fails, even at pursuing socialism. In its wake it leaves poverty in place of prosperity, despair instead of aspirations and ruins where the rule of law once stood.

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