In this article the author’s main grievance seems to be that the hearings about the amendment of section 25 of the Constitution missed an important opportunity to debate the whole cause of skewed economic power in our society, and how it can be corrected:
“This article is not concerned about this parliamentary process per se, or whether or not the Constitution will be amended, but rather with the missed opportunity by most thought leaders on the land question to utilise this process to engender, at the basic minimum, a discussion about what is necessary to bring about deeper level transformation in South Africa.
I argue this because the discourse about the land in its multifarious manifestations is not merely about land as a physical solum; it is, or at least ought to be, a discourse about the reconstruction of society, about rethinking power and how power is held, by whom and for whom, for what purposes.2
This ought to have been an opportunity for society to take a careful look at itself, its assumptions and its aspirations, and stretch the limits of our imagination beyond those already prescribed for us by the architects and beneficiaries of the status quo, which has ensured that a few have power, property and resources, while the majority have none.”
The alternative desired by the author, once we think through the reconstruction process to move from the status quo to the desired transformed society, seems to be this:
“The Constitutional Review Committee would demonstrate intellectual lethargy and cowardice were it not to pay special attention to the second part of the EFF motion, which asked the committee to ‘propose the necessary constitutional amendments with regards to the kind of future land tenure regime needed, taking into account the necessity of the State being a custodian of all South African land’”.
In other words, the state should be made the “custodian” of all land, and no one should own property by way of registered title. How and by whom the rights of current owners are to be determined, is not clear. But this much we know: The state must manage the properties in its custodianship so as to reconstruct and transform the current economy in order to correct the status quo of skewed power relationships.
In order to get to this solution, the first task that the author sets himself is to attempt to dispose of the idea that property rights is a central tenet of constitutional states:
“They argued that private titling of land is the cornerstone of democracies and the principle of constitutionalism, and that amendments that seek to undermine private ownership of land would violate the very principle of constitutionalism. We must dismiss this nonsensical claim out of hand. The idea of private titling of land is an ideological one, not a constitutional principle.”
The rule of law is a principle that is embodied in the SA Constitution.
It has been recognised by our Courts, notably the Constitutional Court, as a fundamental part of the Constitution and the Law. It has been recognised as the principle that ensures that government action shall not be arbitrary.
One of the debates conducted internationally around the rule of law, is the question as to what its content is, and what principles form part of it. Some of the less controversial tenets of the rule of law are:
• Due process, ie the principle of a fair procedure, including that those affected by government decisions must be afforded the opportunity to be heard in order to protect their interests;
• Closely aligned to this, the notion that decisions must be taken in an unbiased fashion in the public interest;
• The principle of separation of powers between the legislative, executive and judicial branches of government;
• The prohibition of unfair or arbitrary discrimination;
• The requirement that all laws and rules must be known or reasonably knowable, and not have retrospective effect.
The glue that holds these tenets together, the essence of the rule of law if you like, is the grounding principle that citizens of a country are to be governed by an objective body of law, and not by the arbitrary whims of people. Such a form of government is what stands as a barrier between ordinary citizens and tyranny.
While none of the recognised tenets in and of itself guarantees the outcome of non-arbitrary decisions, each makes a substantial contribution to it:
• Due process helps ensure that affected citizens’ concerns are taken into account, making for a greater likelihood of decisions being taken in the public interest, rather than the parochial interests of individuals or politicians, for example;
• Unbiased administration in the public interest achieves the same object;
• Separation of powers results in decisions about legislation being taken by a duly elected parliament which is accountable to the public and best equipped and incentivised to create legislation in the public interest;
• Importantly it prevents delegation of legislative powers to officials, save in limited circumstances, making it more likely that laws will be in the public interest;
• Separation of powers also means disputes are resolved by fair and neutral adjudicators (courts) following due process;
• The no-discrimination principle self-evidently makes for fair and unbiased administration, rather than arbitrary human decisions;
• Publication and non-retrospective operation of laws means that the citizenry have a fair chance of arranging their affairs in a way that they stay within the four corners of the law, rather than being surprised by the whims of arbitrary decisions of officials.
