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Friday, February 28, 2020

Why Expropriation Without Compensation Would Devastate South Africa’s Future

South African leaders must realize that secure property rights are a precondition for prosperity.

Image Credit: Andrew Shiva / Wikipedia

The South African Parliament is at an advanced stage of adopting a proposed amendment to South Africa’s constitution that would allow the government to expropriate private property without compensation. As many commentators have warned, such a change to the property rights regime in South Africa would be disastrous for the people and the economy of South Africa.

Secure property rights are a necessary precondition for prosperity. Private property rights incentivize owners, who want to maximize their material welfare, to invest in and develop that property. This, in turn, leads to the economic activity that stimulates growth, job creation, and the satisfaction of consumer wants. To a developing economy like South Africa’s, capital formation and investment are crucial.

Private property also fulfils a communitarian function. By rooting people in their societies, property ensures “skin in the game,” as it were, as far as the policies governing those societies are concerned. This also ensures that people have a space of autonomy that guarantees meaningful, participatory citizenship rather than dependency on favors from the government.

The importance of secure property rights to the development of human personality and individuality should also not be underemphasized. Without a place to truly call home–or another source of pride, like a business–where unwanted third parties are not allowed except by invitation, it is impossible to recognize and respect human dignity.

A Brief History of Property Rights in South Africa

The history of property tenure in South Africa is, unfortunately, a precarious one. As I wrote in my contribution to the book Igniting Liberty, the demands for expropriation without compensation are not without a context. The white minority government that presided over South Africa between 1910 and 1994 engaged in widespread and brutal dispossession of private property from South Africans of color. It did so, among other ways, by forcibly “resettling” people of color in areas that were set aside for them, and leaving those who remained in the “white area” of South Africa–about 80 percent of the surface area–with insecure leasehold tenure that could be ended on a bureaucratic whim.

During the 1990s, South Africa adopted a supreme Constitution that entrenched the property rights of all South Africans regardless of their race. At the same time, the Constitution empowered the government to take action aimed at redressing the property injustices of the past. Among other things, it must ensure that property dispossessed during the colonial and Apartheid eras is returned to those to whom it truly belongs and ensure that insecure forms of tenure, like leasehold, are rendered secure. Most claimants, however, have elected to be financially compensated instead of taking possession of the often rural property again. Principally, however, when the government does elect to seize property from someone to give to another–expropriation–it is required to pay just and equitable compensation, which takes factors like market value into consideration.

Since the Constitution was enacted the government has done precious little to fulfil this constitutional obligation of redress. Millions of mostly black South Africans continue to live as tenants on property owned by municipal governments, despite them having built those homes and having lived there for generations. Land that government has expropriated (with compensation), that had to be transferred to claimants who successfully proved that the property is in fact theirs and was dispossessed in the past, is instead being leased back to the legitimate owner, with government retaining full control.

Now, about 26 years after the Constitution was adopted, when the economy is crumbling under the weight of socialist regulation, incompetence, and petty corruption, the government is looking for a way to score cheap political points and further entrench its power in the process.

It has concluded that this can best be achieved through a policy of expropriation without compensation.

Expropriation Without Compensation

In December 2019, Parliament published its draft Constitution Eighteenth Amendment Bill. This amendment proposes to change the Constitution to allow for “nil compensation” to be “paid” in certain undefined circumstances. Parliament, with a simple majority–which the ruling African National Congress has comfortably controlled since 1994–may define those circumstances, and the courts may then finally decide whether nil compensation is just and equitable. The committee that published the amendment, however, has since indicated that it would seek to revise the proposal to exclude the courts, and instead allow the executive government to decide whether nil compensation is appropriate.

This all needs to happen because, according to the government, redress has not proceeded expeditiously, and the government needs to be exempted from compensating owners for the loss of their property, for it to do so. This is false and obscures the truth of the matter.

The tax revenue government collects has become increasingly insufficient to deliver on its grandiose promises of universal healthcare, housing for the poor, welfare checks, efficient state-owned companies, and exorbitant civil service salaries. The vote share of the ruling party has been in decline for years. Law and order has largely crumbled outside the major cities, as communities vent their frustration at a lack of service delivery and incompetent government in violent riots that the police cannot contain. Violent crime in general, and rape and murder in particular, has long been among the highest levels in the world. There is speculation that the government will soon lose its hold on power, causing communities to cut themselves off from the state and fend for themselves by purchasing their own private security, healthcare, and education.

It is no surprise, then, that the government has started to engage in what might be last-ditch efforts to ensure its stranglehold on South African society is not broken. Allowing the government to seize property without having to pay for it gives the state a virtual blank check to suppress dissidents and minority groups. When the government thinks it might lose a communal enclave to self-sufficiency, it could simply expropriate that property “in the public interest.”

But this is not the full extent of the government’s intrusion. A recent bill in Parliament proposes to nationalize sports, putting private sports clubs and even gyms under the ultimate control of a minister. Government is also in the finalizing stages of nationalizing healthcare and has indicated its intention to nationalize telecommunications infrastructure. As if this were not enough, public officials have also made it clear that the government would expropriate pension funds, and perhaps even bank accounts, to keep ailing state-owned companies afloat.

Charting a New Course

Expropriation without compensation is not a legitimate policy option for redress and a growing economy. Widespread disinvestment has already taken place as wealthy South Africans offshore their funds, and international companies sell their assets. Real redress would mean recognizing, entrenching, and expanding the private property rights of those who had their rights violated during the colonial and Apartheid eras. Instead, the government proposes to significantly weaken property rights for everyone.

The fact that we are so far into the process of adopting expropriation without compensation is clear evidence of how unreasonable, and obsessed with safeguarding itself and its ideological aspirations, the South African government has become.

South Africa’s only flirtation with liberty was a brief stint in the 1990s, at the height of the optimism around the end of the socialist Apartheid regime. We had a blank slate to paint a free and prosperous future on. We made use of the opportunity, but not nearly to its full potential–and today the government is consciously trying to undermine it.

With the world’s encouragement, South Africans should reject the government’s tyrannical proposals, and instead chart a course to a free society.