'We need to simplify, privatise and let the invisible hand do its work'

By Janice Roberts

Brian Kantor

In South Africa, service delivery in the private sector is deemed efficient, in that local businesses generally do deliver goods and services to their valued customers because they have reputations to protect. These reputations are the source of highly valuable repeat business and are subject to competition for the budgets of households.

Reputation rather than regulation should be relied upon, and this sector therefore deserves more respect, better understanding and greater encouragement – something that the latest budget begins to recognise by turning more to taxes on spending rather than incomes.

This is according to Professor Brian Kantor, renowned South African economist and author of the highly acclaimed book “Get South Africa Growing”, who delivered his reflections on the state of South Africa at a recent event hosted by Nexus Property Group at their offices in De Waterkant, Cape Town.

“The world economy has improved significantly over the past 50 years by letting individuals get on with their lives without too much intervention or interference by government agencies of one kind or another. When left to their own devises, people get on with improving their economic lives. This speaks to Adam Smith’s ‘Invisible Hand’ theory whichdescribes the unintended social benefits of individual self-interested actions.

“Legal structures, contracts and legislation simply provide the protection necessary to encourage and facilitate healthy economic behaviour. If you get the alignment of incentives right, you get socially helpful and effective behaviour.”

The challenge in South Africa is that the country has been poorly served in recent years by some of the economic choices made by an over ambitious Government – something that Kantor says the new presidency and latest budget could begin to rectify. “President Ramaphosa has been very well received by both the capital and currency markets, as was the latest budget, and the political risk premium attached to SA-domiciled assets has declined sharply.

“This means confidence is up, however, while the ‘new dawn’ as it has come to be known, does promise better governance and less corruption in South Africa, the agenda remains over-reliant on Government,” Kantor adds.

He uses state-owned companies as an example of this. “The reason for state-owned companies to remain state-owned is largely politically driven, regardless of whether they are efficient or not. This political interference has, to a large extent, brought the system into disrepute and strained the ability of taxpayers as a result.”

To rectify this, Kantor returns to the theory of the invisible hand. “We must hope for reforms of the essential kind that change the goal of the managers of these companies from serving themselves to serving their owners. By doing so they would relieve taxpayers from the risks they now carry and help their customers for whom they would compete, and help the economy to grow faster.”

Kantor concludes that the way forward is to minimise the restrictions placed on doing business. “The budget review, while moving towards the right direction, is still characterised by Government trying too hard. At this point, we need to simplify, privatise, and let the invisible hand do its work.”

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