At first blush the principle of protection of private property does not seem to fit into this mould of non-arbitrary application of law.
It is important however to know that most rule-of-law systems provide protection of private property in the form of a prohibition on the expropriation of property by the state save in the public interest and for fair compensation set by a court of law.
Section 25 of the SA Constitution for example provides that:
1. No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.
2. Property may be expropriated only in terms of law of general application ¬
a. for a public purpose or in the public interest; and
b. subject to compensation, the amount of which and the time and manner of payment of which have either been agreed to by those affected or decided or approved by a court”.
The SA Constitution makes it clear that its protection of property is a manifestation of the rule of law, by requiring non-arbitrary expropriation in the public interest.
This and similar formulations encompass a number of concepts that make it clear that the protection of property so formulated is indeed part of the rule of law:
• Firstly and perhaps most importantly, property may be expropriated only in the public interest. It is not permissible for an official or politician to expropriate property for the needs of a person, a political party or a politician or his family. That already embodies the central value of even-handed public-spirited decisions, rather than parochial confiscation.
• Secondly, property may be expropriated only against payment of fair compensation. That is crucial, because it means that such a process acknowledges that the right to property is universally acknowledged, without any exceptions. Every single property owner confronted by an expropriation claim is even-handedly entitled to fair compensation, which is, on the face of it, compensation aimed at placing him or her in the same position, commercially, as that occupied before expropriation;
• Thirdly, compensation must be set by a court of law, which contains in itself the idea of due process, and fair and unbiased decision-making.
Over and above these considerations, it must be borne in mind that a society which does not protect property in this fashion is effectively one where the government has absolute say over the property of people, which includes landed property, movables and intellectual property such as patents, copyright and the like. That means that property can be confiscated at will, on the arbitrary say-so of politicians or officials. Such a society will be one governed by the whims of people, not laws.
The idea that the right to private property is not a constitutional right in the normal sense, must thus be rejected.
Even if we can however get past the legal difficulty that no modern-day constitutional state operates without adequate property protection, the question is how we see the proposal of the author unfold. As we see, the process of universal, once-off confiscation of title is the first step. The state would become the owner (custodian) of all property. Property as a means of production would thus vest in the state. In the context it goes without saying that such custodianship would be meaningless if the state cannot deal with the property within its discretion in order to transform the economy. Phrased differently, it would be meaningless if the state becomes no more than a nominal custodian, without the power to redistribute existing rights over property. If current owners’ legal position to all intents remains the same, the proposal seems futile.
So it must be assumed that, although no previously disadvantaged person will get title in such a process of redistribution, he or she will get rights in respect of property. Given the skewed power balance that troubles the author, it follows without any question that current white owners will lose some of their rights, in favour of black persons.
For example: A farmer, who owns the land on which he farms, will lose title to the government as custodian. The government for its part will then redistribute the right to farm on the property to the labour tenants or employees employed on the farm. This, the author tells us, is part of a bigger process to address the unequal relationships of power brought about by historical dispossession. Paraphrased, land is only one part of the jigsaw of transformation. The entire economy should undergo a similar process. By parity of reasoning, this can only mean redistribution of wealth in all its forms from white holders of economic power (except for land title, of course) to the previously disadvantaged. How else will it work?
So then let us examine the origins of the economic power relations in our country, and let us have “a discussion about what is necessary to bring about deeper level transformation in South Africa”.
That compels us to face the question foursquare:
What is wrong with redistribution of property/employment equity/affirmative action/BBBEE/black public-service employment/social welfare in order to provide redress for white privilege?
These strategies all aim to improve the material conditions of life of members of previously disadvantaged groups. One way or the other they all take the shape of redistribution of wealth from a privileged group to a disadvantaged group. And the strategies redistribute on the basis of group identity, not on the basis of one identifiable individual having been unjustifiably enriched at the expense of another. If the latter had been the aim, the existing process of land claims under the Constitution would have done fine, and we needed not argue further.
