The UK’s Express reports this week the South African government has begun seizing farms in the country following a failure to negotiate sales with the owners.
On July 31, President Cyril Ramaphosa, who had only been elected into office in February, confirmed his African National Congress (ANC) party would pass an amendment to the country’s constitution to allow the seizure of white-owned farmland without compensation.
Mr Ramaphosa claimed the new amendment was designed to “outline more clearly the conditions under which expropriation of land without compensation can be affected”.
Last week, ANC chairman Gwede Mantashe sparked panic among the farming community when he said that any farmers owning more than 25,000 acres of land would have it taken from them without compensation.
The South African government has now started seizing land from white farmers, initially targeting two game farmers in the northern province of Limpopo after talks with the owners Akkerland Boerdery broke down over a huge differences in its estimated value.
Technically, it appears the confiscation program targets farm owners based on the size of holdings, and not, strictly-speaking, based on their racial status.
In practice, however, the effect has been that the owners who face confiscations are overwhelmingly “white.”
Thus, the policy has long had a racial component to it. Donald Trump tweeted this week that he has directed the State Department to look into the matter of confiscations of “white farmers.” Trump was condemned by the South African ruling party for invoking the racial issue, but the racial component of the controversy is evident.
After all, the French state-owned media company France24 states matter-of-factly that the policy “seeks to correct the legacy of decades of white minority rule that stripped blacks of their land.”
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It’s easy to make far too much of the racial component, however. While racial animosity and the desire for reparation for past crimes that “stripped blacks of their land” appears to be the motivating factor for the ruling regime, the fact remains the farm confiscations are also just good politics from the ruling party’s perspective. That is, the confiscations could be motivated by nothing more than a cynical desire to reward the party’s political base with “free” stuff. Farm owners, after all, are a tiny percentage of the South African voting population.
And this is why it’s important to not fixate on the racial aspect of the farm policy and see the policy for what it is at its core. It’s just yet another ordinary, mundane policy designed to expropriate private property from one group and give it to another.
In this, the land confiscations are not fundamentally different from any other time a state has confiscated lands, industries, or businesses in any other part of the world.
In the past century, Marxist-inspired regimes have most commonly confiscated lands and farms based on the idea that the owners were too “bourgeois” or enemies of the “revolution” in some other respect. This has been the case in recent years in Venezuela where businesses are seized from alleged “class traitors.”
Even more importantly, neither the stated motivation or the actual motivation mean much of anything when it comes to the effects of land confiscations and property expropriation of any kind.
Regardless of the motivation, state confiscation of property leads to economic fallout that can have disastrous effects on the local economy.
Most importantly, expropriations of property lead to serious problems of “regime uncertainty” (a term developed by Robert Higgs) in which uncertainty about the legal and political status of property can lead to significant declines in investment and production. In other words, if property owners are unsure if their property will be confiscated, they won’t invest in the property or maintain it.
Thus, regime uncertainty leads to a withholding of investment and the destruction of capital thanks to lack of investment and maintenance.
We see this already at work in South Africa. As, according to Express, “A record number of white South African farmers have put their land up for sale amid fears the ruling party is considering confiscating properties bigger than 25,000 acres.”
Owners are essentially plotting their escape from the South African economy, but it will be hard for them to find buyers. After all, what investor — one with actual means to buy and maintain the farms — will purchase these farms under the present circumstances? At least, no one will be buying at anything other than a drastically reduced price.
Given that it still remains quite uncertain as to how extensive or harsh the confiscations will be, most potential owners will wait and see how things go before investing anything more in the South African agricultural economy.
And this, as Higgs notes in his work on regime certainty, is one of the central aspects of regime uncertainty: it impels investors and owners to delay making investments until uncertainty abates. In the mean time, wages of workers will decline, owners will forgo needed repairs of machines and tools, and the economy overall will suffer. Higgs writes:
Private investment is the most important driver of economic progress. Entrepreneurs need new structures, equipment, and software to produce new products, to produce existing products at lower cost, and to make use of new technology that requires embodiment in machinery, plant layouts, and other aspects of the existing capital stock. When the rate of private investment declines, the rate of growth of real income per capita slackens, and if private investment drops quickly and substantially, a recession or depression occurs.
A larger effect in this case may also be that many of the most experienced, knowledgeable, and capital-rich residents of South Africa will flee the country, taking their know-how with them. The South African state will — as states often do — likely attempt to make it difficult for emigrants to take their capital with them. This will be relatively easy for owners whose capital is tied up in land. Foreign investors, however, will have no such trouble. It will be relatively easy for foreign investors to pull their capital out of South Africa as a result of the expropriations. That investment may never return.
So, while land confiscations make good political sense for the ruling party in South Africa, the fact remains the policy makes very bad economic sense. It’s just the same sort of thing we’ve already been seeing in Venezuela in recent years, and the effects – proportional in size to the amount of expropriation effected – will be the same.
And perhaps this “proportionality” issue is what the regime is banking on. Even if the South African regime understands the economic implications of expropriation, the regime also recognizes that agriculture remains a relatively small part of the South African economy. Less than three percent of South Africa’s GDP is currently driven by agriculture.
The regime may be hoping that it can get away with destroying investment in that sector if the resulting economic destruction remains fairly limited. After all, if the South African economy suffers — as it is already doing due to a variety of other factors — the regime can always blame some other group for the problem, such as foreign capitalists or domestic naysayers.
Economically speaking, though, we can be sure that – should expropriations continue – lands on the margins will fall out of use, farm workers on the margins will find themselves out of work, and regime uncertainty will lead to overall declines in both domestic and foreign investment.
The motivation for this latest move toward the destruction of property rights is immaterial to the economic outcome.
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Author: Tyler Durden