A worrying move in South Africa to undermine property rights

At the end of last week I went to my favourite South African restaurant and toasted the fact that Jacob Zuma had stepped down as President of the Republic of South Africa earlier this month. It was an exciting moment, I thought that a cloud had passed from the rainbow nation and that brighter times lay ahead. My enthusiasm, it seems, was misplaced. 

“The battle for freedom,” wrote Milton Friedman in 1994 as part of his reintroduction to Hayek’s seminal work, The Road to Serfdom, “must be won over and over again.” As depressing as it may seem, that is a sentence that has remained depressingly true. 

The Economic Freedom Fighters (EFF), a radical left party led by Mugabe wannabe Julius Malema, brought forward a bill that would allow land to be expropriated by the state from white farmers without compensation. It was supported by the governing ANC in the South African parliament. Malema is a man who even the South African Communist Party thought of as too extreme when he brought forward plans to nationalise the country's mines.  

In his own words yesterday Malema said he intends to use this change of policy to force a fundamental reform of the economy that will be utterly ruinous for South Africa if he gets the chance:

"There is no motion there saying expropriation of rural land. We're saying expropriation of land without compensation. So the question of urban or rural doesn't arise," 

"Every land in South Africa should be expropriated without compensation and it will be under the state. The state should be the custodian of the land," 

"No one is going to lose his or her house, no one is going to lose his or her flat, no one is going to lose his or her factory or industry. All [that] we are saying is they will not have the ownership of the land," 

But why have the ANC moved? Well, beyond the fact that they’ve calculated losing voters to the DNC will be fewer than the numbers they risk losing to a more hardline EEF, the ANC found that few farmers were signing up to have their assets bought from them below market price under its ‘willing-buyer willing-seller policy’.  

But this is just the action of a country far away, the legacy of apartheid, and could never happen here? Wrong. It is the logical conclusion of the thoughts of people like McDonnell and Seamus Milne. In fact, the moves towards these arguments have already been made. 

When McDonnell said that he’d be keen to nationalise industry he was quickly rounded on by work done at the Centre for Policy Studies that claimed there was a going to be a high price of £176bn for Labour’s plans. But John had an ace up his sleeve. He repeated a line he used on the Marr show back in November: “it will be parliament who sets the price on any of those nationalisations.” Well it will be parliament that sets the price of expropriation of assets in South Africa, and they will set it at zero. 

They are, as Milton Friedman wrote in Capitalism and Freedom, “Impatient with the slowness of persuasion and example to achieve great social changes they envision, they’re anxious to use the power of the state to achieve their ends and confident in their ability to do so.” But their impatience threatens the very freedoms that are the bedrock of our prosperity under capitalism. 

Ownership matters. The ability to own, sell or lease at leisure matters. Free personal choice matters. Property rights “… are the most basic of human rights and an essential foundation for other human rights." As Friedrich von Hayek explained if the state owns all of the property, then it alone has power to decide who does what, when and where. Property is a fundamental for liberty, giving owners self-determination over it and free competition, exchange and wealth creation.

As my old colleague Sam Bowman put it “overriding property rights capriciously undermines the incentive people have to hold off from consuming and invest in their futures instead, because they will be unsure about whether they’ll actually get to enjoy the returns of that investment. This is extremely important in the developing world, where weak or nonexistent property rights preclude capital accumulation and growth.”

South Africa’s move to help its poorest by taking control of assets of richer farmers because of the colour of their skin, in an attempt to redistribute wealth, will end up curtailing the growth rate of the country. It is a move they can ill afford and a lesson they should have learned from the basket case economy in Zimbabwe to their north where fellow expropriator Mugabe has fortunately been removed from power. 

Investors shun countries that take control of property from private hands, for obvious reasons. And if you do want to work with companies in those countries there are hefty costs from banks, insurers and other third parties that have to prudently manage their risk. Each deal requires higher scrutiny, more credit checks, more credit committees, more insurance and more due diligence. Obviously it comes with higher risk. This risk means more cost and that hits the poorest countries hardest as it delays and makes rival contracts and rival investments more attractive. In cases like Venezuela and previously in Zimbabwe it meant a complete curtailment of any transactions by reputable institutions, leaving them at the mercy of less scrupulous regimes and companies. 

We can ill afford that here, and it should be resisted at all levels. This week South Africa has taken a backward step, it will have scared many that work across borders. Time for them to put their best foot forward and promise to reverse this decision.