In South Africa the wealth divide is of course not perfectly aligned with race. Much less is property the defining distinction of wealth. Far from it. But it is historically significant enough to have enabled the proponents of these redistributive policies to make a fairly convincing argument as far as many in the mainstream media, politicians and academics are concerned.
Now there are a few fundamental truths about this problem that we have to acknowledge:
• First of all, white privilege exists. By that I mean that white people on average have a historical advantage in the race to accumulate wealth. That does not only mean that they have more wealth and income, but more importantly, a greater ability to acquire wealth and income. That advantage has many aspects, including capital assets such as land and equities, education, technology, networks and inheritance. To simplify matters, let’s call these collectively “growth capital”, which of course includes property.
• Secondly, the origins of white privilege are multiple and varied, and in some respects go back millennia. Originally all of humanity came from Africa, and for reasons of historical happenstance some of them relocated to Europe. Europe became the home of the group now known as the whites, and it coincidentally offered huge advantages (over Africa, for example) that are relevant to growth capital:
o Europe (Mesopotamia to be more precise) had significant plant types suitable for cultivation as food;
o It also had wild animals suitable to domesticate as beasts of burden and providers of milk, meat and eggs;
o These factors enabled locals to develop agriculture, which was conducive to productivity, leisure time and creativity, all of which created room for the invention of tools, weapons and modes of transport;
o Europe has far fewer geographic barriers and its plains are conducive to navigable rivers, which promoted not only internal trade, but also trade with China, India, the Middle East and ultimately Africa.
• The result was that by the time whites started colonising Africa, they were already millennia ahead in the race to acquire growth capital.
• To make things worse, when the colonisers arrived in Africa, for the most part they discriminated against the local African people, which caused them to perpetuate their historical advantages. For the moment let’s accept that in many cases that took the form of dispossessing black people of land. For ease of reference, I will call all these acts collectively “dispossession”, knowing that it may include dispossessing blacks from other forms of growth capital too, such as employment opportunities and education.
• Generally the dispossession directly impacted on the ability of blacks to accumulate growth capital.
• If whites had not so dispossessed local blacks from the time that they arrived on the continent some 300-400 years ago, blacks would have had an earlier head start in rectifying the backlog of growth capital; but white people would have been better off still, as they would have had richer markets of black buyers to which to sell their goods and services, and better-trained workforces.
• In the result white privilege is the result of a hodgepodge of reasons, from which it is impossible to unscramble the extent of the influence of dispossession on the relative growth capital of the races, from its other, age-old sources.
• The other fact to acknowledge is that the economy is a system with systemic characteristics, in the sense that any intervention in one aspect of it is bound to influence and affect other aspects. Most importantly, any intervention that impacts on the attractiveness of the economy (or specific industries or businesses in it) as investment destination, also impacts on other parts of it. For example, BBBEE legislation not only empowers some black beneficiaries, it also, besides deterring investment in businesses, causes lowered job creation. Or, at a more topical level right now, any threat to private property rights deters the purchase and development of property (as farms, factories, mines or retail operations for example) which once again deters employment growth.
The upshot of all these facts is that, for historical reasons, on average there is a huge gap between average white and black growth capital.
Now the point about growth capital is that it is meaningless as a form of redress for historical disadvantage, unless it makes a real improvement in the income of any beneficiary.
That makes it significant that recent history has shown that – despite pervasive and continuing redistribution strategies – white people have not only maintained the income gap as against mainly African blacks, they have actually increased it. Despite the redistributive strategies of BBBEE, employment equity, labour law, welfare grants, public service employment given to blacks on the back of mainly white taxes, and so on, white people are still better off than blacks in terms of income, and increasingly so. That is the result of the historical advantage in terms of growth capital, but also the fact that whites have been incentivised by the very same redistribution measures aimed at helping blacks, to become more self-sufficient, to accumulate more growth capital than before, and on average to out-compete blacks.
