In tough times, people often question the way systems work and whether or not there could be a better way. South Africa is a prime candidate, with the current problems beleaguering our economy. So, are there any lessons we could learn from others with different markets?
South Africa is most often described as a mixed market economy, with elements of a free market economy (the market largely powered by the private sector with profit-making companies operating under little state rule) and a social market economy (with elements like the goal of NHI, National Health Insurance, pointing towards the state taking care of individuals rather than companies). Indeed, South Africa’s economy has long straddled the divide between the more capitalist free market economy system, the socialist social market economy and a more communistic bent.
Is that the best way? What could we learn from a free market economy system?
Lesson 1: Free market economies have their problems – but less of them
Winston Churchill once said that “democracy is the worst form of government – except for all those other ones that have been tried” – in other words, the ‘least imperfect’. He may well have said the same thing of free market economies. Communism and socialism (and the economies that go with them) aim to share resources from the state to the people – which is an amazing system if and only if the state and all its components are completely trustworthy. A free market economy means competition and plain old interest in making a profit keep people in line. In this way, an informal meritocracy keeps companies in line, because with all the other options out there in a free market, you will only make money if consumers deem your quality, prices and business practises attractive.
A social market economy works well for a country with seamless administrative systems, good infrastructure and communism with a morally perfect and perfectly organised government. A free market economy is ruled mainly by the laws of consumerism, of supply and demand, and thus actually accounts for things like human greed in a system. This makes them far less ideologically rich but also better equipped to deal with imperfect powers that be.
Lesson 2: No such thing as a ‘free economy’ – nor should there be
When people think of free market economies, they think of America. In actual fact, the true definition of a free economy is an unregulated, unrestricted market governed only by supply and demand in which any entity can participate with little-to-no supervision. This doesn’t really exist – nor should it. Imagine a system where there were no environmental laws? A system where nothing legally had to happen if a customer was mistreated by a service or product provider and perhaps didn’t even have someone official to complain to?
Similarly, the regulation of any component of an economy and especially the financial services industry is vital to preventing charlatans emerging to exploit and abuse helpless consumers.
Likewise, just because there is a market for something does not mean that there should be no moral scruples involved. A free market economy in which you could have your life savings stolen by false retirement or get-rich-quick schemes is exploitation, not freedom.
Lesson 3: But regulation should support innovation
One area in which South African entrepreneurship has always shone is in innovation. There’s the story of a successful American businessman who recently marvelled at the innovation of the Outsurance pointsmen directing traffic as we went past. “Genius! How do you guys come up with it?”
While regulation has the ability to keep us safe, it can also have the ability to stagnate innovative thinking if taken to the extreme. Regulation can discourage the out-of-the-box thinking that gives rise to new things in a market if it penalises anything that does not carefully fit within the carefully delineated lines of what has gone before. This is something South Africa could really learn from free market economies – how to let innovation innovate and regulation support them with an ‘innocent until proven guilty’ mindset.
Remember – freedom to thrive begins with our own internal mindset and approach, and then extends into our environment and economy. Don’t let outside influences limit your ability to thrive!