InBRIEF Edition 1 – A Tale of Two Cities
InBrief is designed to bring a summary of the latest research in the field of policy and entrepreneurship into easy reach. Through briefs accompanying workshops we see how research relates to entrepreneurial experiences and what policy recommendations can better enable enterprise.
EPP, conceived as a Cape Town Global Shapers Initiative, is sponsored by the Independent Entrepreneurship Group (INENG). EPP seeks to bring the voice of entrepreneurs into public policy through engagement with decision-makers. Though based in Cape Town, we have focused on issues across South Africa with a view to the continent as a whole.
Theorist Hernando de Soto argues that in developing countries the poor do not lack entrepreneurship, and from small beginnings they often have enough resources, and even money, to make their early economic activity grow. However, without the appropriate legal and political mechanisms that enable them to rely on a formal property system, they are unable to generate capital and the larger scale prosperity that comes with it.
Temba Nolutshungu, a contemporary of the late Steve Biko, argues property titling must be a cornerstone of South Africa’s national agenda, in line with De Soto’s work. In an article he wrote, “A Tale of Two Cities,” Nolutshungu contrasts pre- and post-property ownership socio-economic conditions in Prague. His piece, drawing on De Soto’s thesis, gives practical recommendations for South Africa.
“This is a tale of two cities: socialist Prague and post-socialist Prague – visited eight years apart,” says Nolutshungu, describing the contrast between two approaches to ownership he witnessed first-hand: ownership by the state versus ownership by individuals.
According to Nolutshungu, in the historical and contextual South African view the struggle against apartheid was about securing freedom for the oppressed, which included their emancipation from the fascist embrace of the apartheid economy. “Freedom, as it was understood then, was seen as a multifaceted concept embracing, among others, freedom of expression, freedom of association and economic freedom, understood to exclude the use of force or fraud in the pursuit of economic goals.”
“Our new SA constitution reflects these various aspects of the concept of freedom. However, constitutions can be ignored or violated by both government and citizens. Perpetual vigilance is required in order to prevent violations by either party. It is therefore encouraging that in SA today the conduct of the public sector and civil society is continually measured against the constitution, making it the litmus test of acceptable political conduct. However, there does not appear to be the same level of support for the protection of economic freedom. Yet economic freedom is intimately connected to and underscores all the other freedoms we so value.”
Nolutshungu goes on:
“Freedom of trade – the right to buy and sell and enter into commercial contracts free from force or fraud or other coercive interference – requires and gives substance to freedom of choice, freedom of movement, freedom of thought, freedom of expression and freedom of association. The right to the ownership and possession of private property free from arbitrary deprivation is, in turn, an indispensable condition of free trade. It underpins the ability of individuals to resist state violations of other key rights and freedoms, such as the right to freedom and security of persons, the right to privacy, the right to make political choices and the right to freedom of conscience.
All these rights are entrenched in the Constitution and we are vocal in their defence. Yet when Parliament passes laws that impinge upon freedom of trade or encroach upon the right to private property, one hears few voices raised in protest. This is unfortunate, since these economic freedoms are the guarantors of flourishing economic activity.
It is part of the fundamental nature of human beings to constantly seek to make improvements in their socio-economic circumstances. They are propelled by their diverse wants and needs to become entrepreneurs or offer their labour for sale. The socialist economies of Eastern Europe imploded because they failed to recognise this simple yet immutable law. The system was not compatible with human nature. It ignored the fundamental elements of economic freedom, denying individuals the right to own private property, to put such property to work for their own account, and to trade on their own account without outside interference.
When Czech’s gained their freedom they were indeed fortunate to have brilliant economist Václav Klaus, the current President of the Czech Republic, to guide their economic fortunes. He persuaded his fellow citizens to support the transfer of government enterprises and investment from the state to the people; from virtual 100 per cent state ownership, the Czech’s are down to 18 per cent. In the same time SA has reduced from 42.2 per cent state ownership to 32 per cent. Not surprisingly, the Czech Republic is now above SA in the economic freedom rankings.”
Hernando De Soto argues that the capital in capitalism is not just “money”. Rather, it is a framework within which money is used. This framework includes highly developed property rights mechanisms.
As the property systems of successful nations evolved and were refined, they developed these mechanisms. They enabled and encouraged capital to be formed and used for wealth creation without undue risk of arbitrary loss.
Finally, there are gender implications for property ownership that should not be ignored. “The World Economic Forum’s 2009 Global Gender Gap Report concluded that significant economic recovery and growth cannot occur without the engagement, empowerment and contribution of women and girls”, writes Dorothy Tuma. In the same article Tuma asserts the central and significant importance of focusing on land ownership.
Given a significant portion of South Africa’s land and housing-related properties remain in the hands of the state, progress can be achieved through key steps:
1. Affirming direct ownership can be done through the titling of superfluous state-owned land and municipal housing, as well as by providing capital proceeds—from the sale of failing parastatals—directly to the poor.
2. Reducing costs of transfer for individuals seeking to obtain title deeds on government-owned properties or land. The current costs are too burdensome for the overwhelming majority.
De Soto. 2001. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Finance and Development Vol 38, No.1 (March), a publication of the IMF.
Nolutshungu, Temba. 2009. A Tale of Two Cities: Enslaved Prague and Free Prague. FMF. [Accessed: 3 July 2014]
Tuma, Dorothy. 2014: To Transform Society Give Women Access to Land. Tuma cites the 2009 World Economic Gender Gap Report http://www.weforum.org/reports/global-gender-gap-report-2009 [Accessed: 12 July 2014]
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