Voices

Legislation by regulation undermines economic freedom

2019-09-19 23:55

The recently published Economic Freedom of the World (EFW) annual report demonstrates that economic freedom produces prosperity, something South Africa urgently requires in abundance.

Economic freedom, however, requires legal certainty.

Legal certainty is undermined when executive officials – not Parliament – are empowered to make law.

South Africans should reconsider and not just stand by and accept the undemocratic institution of delegated law-making, otherwise known as legislation by regulation.

Canada’s Fraser Institute defines “economic freedom” as the individual’s right “to choose for themselves and engage in voluntary transactions as long as they do not harm the person or property of others”.

When there is economic freedom, “the choices of individuals will decide what and how goods and services are produced”.

The opposite of economic freedom is when economic decisions are “imposed on them by the political process or the use of violence” – in other words, usually by government interference in the course of our everyday lives.

Economic freedom, however, does not only recognise the moral imperative of free choice; it is also the most beneficial economic arrangement for any society that wishes to become prosperous.

The per capita gross domestic product (GDP) in the most economically-free countries is about six times higher ($36 770 per annum) than those in the most regulated economies in the world ($6,140).

More important than that, however, is that the poorest people in those freest economies – the bottom 10% of income-earners – earn about seven times more ($10 646) than their counterparts in the least free nations on earth ($1 503).

In other words, it’s better to be poor in a free, capitalist economy, than in a regulated, paternalistic economy.

South Africa, unfortunately, has tumbled down the economic freedom rankings since 2000 – when we had a reasonable level of economic freedom – toward joining the most economically-repressive societies around the globe.

This data is available to be viewed online (fraserinstitute.org/economic-freedom) in the EFW, co-published in South Africa by the Fraser Institute and the Free Market Foundation, with generous support from the Friedrich Naumann Foundation.

But take my word for it: there is not only correlation between free markets and low poverty on the one hand, and regulated markets and extreme poverty on the other, but also causation.

A free market leads to prosperity.

One of the major ways economic freedom has been undermined – not only here but across the world – has been for legislatures to bestow so-called delegated law-making powers on officials in the executive government.

A key aspect of the social contract is the idea that ordinary people recognise the authority of government to rule over them, through law.

This recognition, however, is contingent upon certain factors: that government will protect and not infringe upon individual rights, that the imperatives of the Rule of Law will be maintained, and that laws will only be made in the open by the democratically-chosen representatives of the people.

When the legislature delegates its law-making power to nameless, faceless bureaucrats in Pretoria, it effectively outsources its democratic responsibility.

Whilst legislation usually bestows these powers upon ministers, it is in fact the officials in their departments who run the show. And we pay the price for it.

This problem was noticed early on.

A.G. Syfret, the then-President of the Cape Law Society, in 1916, condemned “government by regulations”, saying that even lawyers are having trouble keeping up with all the regulations, proclamations, and notices issued by the executive.

This not only posed a problem for legal certainty – in that lawyers as well as the citizenry should know what the law is now and what it will be when they wake up tomorrow – but it also undermines the representative institutions that underlie a democratic dispensation.

Because of this, he warned his fellow lawyers, “our children may wonder why” they allowed Parliament to “frame laws in such a way” that those laws empower officials in the executive government to themselves make law by regulation.

That the economy is regulated is expected, but, what is key, is that those regulations must come from Parliament – who we can hold to account – and not from officials who we don’t know.

The executive, as per not only the Constitution but also centuries of developed democratic thought, is responsible for the implementation of law, not the creation thereof.

This is the separation of powers at the heart of the Rule of Law.

Without this separation, the passing passions and whims of unseen individual officials becomes the law by which the economy operates.

A notable example is the National Minimum Wage Regulations in terms of the National Minimum Wage Act.

The Act provides that firms can “apply for an exemption from paying the national minimum wage”.

Like other legislation, it also empowers the minister of labour to make “regulations” deemed “necessary or expedient” to implement the Act.

The minister then adopted the regulations, but instead of providing for an exemption, provided for a 10% discount.

The relief that firms – especially start-up and small businesses – could have from having to comply with the hugely destructive national minimum wage was thus reduced to an insignificant discount, just because the minister, a single individual in the executive government, deemed it so.

It wouldn’t have made it any better if Parliament adopted the discount as a bad law – since the ill-considered National Minimum Wage Act itself is parliamentary legislation – but at least we would know who all the actors are and hold them accountable at the next election.

More reasonable parliamentarians would then also be enabled to voice the legitimate concerns of millions of South Africans against such intrusions into their private affairs.

This is but one example of how legislation by regulation undermines economic freedom and, by extension, prosperity.

Delegated law-making has become entrenched around the world, but it is something wholly incompatible with our constitutional values, not to mention our interests.

• Martin van Staden is head of legal policy at the Free Market Foundation and is pursuing a master of laws degree at the University of Pretoria. He is author of The Constitution and the Rule of Law: An Introduction (2019).

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December 8 2019