There is a view that people should be free to do whatever they want with their wealth. In fact, most people – rich and poor – would balk at the idea of the State telling them how they can use their money. The South African government’s belief system seems to agree with that view, given the removal of most exchange controls and the deci- sion to allow emigrants’ blocked assets to leave the country without a levy being collected. These changes were announced by Finance Minister Pravin Gordhan in his October Medium-Term Budget Policy Satement. These changes coincide with the planned amnesty on funds held abroad illegally by South Africans.
One of the justifications for the liberalisation of capital movements by government is that this will help weaken the rand. I think this is a weak and disingenuous argument used opportunistically to promote an ideological view about the freedom of people to move their money about the world as they wish. The important question that we in South Africa have to ask ourselves is whether this ideological stance is appropriate in a country where there is a huge level of inequality in income and wealth. This inequality has its roots in colonial and apartheid dispossession, oppression and exploitation. The inequality in South Africa still has a strong racial dimension. One of the compromises that ended apartheid was that the economy and the distribution of wealth would be left largely unchanged. There have been attempts to lessen inequality in South Africa, including black economic empowerment and land redistribution, but these have been piecemeal and relatively ineffective. As a result, inequality has worsened and we are nowhere near dealing with massive unemployment and poverty in our society.
Many people wish to forget South Africa’s past. They ask when we are going to stop looking back and get on with building the future. However, we cannot move forward without understanding the impact of the past. Our politi- cal, legal, economic and cultural institutions cannot be built overnight – they are built over centu- ries and, often, change very slowly. In most historical epochs, building wealth takes generations. Colo- nialism and apartheid destroyed the lives and wealth of indigenous South Africans in order to build the fortunes of the Dutch East India Company, European and US investors and a relatively small settler population. We have to acknowledge that history.
Many people say that we have to accept the way capitalism works – some people are rich and others are poor. They say the rich will not invest if they are told what to do with their money. They say that a capitalist system has to be based on incentives, not rules and regulations. I disagree. We have seen capitalism work very differently in different countries. We have seen capitalism work very differently in the same countries during different periods. The people who say that we just have to accept that capitalism is the same as a free market system are ignorant of the history and geographical variety of capitalism. It is possible to have highly regulated systems of capitalism, where the State directs the allocation of capital and tightly controls the movement of capital across borders. Capitalism does not require free markets. We should not mix up free market libertarianism with capitalism. In fact, the fastest economic growth and economic development and the lowest levels of inequality occurred where there was tight regulation, particularly of financial institutions and capital flows.
The strong global moves to promote environmental sustain- ability and the rules and regula- tions to stop businesses from harming the environment are clear indications that we cannot allow free market libertarianism. The laws controlling drugs, weapons and protecting human rights are further indicators that capitalism should not allow people to do anything they please with their wealth.
Today, we realise that finance and the free movement of capital around the world can wreak huge destruction. We have to curtail finance and capital movements not only to promote South Africa’s developmental goals, but also to promote stability and sustainable economic growth. These problems are not unique to South Africa. Most countries now face questions about control over private wealth. The US is faced with growing inequality, unemployment, crumb- ling public infrastructure and a huge government deficit. At the same time, there is huge tax evasion and illicit flows of capital out of the US. They have to introduce regulation against these capital movements. After the financial crisis, many countries are moving to regulate finance, control capital movements and manage their exchange rates. The South African government’s decision to liberalise exchange controls is going against the flow in international economic policy and is an outdated policy. It reflects a certain libertarian ideology and the power of South African finance, and not the developmental goals of the country.