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Should SA consider nationalisation?

By Sivuyile Thanklord Crisboy Ncuthushe

Firstly, I will define nationalization and privatization. Secondly, I will also take time and try to give you a brief history of the two. Thirdly, I will give some points that are considered before the decision could be taken on whether to do or not. Fourthly, arguments in South African status, lastly give you a conclusion based on all above facts.

1st Definitions

Nationalization means the permanent take over of private property by government, this take over can be done voluntarily, with payment to the previous owners of business or forced take over with no payment, or payment with bonds with no value.

Privatization is the transfer of ownership of property or business from a government to private entity.

2nd History

After the World War II, most countries embarked on nationalization, the soviets governments did that because they wanted to put the union leaders in a position to dictate terms on behalf of workers the goal was not solely to increase efficiency or to put workers in power. European countries embarked on nationalization to fight what was called capital dislocation and to improve economic growth. Privatization is old as it started during the ancient Greece period where everything was sold to private owners being army, tax collection etc. Post World War II as mentioned above most countries started to nationalize. Privatization increased again in the late 1970`s and early 1980`s. Large privatization took place in 1980`s and 1990`s.  I can reference to privatization of Post Office by Japan.

South Africa has been colonized since 1652; it only gained its independence in 1994. I know you will argue that it went through two major stage of all colonization, but, the fact is, it was colonized for more than 300 years. This is the time most countries were reverting back to privatization.

3rd Wages and conditions

Private companies aim is to maximize profit which can be achieved by minimizing the cost of production. Labor is also referred to as factor of production, therefore is cost will need to be minimized in order to make huge profits.  This actually leads to companies paying people wages that are too low. In the present day technology is the trend to all industries, this expose labor to retrenchments. Citizen are turned to what Marx referred to as wage slave because of low wages

Since the goal is to make profit employees are forced to work extra abnormal hours in poor conditions that expose them to risk of being injured without compensation. Safety measures are being compromised, because they are costly and considered unnecessary as they are not the factor of production.

In order to prevent private businesses from exploiting labor and improve working conditions government need to come up with policies and regulations,

In South Africa we have these best policies and regulations, but we lack monitoring or control, which still leaves us to exploitation of workers (low wages and poor working conditions).

Efficiency gains and losses

Fiscal considerations: The argument that privatization helps to raise cash for the government is related to the privatization’s impact on productivity. If the public ownership is optimal, then government is better off keeping the firms in public ownership and receiving the stream of profits. If the government is cash-strapped it should issue debt (or raise taxes). The privatization proceeds are high only when the new private owners are more efficient (or at least expect to be more efficient). Therefore the fiscal benefits of privatization are certainly related to the efficiency and welfare advantages of private ownership. Yet, the fiscal issues are very important as they provide government with incentives to undertake the privatization–to raise cash and to eliminate public subsidies to SOE.

Therefore in South Africa, all our state owned enterprise are at risk as I could say they are not optimal, but sub-optimal or let say poor.

Operation efficiency

One of the strongest claims for privatization is that it will increase the operating efficiency, and therefore the profitability, of the enterprises concerned. Empirical studies have yielded mixed results; although the balance of evidence favors the hypothesis that privatization increases operating efficiency. Borcherding, Pommerehne and Schneider (1982) surveyed the literature on municipal services and reported that, in most studies, either the private sector was found to be more efficient or no significant difference was observed. However, in studies of electricity and water services, either the public sector has been found to be more efficient (Pescatrice and Trapani 1980; Bhattacharyya, Parker and Raffiee 1994) or no significant difference has been discovered (Byrnes, Grosskopf and Hayes 1986).

In S.A. municipalities and electricity are still controlled by government but EFF is also pushing for privatization of banks. Eskom is not doing well in electricity but private banks are the most efficient institutions in the country except the post bank which is owned by State. Remember a Batho Pele policy how good is that policy?

Entrepreneurship

There is no doubt that nationalization will prevent entrepreneur the entry into certain industries, because is only the state that is allowed to operate. But, will nationalization destroy entrepreneurship?

Prices

Nationalization strongest claim is that it lowers the prices whereas privatization is blamed of high prices which leads to basic needs of lower class not met.

4th Argument

I am going to start from history to prices and give my understanding of status core. History shows that most parts of the world for what ever reasons after World War II they have nationalized their industries, then at the later stage depending into the needs of the country they slowly started to privatize. Now lets take a look in our beloved SA it was colonized for more 300 years not only by one country but different countries meaning our capital have been dislocated. I am not going to talk much about union leaders being given unnecessary powers because that is already achieved, so that can`t be the reason for S.A. to consider nationalization. The resources of S.A. are owned and managed by foreign institutions and foreign countries, which makes the South Africans not to benefit from the fruits of their trees.

Currently we have seen riots in farms of Western Cape, people demanding high wages and better working conditions. There are still cases of child labor. Marikana has been one of the moments no one will ever forget except if you have interest in Lonmin mine. Like I said, the medicine to this is to have policies but that is not enough. There is a need for implementation and monitoring of these policies. South Africa is known to be one of the countries with best constitution but I disagree when it comes to labor laws. Labor laws were supposing to accommodate two major parties or to mediate between two parties (employer and employee) but the way S. A labor laws have been designed they only protect the employer. The company might have bad working conditions, exploit workers, damage the environment, unfair dismiss employees and get away with it because the labor law is not clear. The only thing that governs the relationship between the employee and employer is the contract that is drafted by an employer for an employee to sign in order to be offered a job. `Come on good people I am looking for a job` and you give me a piece of paper with rules and whatever that is in there. I am going to sign it anyway not because I want to be subjected to your unfair contract but because I need the job. If you are a son of rich man or you are rich or employer you will agree with me.

There is a popular view that if mines and banks are nationalized the state will lose lot of revenue generated from tax of those industries. But the question remains how much percentage the state will lose compare to what it is losing now. In SA we are using progressive tax system. Therefore most of revenue goes to investors than government. The decision whether to Nationalize or privatize is based on the administration of the time. In SA each administration of course will be led by the party which is ANC must consider this decision then the next must privatize again. Before these institutions could start making loses. Only South African citizen should buy these institutions this will locate the capital and have impact in economic development.

Private institutions have better operation efficiency than private institutions, in such a way that some of the industries like rail transportation, Post bank, hospitalization should be privatized to improve operation efficiency as the employees have developed carelessness. Then government must regulate the prices and ownership to avoid high prices and monopoly.

The truth is the world is evolving so is technology unless otherwise we are saying South African are not capable of coming with new ideas, then we can say nationalization will have bad effect on entrepreneurship. But if there will be any it will be minimum. What needs to be done since the state will be controlling and contributing more on GDP? The gains must be used to promote the spirit of entrepreneurship and support new ideas.

There is a view that if we nationalize there is a claim that prices will be low, and in privatization prices will be high. Truly speaking that is not exactly the case. If privatized prices can be regulated and kept as low as possible. If nationalized SOE`s turned to be bully and have influence into state which makes them to be able to increase prices and exploit consumers as they wish. Government needs to limit the powers that are carried by these companies. An example is SANRAL in S.A.

Politician need not to take part in the process of privatization or nationalization as they will give preferences to their comrades. Politics are an enemy to both of these decisions. All they need to do is decide then let an independent economic expect implement the process.

5th Conclusion

S.A should consider nationalization, while doing so; also consider privatization of certain industries that are not longer efficient. We need to take a turn in our economy we can`t allow most of our wealth and capital to go to foreign countries at the same we cannot tolerate inefficient service and poor quality.

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