The tyranny of political correctness is hobbling this government

Posted 29 October 2014 Written by Leon Louw
Category Economy

The tyranny of political correctness is hobbling this government, preventing it from doing what has to be done sooner or later: privatise not just parastatals but health care insurance and other areas of state incursion into the economy, writes Leon Louw of the Free Market Foundation in Business Day.

The government wants to privatise, but the tyranny of political correctness precludes it from saying so. Finance Minister Nhlanhla Nene told the media before his first medium-term budget last week that the government would sell "noncore assets", but he insisted that privatisation is not privatisation.

The government’s orgy of interventionism, spending, debt and nationalisation during the past decade, and the resultant economic stagnation might have peaked, if Nene is to be believed. We might emulate the proven liberalisation, privatisation and tax-cut strategies of high-growth African and other countries. "There are," he said, "areas where government is not supposed to be" and "those assets should be disposed of". Disposal (for example, of Sasol) is one of three ways to privatise, the others being deregulation (airlines) and outsourcing (construction).

Talk is cheap so there is no way of knowing whether his promises mean anything. Previous promises to reduce red tape by the president and various ministers were followed by regulatory diarrhoea at the behest of self-serving bureaucrats, especially in such juggernauts as the Financial Services Board, the Competition Commission and the National Credit Regulator. The difference between past and new promises is that, as Nene observed, the government no longer has enough money to fund bankrupt dinosaurs such as South African Airways (SAA), Eskom, the Post Office and the SABC. It is too early to say whether he, like his Cabinet colleagues, lives in a fantasy land, where, instead of privatisation, new promises of sustainability and the end of bailouts precede new officials who produce new turnaround strategies destined to be new disasters.

Nene promised the disposal of "noncore assets" but would not give "the whole list … because we are doing a review". He said parastatals would "no longer be able to count on bailouts". Of course they will. When putative rescue plans fail, they will be bailed out. Nene can avoid bailouts only if he disposes of them before the next bailout. Government undertakings always have implicit government backing. That fact alone was the necessary and sufficient condition for the sub-prime "financial crisis".

Nene promised to ensure that the "government focuses on what government is supposed to do, and the private sector focuses on what the private sector is supposed to do". As he would not give "the whole list", I will. He should start by realising that what the government finances, it need not produce. All parastatals can be sold and the government can buy whatever it needs from privatised suppliers, just as it buys fuel from Sasol. It routinely buys food, vehicles, computers and advertising space from private suppliers. A precondition for funding departments should be that they deregulate and allow free competition on equal terms with whatever they do. Comair, for instance, should enjoy precisely the same access as SAA (pending privatisation) to government backing, tax breaks, etc.

Much more than parastatals should be privatised. Everything the private sector does better than the government should be outsourced, especially where quality matters most: healthcare and education. "National health insurance" should be just that — insurance. The government can pay premiums for welfare recipients and leave the rest to insure themselves. The poor will, like the rich now, enjoy conspicuously superior private care at government expense. Pupils enduring retrograde government education should get superior private ("voucher") education with government funding at the present education budget rates. Mark Twain quipped that pupils should not allow government schooling to interfere with their education.

Since Nene is a qualified economist who ably chaired Parliament’s finance portfolio committee, where he was exposed to substantial evidence and argument, he understands the key role of incentives and prices. What remains to be seen is whether he has enough presidential support and personal resolve to replace government growth with economic growth.

 Louw is executive director of the Free Market Foundation.

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