Senior economist at Efficient Wealth, Dr Francois Stofberg says that the South African government has ruined the country’s economy through “unhealthy” policies like broad-based black economic empowerment and leaders who meddle in big business and are not held accountable.
In a note published this week, Stofberg said that the government is by far the biggest player in the economy, accounting for 35% to 40% of economic activity. Because of this, “it all starts, and ends, with government,” he said.
“What makes the influence of government so much greater is its ability to dictate policy; it sets the rules that everyone must play by. In this way, the government not only influences the economy as its largest participator, but it also impacts everything and everyone else by regulating what the rest are allowed to do and how they are allowed to do it or not.
“So, if policy is unhealthy, everything else will be unhealthy too,” the economist said.
Stofberg pointed to the government’s direct meddling in entities like Eskom, and the wider revelations like state capture, as key reasons why the country’s economy is in a sorry state. Further, policies like broad-based black economic empowerment (B-BBEE) continue to be a net drain.
He said the government has started to believe the lie that it can create a larger economy by redistributing more, but he turned to the old adage of slicing up a pie.
“How is it possible to create more pies by slicing the same pie into smaller pieces? Redistributive policies, such as B-BBEE, can, therefore, at best, lead to social development, but not to economic development,” he said.
Redistribution policies, he said, make people more dependent and more demanding, dividing limited resources even further. Pro-economic policies, on the other hand, create jobs and force society to become more accountable, not more dependent.
“Redistribution cannot create jobs. Otherwise, unemployment in South Africa would have improved from the 1994 low of around 22% and not have deteriorated to 34% where it is currently,” Stofberg said.
“Redistribution kept out of check eventually drives a country into the poverty trap. The reason for this is because redistributive policies such as B-BBEE, and policies that protect employees at the cost of employers cause resources to be allocated sub-optimally.
“And wherever resources are not optimally allocated, inefficiencies arise. And if inefficiencies compound over three decades, a country falls into the kind of lower-for-longer economic growth trap that SA is currently in.”
The economist said that the country needs more accountable leaders in the private and the public sectors – chosen based on merit – who can implement policies that create wealth.
“Because of their size and influence, it all starts and ends with the government,” he said.
Read: Leading index shows ‘muddle-along scenario’ for South African economy
