Expropriating private property is the Road to Hell

The truth is like poetry. And most people fucking hate poetry.

This is not going to be the usual Paratus post. Instead of talking about guns and firearm rights, I want to discuss something completely different. Economics. More specifically, the importance of private property rights for economic growth.

Since most South Africans (or at least the ones opining on social media) appear to be rather ignorant of macroeconomics, I would like to take the opportunity to fill this knowledge gap. At least the knowledge gap pertaining to this specific area. I will try not to bore you to death. Entirely.

Economic growth needs private property rights

Now, first and foremostly: the sanctity of private property rights is perhaps the single most important foundation upon which a nation’s economic growth is built. This is a cold, hard, and undeniable economic fact.

It is via the development and expansion of private property rights that the world went from miserable feudal economies of the Middle Ages (dominated by roving and stationary bandits), to the free and prosperous economies of modernity.

Mancur Olsen emphasised this role in his work Power and Prosperity: Outgrowing Communist and Capitalist Dictatorship. Olsen explains that for any society to prosper, it needs to satisfy two key requirements.

• Firstly, it must establish secure and well-defined individual rights pertaining to private property and impartial enforcement of contracts.
• Secondly, it must not allow predation of any kind.

A society cannot prosper if the economy doesn’t grow faster than the population. Economic growth has several causes, proximate and fundamental. Capital and labour accumulation are the so-called proximate causes. The fundamental causes are a country’s institutions, it’s openness to trade, and its geography.

Institutions specifically are vitally important. They determine the political and legal landscape. Thus they also determine whether or not property rights are protected or not.

No property rights equals no investment

So why are property rights so important?

A basic explanation goes as follows. If property rights are not secure, there exists no incentive for people to produce more than they can consume: any surplus production can be expropriated, after all. So there is very little trade, hardly any labour specialisation, and zero economic growth. You are basically stuck in a subsistence economy, and all the wonderful hallmarks that come with it. Such as misery, destitution, famine, and disease.

Pretty much exactly what Europe was like in the Dark Ages.

Now, investment is what makes the productive processes of any economy go round. It is also an inherently risky affair for the investor: they have no guarantee that they will see a return on their money. There are just too many variables that could negatively impact the project. Most of which are beyond their control. Stable and sacrosanct property rights are therefore critical: if an investor can have their entire project expropriated, they will not take the risk of investing at all.

So, if private property rights aren’t protected, people won’t invest. In anything. There will be no new factories, or upgrades and expansions to existing ones. Nobody will want to open a new business. People will be hesitant to buy houses, or start new developments. Other’s will not want to invest in new capital equipment. Because if their property is expropriated, they will lose a lot of money, and may end up bankrupt.

The immediate consequence of a decline in investment, is that there will be no new jobs. In fact, there will be a lot of people out of work. And they may be unable to find new employment. Considering that our unemployment rate is among the highest in the world, and at a 13-year-high, this would obviously be catastrophic.

It is not only employment that will be adversely affected: other externalities of the investment process will also be lost. The development of human capital, the transfer of innovation and technology across borders, and the improvement of our international competitiveness will all decline.

Along with this, there will be massive outflows of capital. Similar to what happened in Zimbabwe and Venezuela very recently. We will be subjected to rampant inflation (perhaps even hyperinflation) because the prices of our imports will skyrocket (thanks to the weakening Rand). The economy and currency may collapse, either partially or in totality.

TL:DR – Rapidly increasing unemployment. Out of control inflation. Economic stagnation.

It is not a pretty picture.

Inequality and past injustice

But what about inequality?

South Africa is a nation with marked inequality. This is an inescapable fact. It is also a problem economists have wrestled with for decades. Too often unequal societies resort to economic policies that not only fail to solve the problem, but actually exacerbates and enhances the already prevalent inequality.

Replacing an old corrupt oligarchy with a bureaucratic socialist oligarchy (kind of like what we have done) doesn’t fix the problem. But politicians have incentive to expropriate and redistribute property: it curries favour with their voting base, and in many instances personally enriches them via rent-seeking activities. Rent-seeking activities is a fancy word for “corruption”. So, yes – politicians are definitely interested in selling the idea of expropriation to the public. And lying to them about the consequences. But this will be dealt with in another article.

Expropriating agricultural land will have very serious negative effects on food security. This too is an inescapable fact. Again we can refer to history for examples. Stalin’s forced collectivisation of Soviet agriculture in the early 1930s led to the deaths of 13 million people. Mao’s Great Leap Forward immediately resulted in the Great Chinese Famine that killed an estimated 45 million people. I don’t think I need say much about Venezuela (where people are currently eating rat and rabbit meat to survive) and Zimbabwe. You hopefully understand enough about them by now.

In contrast, the success stories of the world (where inequality has been reduced to a point of insignificance) have achieved it through the application of democracy, free markets, and secure private property rights. The natural experiment between North and South Korea is a prime example of this.

The problem with our approach is that we are trying to redistribute our way out of inequality, as opposed to growing our way out of it. Such as Singapore, Hong Kong, and Taiwan.

There is not a single case where the erosion of private property rights has led to prosperity or a reduction of inequality. It has always, without fail or exception, led to economic collapse and ruin. If we indulge in abolishment of property rights and predation, we will never prosper.

As emotive as the issue is, it is important that you understand this.

The Warning

Many people scoff at these warnings. They call them “alarmist”, and offer baseless platitudes and regurgitated nonsense as supposed counter-arguments.

To them I would like to ask: to what extent are you willing to sacrifice your future, and the future of your children, in order to redress past injustice? Past injustice that is more often that not poorly defined and inadequately understood by the complainant themselves. Sacrificing the future on the altar of historical crimes is not the answer to our problems. It will only make things even worse.

I fear not enough people understand the dire implications.

What the current proposal in effect says, is that you and your entire family can be forcibly removed from your house. Right now. And everything you own can be taken from your possession. Right now. And you can be cast out onto the street, homeless, penniless, and entirely destitute. You will have no legal recourse available to you.

Does this sound remotely just or equitable?

Yes, there are injustices that were committed in the past. But going down the road to Hell in a misguided attempt at redressing them is a far greater injustice.

Written by Gideon Joubert

Gideon is owner and editor of Paratus