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Economy and state

28 June 2012, 07:14

So...our problems in South Africa are many...and most of them stem from the fact that our government in South Africa came to power, and tried to take on the powerhouses of South African economy and redistribute them (mainly amongst themselves) in order to fight inequality. This was a very bad move to have made purely because it wasted time and resources that could have been spent in a better way. To motivate this statement, I will first explain a few things.

Lets look at economy dumbed down a bit. Basically, you get two types of players in a capitalist economy. They are wealth creators and wealth consumers. A wealth creator is any entity that produces a product or a service. They generate wealth with their profits and spread it amongst the people with salaries and dividents on shares. Then you get wealth consumers. There is only one realy large wealth consumer in any economy, and that is the state. The state spends money, that they take from our taxes for a varied numbers of reasons. Some people may argue that the state also employs people, but the money they pay these people with, come from our taxes, therefore they dont actually create wealth, they take it from the wealth creators to spend it on their various needs. Now, this is in many ways a good thing, if the state remains small enough not to consume too much of the wealth generated by the rest of the economy. The state spends this money on law enforcement, judiciary, defence forces, infrastucture, policies etc. If all these things run well, then it brings about an atmosphere where wealth creators can come in and generate more wealth in the country, which in turn will generate more revenue for the government to keep improving the country.

Now comes the problem South Africa is getting a lot closer to. The state is growing larger and larger. We get new state entities that need to be funded and the only funding that is available for them is from the wealth creators. With the call for nationalisation, if it ever happens, this will mean that the state will have to grow by a large amount, with administrators, employees etc, all being paid for by the state coffers. There is the attitude that the mine's profits will be able to pay for this, but this is false. In all capitalist ventures, profit (wealth creation) is a huge drive to ensure that the venture remains efficient. In a government venture, profit isnt a motivator at all, because the government will keep paying your salary even if no profits are made, and they keep bailing it out because they will have to. This type of event is a huge drain on a economy's wealth generation, eventually leading it to shrink. Because if the state grows so large, that the majority of the economy happens within itself, then the economy will not be able to support the state anymore. So when the government says it wants to play a larger role in the economy, dont expect it to grow.

The answer to all this is to shrink the state, lower taxes and create policies that will enhance wealth generation. Countries that have previously taken this route, have shown amazing economic growth, some as high as 12% a year. Also, with a decrease in taxes and an increase in overall wealth, tax revenue was actually higher than before, purely because there was so much more that could be taxed. The added benifit to this will be the creation of new economic powerhouses. This will lead to newer players being able to come into the field and this includes BEE players. The economy will grow so much larger in just a few years that employers will be forced to look at BEE candidates, because there wont be enough white people to fill the roles required. Lower taxes is also a great incentive for foreign investment, which in turn wil create more wealth and jobs, which in turn will create a higher standard of living for all people. The only real role the govenrment needs to play in an economy is clever expansion and maintenance of infrastructure and policies that make it easier for entrepreneurs to come into the economy and make a success of their enterprises because this will bring about employment and more wealth for the average citizen.




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