In search of South Africa's Javier Milei

A chainsaw is exactly what we need for South Africa's bloated government

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Previously on Our Long Walk:

• When do prayers work? I provide an economic perspective on the effectiveness and persistence of rainmaking rituals in various cultures, illustrating the perceived effectiveness of these practices.

• Ten questions that 2024 might answer: Part 1 ($): A post in which I answer questions to the following five questions: Will democracy survive? Have I graded my final exam script? Will trains make a comeback? Has critical race theory been displaced?

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It’s no secret that this year’s election is make or break for South Africa. If the ANC wins comfortably (or forms an alliance with the EFF, with Malema as deputy president), there is little hope for change: a government that – it sure feels like it – does everything in its power to hinder economic growth, from high regulatory hurdles that increase input costs to dysfunctional state departments at national and local levels unable to deliver basic public services such as electricity, security, and transportation. There are, of course, exceptions, but what is clear is that the most successful places are those where the ANC’s tentacles do not get a hold, with the Western Cape as a good example.

It was not always like this. Things started changing around 2009 when Jacob Zuma and his Gupta cadres infiltrated several state institutions to plunder. And since 2018, even giving him the benefit of the doubt, Ramaphosa could not do enough to stop the looting; he would learn, to put it simply, that it takes much longer to build than to destroy.

One reason why it’s difficult to turn things around is the ‘ratchet effect’, the idea that it’s easier to start new spending programs than to cut existing ones. For politicians, for example, it’s more attractive to initiate new expenditures in an attempt to show immediate, tangible benefits to their voters, while reducing spending runs the risk of alienating those who depend on existing programs. Once programs are established, they also tend to create interest groups that have a strong incentive to fight for their continuation. Budget processes contribute to this inertia: governments often use the previous year’s budget as a base, which makes any reduction look like a deprioritisation. The budget just gets bigger and bigger as new programs are started without ever ending the previous ones.

Argentina is a good example of a country that, after decades of the ‘ratchet effect’, has a colossal state with little economic growth to show for it. The story actually begins earlier than 1946, but we pick it up in the year when Juan Perón was elected as president. Perón was a Keynesian; he saw himself as the Franklin Roosevelt of Argentina and quoted him extensively in his first state address. In short, he believed that the underperforming Argentine economy could only be corrected through massive state intervention.

As I explain in Chapter 25 of Our Long Walk to Economic Freedom, Perón’s strategy was to replace manufactured imported goods with locally manufactured goods. To do this, he taxed the successful export sector – the farmers – to pay subsidies to industrialists, hoping that subsidies would help make Argentine manufacturers competitive.

But what might have sounded nice in theory was a failure in practice. By the end of the 1940s, agricultural exports had collapsed. This caused a massive balance of payments crisis. Put another way: Argentina’s ability to import was halved between 1948 and 1952. Perón and his government tried to find a solution and in the second five-year plan, agricultural exports were again prioritised. But it was too late. Three years later, Perón’s government was overthrown in a military coup, and the Peronist party was banned. Many African countries would follow the same strategy a decade or two later, with the same disastrous consequences.

After Perón was ousted, Argentina would have three more coups in the next two decades. In 1973, Perón was elected again, but he died shortly thereafter and was replaced by his third wife Isabel – rather than Eva Perón, the main character of Andrew Lloyd Webber’s Evita, which initially made Juan Perón very popular. Just like the politics, Argentina’s economy was also a mess. They could never escape for long from the socialist ideas that gave the state a big role in the economy.

In 2003, Néstor de Kirchner, a Peronist, was elected president, followed by his wife Cristina from 2007 to 2015. Their policies included nationalisation and large welfare programs, with resistance to free trade. This led, as before, to a massive debt burden, something that the next moderate president was unable to control. In 2019, Alberto Fernández became president with Cristina Fernández de Kirchner as vice president. They promised to restore the spending the previous president had been forced to cut. In May 2020, six months later, Argentina was unable to pay its debts for the ninth time in its history.

