A few months back, to be precise around October last year, there were riots in South Africa. Bloomberg, as usual, emphasized the emotional value instead of looking at what was behind. They publish an article titled "Disenchantment fuels S. African student riots". On the surface the protests were about Universities planning to rise tuition fees. However these protests took place in a gloomy economic environment. The finance minister presented a difficult scenario in his midterm budget speech and academics declared that riots had to do with the storm of discontent of the poor, the working class, and the middle class.
Bloomberg then points out that since the African National Congress took power in a 1994 and even though the economy more than doubled the benefits haven't been shared equitably. Once this so-called "fact" has been established, then Bloomberg proceeds to support this assertion with numbers. They quote several studies that were done recently which indicate that only a small percentage of the people (in the order of 6%) are middle-class. The horror!
Then, in full alignment with socialistic notions, Bloomberg continues to extol the virtues of equalization and finally ending by getting off the rails by "recognizing" than the next "challenge" is to decrease the volatility of earnings.
But does this reflect reality?
Well, kind of, sort of, more or less. However, if we look at the big picture we begin to see that things are different.
To begin with, take a look at the following plot:
This is a picture that shows the growth in GDP per capita in constant US dollars in South Africa since the end of apartheid and before. As you can see the economy begun to rebound only after apartheid ended. This could not be otherwise because for any intent and purpose the apartheid behaved in practice as a right-wing economic system (see for example Paraguay - Right-Wing Politics And Economics). In the apartheid only the few, the worthy, the ones on the government's side could benefit from riches and wealth, while the rest were purposely locked out.
As you can see, however socialist the new government in South Africa may be, the one thing that it did was to release market forces. And even when those market forces did not operate in free markets, they still had an immense impact in the economy. We can see this effect in the growth that the plot above exhibits. The interesting part is that this growth shows no signs of slowing down as it is to be expected from freer markets.
Of course, socialist pundits always love to complain and argue and this is not the exception. Their argument is that although the general wealth of the country grew, that wealth was not shared by most people. According to them, this can be seen in the very high levels of unemployment. But if this is the case, we should take a look at the unemployment level. Let's do just that.
As you can see this a plot showing the unemployment in South Africa since before the apartheid and after. We also included a black line which indicates the overall trend. We also included the projection of the direction that unemployment would have had continued if the apartheid itself would had continued. As you can see by comparing both trends the current situation it's much, much better than it would have been otherwise. Should the apartheid has continued by now we would have unemployment levels in excess of 50%. Yet, thanks to a freer market, unemployment levels have stabilized in the order of 25%. This is no small feat. What the free market did was to arrest the inexorable growth of unemployment. The lesson here dear reader, is that it is not possible to fix decades of neglect and economic disaster in just a few years. The best we can possibly expect it's a diminishing level of calamity. This phenomenon is not unique to right-wing governments but it is a characteristic which is universally shared by all so-called "democratic" governments.
Remember, they had 200+ years to screw around with the economy, and now socialists and "democrats" demand that we fix it within a decade and half (i.e. within about 7.5% of the time they had to screw it up). Right!
Let's now take a look at the so-called "inequality" levels. We have advocated time and time again that the issue is not equality in terms of earnings but the overall wealth level of people. Let us put it this way, do you actually care if there is a person out there that can purchase an island if you can actually purchase your house? Or would you prefer that such a person would not exist but on the same token you would only be capable of renting a tiny apartment for the rest of your life? Of course, most people would prefer the latter and not the former. Absolute wealth levels do matter. This is exactly what the markets do. You cannot have one without the other. We explained this in the article Austrian Economics In Pictures.
But this is not enough. Several studies have been done about the South African middle-class, and the best one so far has been done by the Standard Bank. This bank is a South African organization that understands the environment because it is part of the environment. They estimated that over the last 14 years the middle class in South Africa tripled in size! This is what really matters, that the actual absolute wealth level of South Africans is rising. Of course, there is still a very long way to go as according to the same study 86% of the households are still low income but, these households are now merely poor whereby before they were very poor. And there is more good news. According to the same study this process is only accelerating. This, again, it's something that we keep forecasting time and time again. The freer the economy the faster the acceleration of wealth creation. This not a mistake, an error, or a fluke. This is the very reason why we believe in Austrian Economics, because it works. And the reason why it works is not a mystery, the reason why it works is because it depends on entrepreneurs who unleash their creativity on consumers as opposed to being smothered into economic stagnation.
And how about the protesting students? No, we haven't forgotten about them. It's very simple actually. They are complaining because the government hasn't fulfilled the promise of free or near free education. What a surprise! A government that does not fulfill its promises. At this point we need to ask ourselves who is more stupid? The governments who promise things they cannot deliver or the students that believe in them? This should be a lesson for South African students alas, this won't be the case, because it is clear that South African students are "entitled" to free education because they have obviously worked very hard to earn that service right? Oh, that's right…
This is yet another example of Austrian Economics in action, however imperfect the South African market may be. This is the reason why we are so encouraged, because this stuff works in real life, today. This is not a pipe dream nor a theory. This is reality… If you let it be. Up to you. Over and out.
Note: please see the Glossary if you are unfamiliar with certain words.