The Corporate Law Group

The Suicide of South Africa

The South African Parliament voted 241 to 83 on February 27th to seize land from white farmers, without compensating the farmers. Julius Malema, leader of the Economic Freedom Fighters, and proponent of this action said, “We must ensure that we restore the dignity of our people without compensating the criminals who stole our land.”

If you’ve studied Angus Deaton, or Acemoglu and Robinson, you can derive that there are only three things necessary for growth, innovation, advancement, disruption, investment, and prosperity. They are property rights, a method to resolve disputes (courts), and “law and order” (a method of enforcing whatever rules you adopt). New South African president Cyril Ramaphosa said he would speed up the transfer of land from white to black owners after his inauguration two weeks ago.

So, what does this mean? It means South Africa, already ravaged by one third unemployment (also government caused), will slip further into chaos and poverty. Like Venezuela. The biggest problem with the action taken by parliament isn’t to deprive what farmers of their land, or reward black farmers. It is to damage property rights as a concept.

Foreign investment will look at this action and will have to consider hard whether something like this could happen to them. We were amazed a few years ago to see huge manufacturing plants in supposedly communist Vietnam. No company would make that kind of investment unless it was absolutely sure that it could reap the benefits for years to come. Fortunately, in Vietnam, rewarding innovation and investment took precedence over ideological purity and the Vietnamese people have prospered. Conversely, as Venezuela fell further into poverty it kept taking more and more resources, even controlling and passing out government flour and then telling bakers what to bake.

Many have pointed to the redistribution of land in Zimbabwe which led to violence and neglected farms. It’s not a racial issue; it’s a property rights issue. And we have to ask when giving something to someone who did not earn it, give them dignity? We would think it does exactly the opposite. “You’re incapable of earning this so, here.”

What about the land being stolen by whites? Many farms were probably stolen, though each parcel is different. The big difference in South Africa for many years was that black folks were deprived of property rights which meant they could not enjoy the fruits of their own innovation. But is that a reason to steal farms based on skin color? Of course not. You can chalk this up as one reason why South Africa will go into decline, joining Venezuela, unless it reverses itself on property rights.