Speech by Leon Louw, executive director of the Free Market Foundation

1. FW de Klerk
Foundation
Developmental State
Leon Louw
25 July 2012

2. Background
RDP
GEAR
ASGISA
NEPAD
NGP
IDP
Provincial programmes
Local government programmes
etc

3. Background
• Pre-Polokwane (2007): NDR etc
• Not Freedom Charter
• Polokwane:
• Decent jobs (not jobs per se)
• Reducing poverty
• Spurring rural development
• Land reform
• Improving health, education, public service
delivery
• Cutting crime
• Creating economic growth

4. Background
Zuma:
‘The key to achieving these priorities will be
the building of an effective, developmental
state.’
• Proclaims monumental failure
• Curious references to Asian Tigers, BRIC
• Special Economic Zones (SEZs)
• Lack of reference to rapidly developing
countries, especially Africa

5. Definitions
Developmental State: Government “plays an
active role in guiding economic development
and using the resources of the country to meet
the needs of the people … tries to balance
economic growth and social development …
uses resources and state influence to attack
poverty and expand economic opportunities”.

6. Definitions
Developmental State:
• ‘Greater role for government’
• More government ownership and control
• More:
• consumption of wealth
• Inefficiency
• corruption
• patronage
• Less:
• Wealth
• Efficiency
• freedom

7. Developmental State
• Some detailed, most amorphous
• Much is extreme
• NHI = NHN
• Land
• Mining
• Finance
• Dependency etc
• Intensely racial
• Related pernicious myths:
• Lack of transformation
• China
• Financial crisis

8. Definitions
• Development: Improvement in
welfare, quality of life, well-being; satisfying
needs and wants (socio-economic indicators)
• Socio-economic development: measured
with indicators such as GDP, life
expectancy, literacy, employment … and less-
tangible factors such as personal
dignity, freedom of association, personal
safety, participation in civil society.
• Economic growth: Increase in value of
goods and services produced (GDP)

9. Definitions
Sustainable development: Development that
meets the needs of the present without
compromising the ability of future generations to
meet their own needs (mainly environmental
indicators)

10. Definitions
Economic development: sustained concerted
actions of policymakers and communities that
promote the standard of living and economic
health … the quantitative and qualitative
changes in the economy … human
capital, infrastructure, competitiveness, environ
mental sustainability, social
inclusion, health, safety, literacy, and other
initiatives. Differs from economic growth …
policy intervention …

11. Development Indicators
250 indices of conditions; 150 of policies eg:
• Access to safe water, housing, infrastructure
• Access to internet
• Cars, doctors etc p.c.
• Crime; Corruption
• Food and energy consumption
• Health, life expectancy, obesity etc
• Literacy and higher education
• Clean and safe environment
• Personal satisfaction and welfare
• Environmental sustainability

12. Wealth means ‘Everything' is better
100
90
80
'Everything'
70
60
50
40
30
20
10
0
1g 5g 10g 15g 20g 39g 35g 40g 45g
Wealth ($ GDP pc)

13. Wealthier is more Literate
50%
45%
40%
35%
Illiteracy
30%
25%
20%
15%
10%
5%
0%
Poor Rich

14. Wealthier is more Developed (UN-HDI)
1
Human development
0.8
0.6
0.4
0.2
0
Poor Rich

15. % people with sanitation Wealthier and Cleaner
100%
80%
60%
40%
20%
1 2 3 4 5 6 7 8 9 10
Poor Rich

16. Wealth and Safer (purified water)
% people with safe water 100%
90%
80%
70%
60%
50%
1 2 3 4 5 6 7 8 9 10
Poor Rich

17. Wealthier is Healthier (life expectancy)
80
Life expectancy
70
60
50
40
30
1 2 3 4 5 6 7 8 9 10
Poor Rich

18. Wealthier is Happier
10
9
8
7
Happiness
6
5
4
3
2
1
0
1g 5g 10g 15g 20g 39g 35g 40g 45g
Poor Rich

19. 20:20 Analysis
How to be wealthy?
= grow!
How?

20. Economic freedom and wealth
20,000
GDP per capita (US$)
15,000
10,000
5,000
0
Unfree 2 3 4 Free
Quintiles

21. Economic freedom and growth
3%
GDP growth per capita
2%
1%
0%
-1%
-2%
2 3 4
Unfree Free

22. Economic freedom and ‘poverty’
45
Human Poverty Index
40
35
30
25
20
15
10
Unfree 2 3 4 Free

23. Economic freedom and equality
(0 = equality; 100 = inequality)
45
‘Gini’ coefficient
43
41
39
37
35
Unfree 2 3 4 Free

24. Freedom and corruption
8
7
10 = corrupt, 0 = not corrupt
6
Corruption
5
4
3
2
1
Low 4 3 2 High

25. Freedom and investment
$5,000
Investment per capita
$4,000
$3,000
$2,000
$1,000
$0
Low 2 3 4 High
Rule of law

26. Freedom and child labour
Percentage of children (10-14) 21
18
15
in labour force
12
9
6
3
0
Low 4 3 2 High

27. Freedom and political stability
1.5
Political Stability (2004)
-2.5 =low; 2.5 =high 1.0
0.5
0
-0.5
-1.0
-1.5
Low 4 3 2 High

28. Unemployment
(% of total labour force, 2000-2002)
11
5
6
7
8
9
10
12
13
Low
4
3
2
Freedom and unemployment
High

29. Growth vs. freedom + change
0.14
Freedom
Observed values
0.1
and
0.06 Change
0.02
Change
-0.02 Freedom
-0.06
-0.1
-0.06 -0.04 -0.02 0 0.02 0.04 0.06
Predicted values

30. Growth vs. freedom + change
Growth & EFW Growth & change
0.14
-0.091
0.1 -0.083
0.06 -0.074
-0.065
Growth
0.02 -0.057
-0.048
-0.02 0% -0.039
-0.031
-0.06 -0.022
-0.013
2.5 -0.005
1.5 0.004
10 0.013
0.06 9
8 0.021
0.02 7
6 0.030
-0.02 5 0.038
4
-0.06 2 3

31. NDP
All-embracing; ambitious
‘South Africa can eliminate poverty and
reduce inequality by 2030’
440 pages; 15 Chapters
Development Indicators
Diagnostic Overview
Requires big changes, lacks specifics
(to be addressed in submissions)

32. Employment
 Obtuse references to labour policy reform
 5,4% growth needs ‘very low-income
employment, survivalist activities and
public employment schemes’
 Bargaining that’s ‘conducive to
investment’

33. Poverty and Inequality

34. Chapters
1. Key drivers of change
2. Demographic trends
3. Economy and employment
4. Economic infrastructure
5. Transitioning to a low carbon economy
6. Inclusive rural economy
7. Positioning South Africa in the world
8. Human settlements
9. Improving education, innovation and
training

35. Chapters
10. Promoting health
11. Social protection
12. Building safer communities
13. Building a capable state
14. Promoting accountability and fighting
corruption
15. Transforming society and uniting the
country

36. Confused responses
‘Zille gives NDP the nod’
‘NPC to ignore DA's statement’
NGP vs NDP vs DS!
No reference to key global
indices/determinants

37. NDP ‘Transformation’
‘The longer-term solution to
skewed ownership is to grow
the economy rapidly enough to
focus on spreading
opportunities for black people’
Eg ‘financial inclusion’

38. Conclusion
Hayek: Government can do more
for the people by doing less
Louw: When things are in the
hands of the state they’re in a hell
of a state

39. End