Zuma, the constitutional warrior, should now tackle FSB

Posted 04 February 2015 Written by Leon Louw

As if the Financial Services Board does not wield enough power already, now it is to get even more in terms of new legislation before Parliament. This proposal reads, in parts, like a masterpiece in economic illiteracy. It is a free lunch fantasy where reductions in consumer freedom, dressed up as industry regulation, yield bountiful blessings at zero cost, writes Leon Louw of the Free Market Foundation. 

Jacob Zuma’s chorus of critics never expected him to lead the charge for constitutionality and the rule of law. His rejection of the Mineral and Petroleum Resources Development Amendment Bill compares with Nelson Mandela’s rejection of unconstitutional bills passed by his party, Cabinet and Parliament. After considering submissions that officialdom and politicians ignored, Zuma concluded that the bill did not "pass constitutional muster". It "elevates" codes and charters "to the status of national legislation"; the minister may bypass "constitutionally mandated procedures"; it is "inconsistent" with treaties; the legislature "did not sufficiently facilitate public participation"; and it "allows" entry without consent.

Zuma’s logic, if applied to other laws, would have many of them rejected. That would reverse the catastrophic erosion of the rule of law. He could start by rejecting the tsunami of measures stifling financial markets, the most extreme being the 2013 Financial Services Laws General Amendment Act. It turns the Financial Services Board (FSB) into a draconian state within a state and eliminates any hint of the separation of powers. The FSB makes laws, implements and executes them, enforces and polices them, creates pseudo-courts to adjudicate alleged offences, and imposes fines deceptively called "penalties". The legislature and judiciary are redundant in the FSB’s domain. It is proud, or shameless, regarding the extent to which it epitomises the conflation of powers. Its enforcement committee, for instance, "imposes penalties … on offenders of FSB legislation". Offenders are never guilty of offences proven according to the rule of law in an independent judiciary; the "legislation" is never legislated by legislators in a democratic legislature.

If offenders are supplicating novices, the FSB may lower fines. It boasts how many service providers it drives out of business; the overwhelming majority of victims may be poor black entrepreneurs and consumers. Wealthy representatives of huge companies tell me that, given the FSB’s terrifying powers, they dare not risk its wrath, so they fake respect. The same is true in other contexts, such as mining and procurement, where the FSB’s counterparts wield so much power that capitulation prevails.

Zuma’s concerns about the legislature not properly considering the mining bill are doubly true of the financial services law. In the brief period allowed, few if any people comprehended all 236 pages, let alone the 13-page list of disparate amendments to 13 acts. The FSB’s recent Retail Distribution Review is a 97-page masterpiece of economic illiteracy in that it is a free-lunch fantasy where reductions in consumer freedom, called industry regulation, yield bountiful blessings at zero cost.

In addition to demanding constitutionality and the rule of law, Zuma could end the deceitful habit of implying that government interference protects consumers from suppliers, when virtually every measure not only reduces consumer choice and the benefits of innovation, but raises prices. Typically, the net effect of controls is to harm consumers, especially the poor. The problem is compounded by the lobbying capacity of powerful vested interests. Calls by bureaucracies such as the FSB for unbridled power and wealth are admissions of failure. Supposed problems are what earlier measures were meant to fix. Promised solutions follow alleged problems to be solved by enlarged bureaucracies, which report the same problems in need of further enlargement, and so on infinitely.

Consumers are never told whether promised benefits materialise or how much they cost. Calling something "consumer protection" conceals price and choice effects. Asked whether they want to decide what to buy and pay, consumers say "yes". Asked whether they want protection from inferior products and high prices, they say "yes", without realising the contradiction. Asked whether everything should cost more, they say "no", without realising how much government interference inflates all prices.

Zuma’s principled stand against bad law may be his first, not his last, to which end he deserves praise and encouragement.

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