Against this backdrop, Javier Milei’s successful presidential campaign makes sense. Milei is an unlikely candidate. He was an economics professor and private sector economist for twenty years. By the 2010s, he became increasingly visible on TV and radio, where he regularly insulted politicians and aggressively defended his anti-socialist ideology. By the 2020s, he entered politics, and his presidency was long considered a long shot until inflation soared and especially a younger generation – starved for new ideas – began sharing his speeches on social media.

What are these ideas? Although Milei is often considered by the media as Argentina’s Donald Trump, and often labelled a far-right populist, this is incorrect. Milei is a minarchist, a proponent of the idea that the state should be as small as possible. In short, minarchists believe the state’s only task is to protect citizens by maintaining an army, police, and legal system. Everything else should be left to the market. These ideas have deep roots in the classical liberalism of Austrian School writers such as Ludwig von Mises and Friedrich Hayek, ideas later popularized further by the free-market economist Milton Friedman: keep the state small so the market can do its thing. Milei is a big fan of Margaret Thatcher.

And this is what Milei promised Argentinians: if he becomes president, he will cut the civil service to the bone, which has grown into a bloated, bureaucratic colossus due to decades of rachet effects. (That is why he calls his economic ideology ‘chainsaw economics’, which is also why many of his supporters show up at political rallies with chainsaws.) And in his first few days as president, he has already fulfilled one of his campaign promises: He has reduced the number of state departments from 18 to 9.

South Africa could also do with a Javier Milei, perhaps not the chainsaws in the streets, but a president or party willing to take out the sheep shears and get to work. Our civil service is, just like Argentina’s, unproductive. Despite poor service delivery and corruption, more than 1.2 million South Africans currently earn a civil service salary.

Start right at the top. We currently have 28 departments and 30 ministers (not to mention the deputy ministers). Here is my proposal for reducing it to 9:

• Economic Development and Infrastructure: This combines Trade, Industry and Competition; Small Business Development; Public Works and Infrastructure; Transport; and Mineral Resources and Energy. The focus would be on promoting economic growth, infrastructure development, and energy management.

• Agriculture, Environment, and Natural Resources: The merger of Agriculture, Land Reform, and Rural Development with Forestry, Fisheries, and the Environment. This department would focus on sustainable agriculture, environmental protection, and the management of natural resources.

• Education, Science, and Innovation: The combination of Basic Education, Higher Education and Training, and Science and Innovation. This department would focus on all levels of education and scientific research, and the encouragement of innovation and technology development.

• Health and Social Services: Health and Social Development can be combined to comprehensively address public health, welfare services, and social support systems.

• Interior and Public Safety: The integration of Interior Affairs, Police, and Correctional Services. This would cover immigration, national security, policing, and correctional services.

• Finance and Economic Management: The merger of the National Treasury, SA Revenue Service, and Statistics South Africa. This department would manage the country’s finances, tax collection, and economic data analysis.

• International Relations and Strategic Partnerships: Retain International Relations and Cooperation as an independent department, but integrate elements of Trade and Industry related to international trade agreements.

• Government and Public Administration: The combination of Public Service and Administration, Cooperative Government and Traditional Affairs, and elements of the Presidency. This department would oversee the functioning of the public sector, intergovernmental relations, and traditional affairs.

• Defence and National Security: The merger of Defence, Military Veterans, and the State Security Agency. This would be responsible for national defense, veterans’ affairs, and intelligence services.

Not all of Milei’s plans will work out. Minarchism is not always sensible; there is definitely a role for the state beyond protecting the rights of citizens. Privatisation requires more than just selling a state monopoly to one private buyer, for example; the idea is to encourage competition. Milei will also quickly learn that you should not completely overturn the apple cart; to bring about real change, he will want to win a second term. If the short-term pain is too severe, voters will not support him again.

But Argentina’s new president is a breath of fresh air for a country that has been declining for nearly a century. Success there will hopefully encourage candidates and voters elsewhere – yes, also in South Africa – to rethink the role and size of the state.

An edited version of this post appeared (in Afrikaans) in Rapport on 14 January 2024. The image was created using Midjourney v6. Prompt: A Pixar animation character of Javier Milei as a Zulu king.