Handout 100. The main difference between Socialist and Free Economies.
Charl Heydenrych
July 2011
And here is what Herman Mashaba - Chairman of the Free Market foundation has to say today:
The main difference between Socialist and Free economies lies in how they deal with property rights. In free economies individuals own their life and the products of their efforts, in Socialist economies the state decides. It is this reliance on state power that turn Socialist countries into dismal places for ordinary people to live in. The rulers generally exploit the peole for their own gain. Examples of these oppresive states are Myanmar (Burma), North Korea and Zimbabwe and China outside of the specialised development zones (such as Hong Kong which can be described as one of the most free economies in the world!).
The freer a country the more wealthy the citizens (see Economic Freedom Index).
At the core of the free enterprise system lies the principle that individuals may own property, and may employ that property at their own risk in the production of goods and the provision of services, which will be distributed to consumers at a profit.
In South Africa, society’s needs in terms of goods and services are catered for almost entirely by private initiative, comprising a wide variety of business enterprises. All these enterprises, which vary greatly in size and structure, from the corner café to industrial giants, nevertheless share one distinguishing feature: that of striving towards a fair profit.
Not all goods and services originate from private enterprise: a wide variety of social services are provided on a non-profitmaking basis by other institutions in the private sector, such as churches, sports and social clubs and societies.
Every community requires. in addition, a variety of services traditionally rendered by the authorities. Apart from general public administration as such, these services include security, education and health at the level of the central and provincial authority and, at the level of local management, the provision of electricity, water and sewage facilities. A further service function of the authorities often lies in the provision of goods and services which, for strategic reasons. the authorities retain within their own sphere rather than allowing them to be taken over by private initiative. Examples of this type of service in South Africa are those of rail transport and electricity supply and lately low income housing, education and healthcare for the indigent.
(Adapted from Faul, Pistorius and Van Vuuren : Accounting. Butterworths 1986)
37 years of promoting economic freedom: 1975-2012
Statement by Herman Mashaba – Chairman – Free Market Foundation
Socialism is responsible for the global financial crisis – not capitalism
Johannesburg - The other night I watched with interest the SABC 3 news at 19:00, and got a shock while listening to a report from the 24th Socialist International Congress held over two days in Cape Town. My most serious concern was the statement by this conference that capitalism and the free market have failed the world and that they were proposing something else. What that “something else” is was not spelled out but we can assume that they meant socialism, more of the ideas that caused the current crisis.
My children, who were watching the programme with me and who know my strong views in support of free markets, challenged me and wanted to know my response. The following morning, Friday 31 August, I addressed the issue in a speech at the University of Johannesburg to about 150 Soweto business people. What I told them went along these lines:
That I am committed and have resolved, as chairman of the FMF, not to remain silent any longer when I hear such utterances
That I urge other good people of SA and the world to challenge such notions – capitalism, based on co-operation, peaceful interaction, and free markets are fairly new inventions in the history of humankind, while socialism of the all-powerful state is an ancient idea populated with Pharaohs, Kings, Czars, Emperors, and more recently, dictators with titles such as First Secretary (Soviet Union), Fuehrer (Germany), Duce (Italy), and President (Cuba and several African countries) – under all these rulers the average individual had and have few, if any, real rights
Many socialist countries are dependent on grants from capitalists for survival
Citizens of socialist countries are daily running away from their countries in search of better lives in more capitalist countries
Citizens of capitalist countries enjoy the highest standards of living and have the lowest levels of unemployment
Capitalist countries have the most democratic systems, the most accountable politicians, and the best legal systems
Socialism only benefits the leadership
Most socialist countries have one-party political systems
In his opening address to the Socialist International Congress in Cape Town, Deputy President Kgalema Motlanthe is reported to have said that the “global crisis of capitalism and imperialism” was hitting growth, widening social inequality, increasing poverty levels and worsening employment figures. The truth of the matter is that the global financial crisis has socialist roots. More socialist policies will result in less growth, greater inequality, increased poverty, even worse unemployment, and more scary, human rights violations.
Under capitalism there is private ownership and control and government plays a limited role in the economy. Under socialism there is government ownership and control and private business and individual property ownership play a limited or no role in the economy. Any part of the economy that is dominated by government is therefore of a socialistic nature. The global crisis is the result of the mismanagement of currencies by central banks, which worldwide are under government control. Based on a view that private banks could not be trusted to manage currencies responsibly, governments everywhere established central bank monopoly control over the issue of currencies. The result has been a catastrophe. It turns out that central banks have acted less responsibly than competing private banks have done in the past in providing stable currencies.
Governments have done what they said private banks would do. Their central banks have over-issued notes and coins and cheated their customers over decades by reducing the value of their savings. Central banks have very often printed excessive amounts of money to bail out their governments that have overspent and taken on too much debt. This deadly combination has resulted in the worldwide financial panic of the past few years. The financial crisis is a failure of socialistic currency and fiscal management and definitely not a failure of capitalism. The solution is for governments to stop spending more than they receive in taxes and for central banks to stop reducing the value of their currencies by printing too much of it.
The Deputy President is correct, South Africa can do “something else” to improve the lives of the people. We can try capitalism, which has never been seriously attempted in this country; the kind of capitalism that is in operation in Hong Kong, Singapore, New Zealand and Switzerland, which are the best examples of capitalism in operation.
At the same conference, George Papandreou, Socialist International president and Greece’s former prime minister, is reported to have said that the “myth of infallible free markets” had served conservatives well. Greece might have averted a bailout if the economy had not been robbed by funds being “funnelled to tax havens”, he said – $21 trillion was hidden in tax havens around the world. There was no “free market” as the market was made for the “powerful”. Whether in developed or developing nations, “citizens are being robbed”, he said. So if citizens hide their own money from wasteful governments such as that of Mr Papandreou are they “stealing”? Or is he annoyed because Greek citizens prevented him from using the power of the state, through currency inflation or high taxes, from taking/stealing their money? If he had got his hands on the money, he would not have paid debts, he would have spent it, and there would still have been a bailout.
Some of the actions that government would need to take to “go capitalist” would be: reduce government involvement in the economy by reducing the role of state-owned-enterprises; end government monopolies; reduce government spending; improve the application of the rule of law; increase the efficiency and independence of the courts; improve the quality of policing; abolish exchange controls; free up the labour market to allow the unemployed to get jobs, and remove the red tape that impedes and causes unnecessary costs for small business. What we must avoid is copying the actions of the worst socialist economies, which deprive their citizens of opportunities and limit their choices.
A lack of capitalism and the dominance of socialist ideas in government and central banking have caused the global crisis. The solution is more capitalism and less socialism.
3 September 2012