Socialism will not end poverty Mr Vavi

In the Mail & Guardian of September 27 2017, union leader Zwelinzima Vavi pleads for economic reform in the shape of a socialist state. “Only socialism will end poverty, the heading proclaims.

First, let’s record what we agree about:

  • Millions of South Africans are poor.
  • This number is increasing.
  • Executive salaries are rising relative to those of the poor.
  • Unemployment has reached unprecedented levels.
  • The key driver of poverty is in fact unemployment.
  • Education is poor to non-existent, and a major cause of unemployment and poverty.
  • Most of this regression occurred under the stewardship of the ANC.
  • This has been characterised in particular by state capture and corruption by interests like the Guptas.

Now comes the rub. These problems are to be rectified, we are told, by “inclusive growth” achieved by “some sort of social compact between government, business and labour as the solution”, all with a view to establishing a “socialist economy”.

First of all, what is meant by a socialist economy?

According to Wikipedia “a socialist economic system is characterised by social ownership and operation of the means of production that may take the form of autonomous cooperatives or direct public ownership wherein production is carried out directly for use”

You get the drift. The state will not only have to play a greater role in the economy, it will indeed have to own the economic means of production (or at least confiscate those for use by cooperatives), and will have to control the lion’s share of spending in the economy.

Now here is the challenge, and that is to identify examples of such an economy in the real world, and then to determine how SA can possibly be reformed to such a model and thus eradicate poverty.

Today there are three candidates for title of a real, live socialist economy. And those are Cuba, North Korea and China.

Let’s dispose of China at the outset. China is no longer a socialist or communist economy. In the seventies Deng Xiao Ping, supreme leader of China, started opening up large parts of the agriculture industry to the market, and in the eighties created small so-called Special Economic Zones, namely experimental free-market areas designed to test free-market policies. This resulted in spectacular results in terms of growth in those zones, which soon served as a powerful demonstration of the benefits of free markets – so much so that the state gradually embarked on a wholesale reform of the Chinese economic system, from a state-controlled one to a partly free economy. As an indication of the degree of reform in the direction of a free market, here are China’s ratings according to the Economic Freedom of the World Index over the relevant period since 1980:

Over the same period, China’s per capita income in real terms increased by about 1500%, which, given its large population (over a billion), makes it the biggest economic improvement in a single country in the history of the world. It helped that China has some of the best schools in the world. All of this combined to lift some 800 000 people out of absolute poverty. The point is, of course, that this change was made possible by China moving away from a socialist economy, not towards it. Despite its reform process being incomplete, the significance lies in the relative degree that large parts of its economy are no longer socialist, in that the means of production are in the hands of private companies and people, and not the government like before 1980. So China proves the opposite to what Mr Vavi contends for.

Of the remaining examples, Cuba is the poster boy for the die-hard socialists in South Africa. It has very low wages and very limited choice of lifestyle and entertainment. As for happiness, in terms of the Life Satisfaction Index of Adrian White in 2006 it achieved 85th place out of 187 countries rated (below countries like East Timor, Tonga, Grenada and Namibia). In the recent edition of the Human Development Index it ranked 68th, below countries like Serbia, Antigua and Barbuda, Panama and Kazakhstan. It has for many years had to restrain emigration by force. Raul Castro has in recent years felt compelled to embark on cautious free-market reforms and even a China-style Special Economic Zone at Mariel Harbour.

But at least it maintained good education and healthcare. And that is not to be sneezed at.

What is more, pro-Cuban advocates make the fair point that the US has for years imposed trade sanctions on Cuba, resulting in severe restrictions on imports and exports. Who knows how well it would have done without those sanctions?

So Cuba deserves a second look. Assuming South Africans want to live like the Cubans do, how will we get from here to there?

Bear in mind that what Mr Vavi called for in his speech, is for reforming South Africa from a relatively free market (albeit a poor example of one) to a socialist state.

Has that worked in the real world? I thought I would try and identify those states in the EFW Index that in recent decades significantly moved from a relatively free-market position to a relatively state-controlled one, and determine how that went for them. The first interesting thing to note is that there are not many examples of countries that significantly reformed in a statist direction over the last number of decades. I could find only three. As a control I put in the three countries that went the furthest in the other way (i.e. towards freedom).

As for South Africa: Between 2000 and 2014 its rating declined from 7.09 to 6.77 (by 0.32) and it barely managed to keep pace with world average per capita growth.It is clear that the countries which “reformed” their systems away from a free-market economy, suffered in direct proportion to the degree of reform they underwent, and all fell behind the world average growth rate. The most drastic reform was in the case of Venezuela, which also suffered a decline of 48% measured against world per capita GDP. On the other hand the countries moving towards market freedom, on average improved their income ratio by 66.84%.

The point is simple: If South Africa were to reform its economic system to a socialist one, it would have to reduce its EFW rating at least as much as Venezuela, probably more – with similar results in all likelihood. It won’t work.

But it gets worse. We are to achieve this, we are told, by means of a tripartite “social compact” between business, government and trade unions. We do not have the Cuban “luxury” of a dictatorship of the Communist Party. We have the little matter of democracy to contend with.

Note what is being asked here. Of businesses is expected that they should sign away the means of production that they have built up over years, and all their private property, to the state. It will be hard enough in our vastly diverse society to get centralised agreement on most reasonable proposals. This proposal will simply be rejected by business as unacceptable. Then what will happen? Confiscation by means of forcible nationalisation of all factories, farms, shops, businesses, banks, professional firms? Can’t be, that is not a social compact.

But even if the reforms needed to bring about a wholesale nationalisation of assets could be achieved, surely then the privileged classes are likely to flee our shores in droves – even assuming they cannot take along their assets, those having been confiscated by the state?

And then? How, for example, will education be improved in the desired socialist state? Our education system has been socialist for years, and where has that got us? We already spend more on education than most countries as a percentage of GDP. How is the creation of a more statist set-up going to improve education?

And employment? Will the state just take money from taxpayers and create more public-service jobs?

It must be understood that Cuba’s full employment does not come without a price. Cuban wages amount to about $15 per worker per month. That’s how low wages must be in order to employ all workers and maintain social benefits such as universal health care and education. One has to wonder how Mr Vavi’s beloved trade unions would respond to a regime where their members are asked to take massive wage cuts in exchange for such benefits? Not to mention the national minimum wage of R3500. How will that feature in the new workers’ paradise?

It can be expected that the trade unions will not be pleased to forego rising and minimum wages in such a new system.

To change South Africa to a socialist state will not happen through a social pact. But however it happens, how Mr Vavi and his socialist cohorts will do it without causing a catastrophe of Venezuelan proportions, is not clear.

Frans Rautenbach is the author of South Africa Can Work (Penguin Random House)

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