OPENING STATEMENT BY FORMER PRESIDENT F W DE KLERK IN THE ASHBURTON DEBATE: JERSEY, 16 NOVEMBER 2006

 

THE ISSUE FOR DEBATE IS

 “THE SPEED AND SCALE OF REFORM HAS STRETCHED POLITICAL SYSTEMS TO THE POINT WHERE MANY GOVERNMENT RESPONSES ARE INTERFERING WITH FREE MARKETS. THAT INTERFERENCE IS TILTING THE ODDS TOWARDS ECONOMIC UNCERTAINTY AND FINANCIAL MARKET INSTABILITY?”              

 

This question is relevant not only to the future of globalisation – but to the inherent strengths and weaknesses of democracy in national states.

In democratic systems, decision-making is by definition in the hands of the majority.  However, the majority will often decide in favour of the comfort and security of short term advantage over the sacrifices and uncertainty that are often essential to secure long-term and lasting benefits.  Accordingly, there is a strong tendency to deal with the threat of competition by protecting domestic markets with trade barriers and subsidies – rather than by meeting competition head-on by working harder and smarter.

The majority will often also support labour policies that will ensure maximum wages and minimum working hours, even though the long-term cost may be the loss of jobs because industries are no longer competitive.  Just look at several leading countries in Europe.  The majority will often favour welfare and social security programmes that in the end are unsustainable. Just look at the unfunded and unfundable social security liabilities of the United States.  According to the Cato Institute the funding shortfall for social security is now over US$ 15 trillion dollars.

The trouble is that each step away from competition and free markets usually involves a diminution of freedom and an increase in the protection of special interests.  When EU and North American governments artificially subsidise their farmers to the tune of $ 350 billion per annum, they are diminishing the freedom of farmers in developing countries to compete in the one area where they may have a competitive advantage.  Rigid labour laws and high minimum wages diminish the freedom of the unemployed to get jobs – and protect the special interests of trade unionists.  Excessively expensive social welfare programmes diminish the freedom of the productive sectors of economies by raising taxes and protect the special interests represented by welfare recipients – and the civil servants who manage welfare programmes.

Experience teaches us that freedom works.  The economies that have the fewest restrictions are generally the economies that have the highest growth, the highest per capita incomes, the lowest unemployment and the freest political systems. This is because free markets generally allocate resources effectively and reward initiative, ingenuity and hard work – all of which are prerequisites for sustained success.

Unfortunately, Governments confronted with robust global competition, all too often heed the demands of their electorates for the short-term comfort and security of protection and subsidies.  Such temptations should be firmly resisted in a globalising world – for the following reasons:

However, for all this to work, the international trading system must be truly free.  We need a level playing field for all concerned – with no hidden subsidies either for Western farmers or for Chinese industries.  We need serious trade negotiations that will create a free and fair dispensation for all participants.

The question under debate is also starkly relevant for South Africa.  Our future success will be determined by our ability to resist populist calls for precipitate redistribution of land and wealth; and by our ability to continue the market orientated economic policies of President Mbeki and Trevor Manuel.  However, we need to reinforce freedom in other sectors of our economy as well – particularly in our rigid labour market which currently makes it very difficult for  almost 40% of black South Africans to find jobs; we need freedom from the over-regulation of our small and medium-sized businesses – and we need freedom from crime.

Democracy assures our freedom in the very important arena of political choice.  However, the economic arena also requires maximum freedom to survive and prosper. People should also have the right to make free choices in the economic and labour markets.  The same is true in a globalising world.  There will be more economic uncertainty and financial market instability if we allow the short-term dictates of the democratic market place to interfere with the long-term benefits that we can derive from economic freedom.