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SPEECH - FW DE KLERK: ENSURING ECONOMIC GROWTH AND DRIVING PROSPERITY THROUGH GOVERNMENT AND BUSINESS PARTNERSHIP

SUPERRETURNIt is a great pleasure for me to be able to speak to you this morning about the role that partnerships between government and business can play in ensuring economic growth and prosperity.

There can be no doubt that a sound partnership between business and government is essential for the promotion of economic growth. 

Governments have a core role to play in creating the environment within which businesses can generate growth. Businesses cannot function effectively without the security, legal frameworks, macroeconomic environments and infrastructure that only governments can provide.

On the other hand, experience has taught us that governments themselves are not very good at creating economic growth. 

That is the task of the private sector.

The simple and indisputable truth is that free markets produce wealth much more effectively than government bureaucracies. 

Big government is not the solution to economic growth, wealth creation and the long-term eradication of poverty for a number of reasons that should be - but evidently are not -obvious to all rational observers:

  • The greater the share of national income that is consumed by government, the fewer resources there are for the private sector to generate wealth.
  • Excessive government expenditure can be financed only by onerous taxation or borrowing.  Excessive taxation reduces the incentive of the private sector to invest in growth and to produce wealth. Borrowing to cover current expenditure leads governments into the debt trap where much of their current income is expended on interest payments.
  • Governments are not subject to the rigorous discipline of the market. They have no competitors.  They do not go out of business if they overspend or fail to provide services that people want.  They do not have a price system to send immediate signals regarding the needs of the public.
  • Big governments create opportunities for corruption - for rewarding cronies with undeserved jobs and business supporters with uncompetitive tenders.  They spawn large bureaucracies that often justify their existence by over-regulating the activities of private citizens and companies - always, as they of course claim, in the public interest.  Their own incomes soon surpass those of private sector employees - whom they are supposed to be serving.
  • Unlike the private sector, big governments are accountable to their market - the voters - in elections that take place only once every four or five years. On such occasions the temptation for competing parties is always to promise the electorate benefits that can be paid for only by more taxation and borrowing.

There is nothing new in this: when he reluctantly accepted the post of finance minister from Louis XVI, Turgot laid down the following conditions: No bankruptcy; no increase in taxes; and no loans. He insisted that there should be no new loans “because every loan always diminishes the free revenue and necessitates, at the end of a certain time, either bankruptcy or the increase of taxes.”  He predicted, quite rightly, that the cuts in expenditure that he would enforce would make him unpopular and lead to his dismissal: “I foresee that I shall be alone in fighting against abuses of every kind, against the power of those who profit by these abuses, against the crowd of people that oppose themselves to all reform.”

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