The main manifestation of black people on average falling behind, is unemployment. Since 1994 unemployment among black people has increased by more than 150%. None of the redistributive strategies has worked. On the contrary, there is a strong argument that redistribution has resulted in counterproductive outcomes.
The key to all this is productivity. What I call growth capital, directly translates into productivity. And the most effective way to address that is education and work experience. It is no coincidence that in terms of a recent survey by the IRR, the most important problems for by far the greatest number of black respondents, were unemployment (38%) and lack of education (26%). Land was rated as most important by only 1%.
It is no coincidence either that BEE deals in the guise of agricultural land reform have almost universally failed. For instance, an assessment of 39 land-reform projects in Limpopo reported by the Institute for Justice and Reconciliation in 2015 showed that these projects had ‘caused an 89.5% decrease in production, as well as many job losses’. The obvious reason is that black people, who would in a normal market not have been interested or able to enter the farming profession, receive land to farm. Very few successful black farmers have emerged in the process.
Land is a productive asset for a beneficiary only if he or she has the ability to exploit it as growth capital. What is more, the vast majority of white people never acquired their income via the route of property. In fact, the shoe is on the other foot: They acquired education, which enabled them to get jobs, which in turn enabled them to take out loans from banks, with which to buy residential property. Far from denigrating the value of property, we should bear in mind that the 1 or 2 % of the population who make a living out of agriculture, are exceptional, not typical of white privilege.
But not all education and all work experience is equal.
Both of these will be optimal only if a fine balance is maintained between enabling the beneficiary to participate at a level that is easy enough to enable him or her to participate, but difficult enough to serve as a real challenge and learning experience. And the incentives in either case must be maximally conducive to top performance. In other words, the rewards (passing, distinctions, prizes and qualifications in the case of education, and appointment, remuneration and promotion in the case of employment) must be attractive enough to serve as the best possible spur to achievement, which can only occur if achievement matches the reward. Jobs and remuneration must match the productivity of workers.
In short, both institutions must function on the principle of merit.
Something similar applies to property. The benefit of land title is that land is then a tradable commodity. A purchaser of land is not the only conceivable person who can exploit it successfully. But he has one advantage over other players in the economy, and that is what is colloquially called “skin in the game”. A purchaser of land has an interest in ensuring that it is used economically optimally. This may take the form of developing it for own residential use, or as business premises, or as a farm or as a factory. Or simply as an investment. That interest creates an incentive to use the property as productively as possible. And even if he, and other owners, decide to hold on the property in the hope of realising a profit later, that will increase demand. If the demand is high enough, most owners will eventually sell. In that way the true value of property is determined, and it is not a wasted commodity. More importantly, such purchasers are best incentivized to develop properties as residential land, retail centres, farms, industrial areas or tourist destinations – all of which in turn will create employment.
By contrast, in a situation where the state becomes the custodian of all land with the discretion to distribute rights thereto in the interests of justice, the law with one stroke of a pen destroys the market in land. That will have the effect of removing the merit principle, so essential to ensuring productive use of resources, from land.
The ability to buy land is of course no guarantee that the purchaser has the skill to use it productively. But if he does not, he can sell or lease it to, or employ, someone who does. In any of these cases skin in the game ensures the best chance of a good decision on the merits.
A puzzling idea underlying the thinking of the author is the notion that all races should be equitably represented in property rights. Why does it matter whether or not property or land is the particular form that growth capital takes? The facts on the ground show that education and employment are far, far more important as engines to generate income. The vast majority of well-off white people – who earn, say, more than R20 000 per month, whatever they do – do so not through the vehicle of property, but through employment, independent service contracting or ownership in businesses.
It is precisely those people who out-compete blacks. They don’t do that by exploiting property. 99% of them are not farmers, landlords or property speculators. They are ordinary salary earners, professionals like lawyers, doctors or engineers, or entrepreneurs with IT companies, restaurant franchises or shops. What makes them prosperous, is not land, but education and productive work. In fact, it is their prosperity that enables many of them to buy residential properties, rather than the other way around.
