What is the most important ingredient of economic success? You can make an argument that it is the rate of technological progress.
Or the skills of the workforce. Or trade agreements and a free market, along with a stable government, a developed banking system and decent infrastructure. They are all important. But there is one factor that is crucial above all others. Secure property rights.
South Africa is about to give the world a sharp reminder of that, while tragically doing untold damage to itself. What used to be Africa’s most important economy is pushing ahead with a land expropriation law that will allow the government to seize farms without paying compensation. It is the same catastrophic policy that ruined Zimbabwe, and countless other countries in the past. That is not just a South African story, however, as important as that is. Across the world, the liberal-Left is increasingly toying with forms of expropriation – but we are about be taught all over again that without property rights an economy collapses very quickly.
When Cyril Ramaphosa took over from Jacob Zuma as president of South Africa almost a year ago, there were hopes that the new leader would create a pro-business, pro-enterprise economy. There was plenty of rhetoric around reform and renewal.
However, the actual results have been bitterly disappointing. His flagship policy is a land reform programme, pushed through last week, that will allow the government to seize farms without paying compensation. How far that is actually taken, of course, remains to be seen. The government insists it may be very moderate at first. Even so, the fact remains that the constitution has been changed to allow it – and that means the most fundamental legal document governing the country no longer respects the idea that property cannot be taken from its owners without paying them adequately for it.
True, farmland remains very unequally distributed in South Africa. One of the many legacies of colonial rule and then apartheid is that it has stayed largely in white hands. Even so, it is hard to see why that is such a huge problem. South Africa is primarily a mining, manufacturing and services economy, just like most of the rest of the world. Agriculture only accounts for 2.8pc of GDP (which is not dramatically more than the 1.6pc of GDP it represents in France, for example). To tackle that modest problem, however, Ramaphosa is willing to hack away at the most basic foundations of a successful economy. Only a decade ago South Africa was doing well enough for it to be classed along with Brazil, India, Russia and China as one of the potential heavyweights of the 21st-century global economy. Now it is in deep trouble. Despite a reasonably healthy global economy this year, it is the only G-20 country to slip into a recession with two consecutive quarters of shrinking output. Unemployment has climbed to an eye-watering 27pc, and for the under-29s it is now above 50pc.
Land prices have also fallen by more than 40pc since 2016, and nothing about the new law is going to get them moving back up again. The rand has been sold off in the markets, hitting a 14-year low in 2015, and a two-year low this summer. The Johannesburg stock market has fallen from more than 60,000 at the start of the year to only slightly over 50,000 now. South Africa is not yet in complete freefall, and has managed to avoid the kind of collapse witnessed in Turkey and Argentina. But it is no longer Africa’s largest economy, Nigeria has overtaken it.
Land expropriation will take a bad situation and make it far, far worse. Seizing assets without paying for them undermines the fundamental foundations of a functioning free market economy. After all, if you don’t own your property, and have the right to buy and sell it as you choose, and to be rewarded for its value, then there is no incentive to invest, to build, or to improve it. There isn’t even much incentive to maintain it. You might as well simply squeeze as much cash as you can from it until the government takes it away. In Zimbabwe, the expropriation of farmland was what pushed the country along the path to hyper-inflation. South Africa is a bigger and stronger economy than that, but there is no reason to think the outcome will be any different.
Worse still, it is likely to feed on itself. It might start with farmland, but a failing government teetering on the edge of bankruptcy is likely to start seizing more and more assets. Mines? Factories? Why not? It is just as easy to make the case for taking them as it is for farms, and with the constitution changed there will be few obstacles in the way of asset-hungry politicians.
That matters for South Africans, of course, and companies or investors with interests in the country. But it matters to the rest of the world as well. The Left is constantly flirting with forms of expropriation. In the UK, John McDonnell, the shadow chancellor, has talked openly about taking the rail companies, and potentially the water providers as well, back into state ownership without paying their owners for them.
South Africa’s economy is already in deep trouble. While parts of Africa are making fantastic progress – countries such as Rwanda and the Ivory Coast have been growing at 7pc-plus – it is looking increasingly fragile. Land expropriation may well turn that into a full-blown economic and social tragedy. Forms of expropriation are increasingly popular on the Left, but they also do huge damage. We may be about to learn that all over again – and the cost in wasted output and lives will be an enormous one.
