Thanks to the Free Market Foundation and its chairman Herman Mashaba for his valuable insight published today in which he asserts that capitalism is not responsible for the global financial crisis.

The other night I watched with interest the SABC 3 news at 19:00, and got a shock while listening to a report from the 24th Socialist International Congress held over two days in Cape Town.   My most serious concern was the statement by this conference that capitalism and the free market have failed the world and that they were proposing something else.   What that “something else” is was not spelled out but we can assume that they meant socialism, more of the ideas that caused the current crisis.

My children, who were watching the programme with me and who know my strong views in support of free markets, challenged me and wanted to know my response.   The following morning, Friday 31 August, I addressed the issue in a speech at the University of Johannesburg to about 150 Soweto business people.   What I told them went along these lines:

  • That I am committed and have resolved, as chairman of the FMF, not to remain silent any longer when I hear such utterances
  • That I urge other good people of SA and the world to challenge such notions – capitalism, based on co-operation, peaceful interaction, and free markets are fairly new inventions in the history of humankind, while socialism of the all-powerful state is an ancient idea populated with Pharaohs, Kings, Czars, Emperors, and more recently, dictators with titles such as First Secretary (Soviet Union), Fuehrer (Germany), Duce (Italy), and President (Cuba and several African countries) – under all these rulers the average individual had and have few, if any, real rights
  • Many socialist countries are dependent on grants from capitalists for survival
  • Citizens of socialist countries are daily running away from their countries in search of better lives in more capitalist countries
  • Citizens of capitalist countries enjoy the highest standards of living and have the lowest levels of unemployment
  • Capitalist countries have the most democratic systems, the most accountable politicians, and the best legal systems
  • Socialism only benefits the leadership
  • Most socialist countries have one-party political systems

In his opening address to the Socialist International Congress in Cape Town, Deputy President  Kgalema  Motlanthe is reported to have said that the “global crisis of capitalism and imperialism” was hitting growth, widening social inequality, increasing poverty levels and worsening employment figures.   The truth of the matter is that the global financial crisis has socialist roots.   More socialist policies will result in less growth, greater inequality, increased poverty, even worse unemployment, and more scary, human rights violations.

Under capitalism there is private ownership and control and government plays a limited role in the economy.   Under socialism there is government ownership and control and private business and individual property ownership play a limited or no role in the economy.   Any part of the economy that is dominated by government is therefore of a socialistic nature.   The global crisis is the result of the mismanagement of currencies by central banks, which worldwide are under government control.   Based on a view that private banks could not be trusted to manage currencies responsibly, governments everywhere established central bank monopoly control over the issue of currencies.   The result has been a catastrophe.   It turns out that central banks have acted less responsibly than competing private banks have done in the past in providing stable currencies.

Governments have done what they said private banks would do.   Their central banks have over-issued notes and coins and cheated their customers over decades by reducing the value of their savings.   Central banks have very often printed excessive amounts of money to bail out their governments that have overspent and taken on too much debt.   This deadly combination has resulted in the worldwide financial panic of the past few years.   The financial crisis is a failure of socialistic currency and fiscal management and definitely not a failure of capitalism.   The solution is for governments to stop spending more than they receive in taxes and for central banks to stop reducing the value of their currencies by printing too much of it.

The Deputy President is correct, South Africa can do “something else” to improve the lives of the people.   We can try capitalism, which has never been seriously attempted in this country; the kind of capitalism that is in operation in Hong Kong, Singapore, New Zealand and Switzerland, which are the best examples of capitalism in operation.

At the same conference, George Papandreou, Socialist International president and Greece’s former prime minister, is reported to have said that the “myth of infallible free markets” had served conservatives well.   Greece might have averted a bailout if the economy had not been robbed by funds being “funnelled to tax havens”, he said – $21 trillion was hidden in tax havens around the world.   There was no “free market” as the market was made for the “powerful”.   Whether in developed or developing nations, “citizens are being robbed”, he said.   So if citizens hide their own money from wasteful governments such as that of Mr Papandreou are they “stealing”?   Or is he annoyed because Greek citizens prevented him from using the power of the state, through currency inflation or high taxes, from taking/stealing their money?   If he had got his hands on the money, he would not have paid debts, he would have spent it, and there would still have been a bailout.

Some of the actions that government would need to take to “go capitalist” would be: reduce government involvement in the economy by reducing the role of state-owned-enterprises; end government monopolies; reduce government spending; improve the application of the rule of law; increase the efficiency and independence of the courts; improve the quality of policing; abolish exchange controls; free up the labour market to allow the unemployed to get jobs, and remove the red tape that impedes and causes unnecessary costs for small business.   What we must avoid is copying the actions of the worst socialist economies, which deprive their citizens of opportunities and limit their choices.

A lack of capitalism and the dominance of socialist ideas in government and central banking have caused the global crisis.   The solution is more capitalism and less socialism.