Put together, all these factors lead to some incontrovertible hard truths that may seem hard to digest:
o First and foremost, African blacks are so far behind in the race that only exceptional individuals will reach material parity with privileged whites.
o That they will do partly because of their inherent talent, but not only that. More importantly, black people mainly will become competitive with whites only if they try much, much harder.
o There is no alternative that is likely to be more successful – no leg-up or preferential pathway, or compensation for disadvantage in the form of any of the redistributive strategies discussed above.
To use an analogy: In a sports league (rugby or soccer, say), it often happens that some players are injured because of foul play by others. Sometimes it is detected, and sometimes not. Either way, let’s say one of the players suffered a serious injury, causing him to undergo surgery, rehabilitation and a strenuous training programme to become competitive again. The only way that that player will get back to full competitive capacity (regain his “growth capital”, if you like) is by training much harder than the competition.
Any suggestion that that player should get preferential treatment during games because of his past injury, will fail. It will fail because:
o that player is unlikely ever to recover to full strength unless he is exposed to the full rigours of the game;
o but more importantly, the moment it becomes known that the game is rigged in that way to favour the injured player, the inevitable outcome will be that the league will lose its credibility as a competition to choose the best;
o In the result all serious players will soon withdraw from the league, and form their own, separate league;
o That will have the result that the standards of competition in the old league will go into decline.
In our economy we want the most serious players – investors, professionals and business leaders – to participate. The last thing we need is investors in property and property development being deterred because they do not acquire full dominion over their investment.
And if we are serious about creating the best chance of bringing the previously disadvantaged up to par, we must make them compete on merit. In property development, merit means the greatest possible opportunity and incentive to develop property as productively as possible.
The author of course does not believe that a merit-based property market (with protection of private property as cornerstone) will in actual economic terms deliver the best chance of growth and prosperity:
“The idea that a freehold system of land tenure is a necessary requisite for development and investment is not new. In South Africa at least, it began with the proclamation by the then Governor of the Cape, John Cradock, in 1813, which discontinued the system of loan farms in place since settlers started annexing land from Africans, and converted these into freehold titles. The belief at the time was that farmers did not invest as much as they should on the land because they did not own it.
This idea has proved incredibly resilient over the years, and has been the holy grail of modern capitalist thinking and accumulation strategies.”
The right to own private property – with its necessary corollary that the law must protect it – is one of the two crucial ingredients of a free-market economy, the other ingredient of which is the freedom to contract for the exchange of goods and services with minimal intervention by the state.
Free markets are most conducive to increasing citizens’ income. Here is a graph showing the correlation between market freedom as measured by the Economic Freedom of the World Index of the Fraser Institute, and per capita income:
And here is the correlation with growth:
And a chart showing that market freedom does not lead to greater inequality of income:
But even if we examine property rights in isolation, we get similar results. Here is a table showing the relationship between property protection and per capita income:
The better the protection, the higher the income.
What is perhaps more important, is that property rights do not create inequality of income. On the contrary, there is a slight preponderance of income equality among countries with the best protection of property rights.
What is more important, is that the first quartile of countries, those with better property protection and slightly more equal income, are countries where we have now seen that the average income is significantly higher than in other quartiles with less property protection. Simply put: the poor in those countries are significantly better off than elsewhere. That leads to the clear inference that property protection is on balance better associated with improvement of the life quality of the poor.
So, the author could not be more wrong when suggesting that investment and growth do not depend on property rights.
Finally the author attacks the idea that poor people should be given titles to property, whether land on which they already live or state land, as it will expose them to selling the land to the highest bidder, as they are not able to secure mortgages from banks to develop their land or themselves economically.
This is the point at which we should remind the author that economic development is indeed a matter of total transformation of all aspects of the economy that created the skewed power balances about which he is so aggrieved. Nothing less than complete economic freedom will do. More in particular, it would indeed be futile to give poor people land or titles to land, and not equip them with the tools to exploit it productively. Without education, employment and freedom to trade goods and assets, no title to property will make a dent in this problem.