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Updated 12 July 2013

Malema: Economics 101

Here are a few very necessary basics on Economics for Malema and his EFF cadres, courtesy of Susan Erasmus.

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Here are few basics on Economics for Malema and his EFF cadres, courtesy of Susan Erasmus.

Malema and his EFF with their rather Castro-like red berets want to redistribute wealth by means of land expropriation. Here's why it can't work.

But  this is the thing about Malema: at the heart of what he is saying lies a grain of truth. Put yourself in the position of someone who has nothing, and who has few prospects. Of course one would wish for a quick solution. And you would vote for someone who promised to give it to you. I know I would.

And the obvious solution would seem to be to take what the rich have and give it to the poor.  I am not begrudging the poor a less desperate way of life, it's just that there are certain basic economic principles, which are beyond legislation. And certain economic realities that cannot denied.

Here are a few basics from a layman's perspective:
  • There are market forces, and economic realities which defy political control. Ignoring them can only lead to disaster in the long run. Ask the estimated 2 million Zimbabweans in SA. One cannot pass a law putting an end to inflation. It's like ordering the tide not to come in.
  • Wealth is something which can take generations to create. But it can be destroyed in one day.
  • Wealth takes expertise and capital to sustain and to grow. A person without the know-how won't be able to make it work for them in the long run. It's like if I were to inherit a Porsche: it will be great for the first six months until something blows up in the engine, which will cost R50 000 to fix. I don't have that sort of capital, so either I put the car on bricks in the backyard or I sell it. In short, I'll be taking the train again.
  • The ability to earn a good living is often the result of years of education and hard work. To get the know-how to do a skilled job doesn't take six months or a year. Being educated and having scarce or desirable skills are the only ways to ensure your own financial security for the future. There is no shortcut to this. One has a far higher chance of having your salary demands met if you cannot be replaced overnight.
  • There have been times in history where manual labour commanded high salaries, such as after World War 1, when there was a huge shortage of labourers as a result of the millions of young men who were killed during the war. There is no shortage of labourers in SA.
  • Rich people create jobs, and pay much higher personal taxes than anyone else. Because they buy more, they also spend more on VAT, all of which goes straight into the state coffers. Every rich person who emigrates, reduces the amount of taxes paid to the SA government.
  • Social grants are funded by taxes. If  you take people's wealth away from them, they will no longer be high tax payers. It's one thing enjoying the money or land you have expropriated from someone, but once it's finished, it's finished. And also, for every person who gets something for nothing, there is someone who pays for something they don't get.
  • One should never forget that the farmers in SA are the food producers. It's not enough just to have the land – you need to make it work for society at large. Unless someone knows how to farm, there's no point in giving them the land. There are actually two issues here: food production and land ownership. Having a farm doesn't make you a farmer. But it is something that someone can be taught. Once again it's not going to take six months.
  • Nationalisation has not really worked anywhere else. It's one thing raiding the assets of a mine or a business, quite another to have the know-how to make it pay in the long run.
  • Wealth creates wealth. Discouraging people from creating wealth will limit the filtering through of it to others. Take someone's wealth away, and it will be only a few years and all there will be to redistribute is poverty.
  • Upskilling is the only long-term answer to wealth creation and wealth retention. There is just no way around this.
Any shortcut politicians try and take can lead to nothing more than a short-term solution and a long-term disaster for all South Africans, both rich and poor.

Susan Erasmus is the deputy editor of Health24. Read more of her columns .

 

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