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New Socialism and its evolution

01 October 2012 Robert W Vivian, University of the Witwatersrand

Some time ago I observed that a new form of socialism, which I labelled New Socialist, had evolved. What do I mean by this? The first step towards understanding this doctrine is to delve into the workings of the Old Socialism framework. Here goes...

Socialist notions are embodied by a wide spectrum of ideas. These range from Marxism on the far left to the welfare state, nearer the centre. Socialism is linked to the idea that there is such a thing as a "free” lunch. It held that citizens could benefit from free education, free health care and so on. The reality is that there is no "free” lunch. Someone has to pick up the tab.

Unpacking "Old Socialism”

In the original Marxism theory the state was supposed to wither away… It never did! So in socialist systems, by default, the state took on the responsibility of paying for the "free” lunch. The actual costs however would be borne by the private sector taxpayer. Tax paid by government employees back to the government is nothing more than shifting money from one trouser pocket to the other.

The result: Communism failed and socialist states did not fare much better. Neither could bankroll the "free” lunch! Country after country has run up massive unaffordable government deficits as they tried to implement communist and socialist ideologies. The welfare state is not sustainable.

Towards "New Socialism”

New Socialism is socialism where the state does not pay the bill. Instead the cost is extracted from the private sector in another way. To understand this system we have to consider both the method of extraction and the administrators of the system.

I named the extraction mechanism judicial socialism, a strange phenomenon which I first observed in the 1980s. It can be illustrated by a case from that era, that of Burger v Santam Versekeringsmaatskappy circa 1981. In this case a car travelling at high speed drifted onto the wrong side of the road resulting in a head-on collision. The driver was distracted while looking for something in her handbag and did not notice that she was drifting across the road.

Quite unbelievably the predecessor of the Road Accident Fund (RAF) was successfully sued by alleging negligence on the part of the driver who was on correct side of the road. The court agreed that this driver was negligent in not blowing his hooter to warn the driver on the wrong side that she was on the wrong side of the road. How can one explain this ruling?

Economics not law

It cannot be explained in terms of the law; so we turn to economics. Nobody seriously believed that the driver on the correct side of the road was actually negligent. The case could be explained as judicial socialism. The judiciary on the face of it became the champion of the injured.

The costs of these cases was borne by the predecessor of the RAF which was established for the benefit of "victims” of road accidents. The driver who went on the wrong side was still a "victim” of a motor vehicle accident and thus entitled to compensation.

This is the same argument offered up for socialism: The state should look after the injured. But there is no "free” lunch and in 1984, after looking at these cases, I presented a paper entitled Identifying the source of the MVA rate crisis.

I warned that Fund expenditure had been increasing at the rate of 25%, 50% and 52% per annum. Soon thereafter the fund became hopelessly insolvent; a state from which it has never recovered. (Last year the deficit on the RAF increased by another R16 billion to reach an accumulated deficit of R46 billion).

In New Socialism the money does not come from the state. It is a direct charge on the public – in this case, motorists. Because the judges are not accountable for the finances – as would be the case in a old state social welfare system – they can make awards assuming that limitless funds exist.

Administrators of New Socialism

In Old Socialism the administrators were government employees and bureaucrats. In New Socialism the administrators were the lawyers. Their role can be gleaned from another case: Santam v Letlojane circa 1982. In this case a bus was driving along the road when a man on a bicycle went through a stop street riding into the path of the bus.

The court ruled – in line with New Socialist thinking – that the bus driver was at fault because the bus driver did not blow the bus hooter to warn that the bus was going straight. The cyclist was awarded a mere R2 500 in damages. Why did the cyclist take the case to the appeal court for a mere R2 500?

One explanation could be that lawyers were operating on a contingency fee basis. This was not permitted at the time, and in 1997 the situation was regularised by the passing of the Contingency Fees Act. Lawyers’ fees far exceeded the award so in many cases the system existed for the benefit of administrators. The injured party was a mere necessity preferably could be dispensed with.

Governments hijack the system

It is not clear at what point governments realised they could hijack the system. As early as 1998 the Attorneys General of 46 US States sued tobacco companies claiming a recovery for health costs associated with treating smokers.

The first thing to note is there were no injured parties. The second is that the matter was settled out of court when tobacco companies agreed to pay the states a minimum of $206 billion over a 25 year period. With no trial, courts too could be dispensed with. Lawyers, the administrators of the system, were not unhappy because they received at least $35 billion from the settlement. Even is a system without injured parties lawyers could play a pivotal role.

There was a direct transfer of billions of dollars from the private sector to the state, outside of the tax system. This award did nothing for any "injured” parties. If smoking causes harm, tobacco companies, having agreed to pay this enormous amount, were free to continue causing harm. The cost would simply be passed on to current smokers who would not receive any better health treatment (and in many cases no treatment at all).

A way had been found by state departments to transfer massive amounts from the private sector to themselves outside of the tax system, with only minor involvement of the judiciary, without benefiting anyone other than the administrators of the system.

The state becomes the system

This situation has evolved to where we now have a situation where there are unitary states within states! The settlement was achieved without a trial - so why not dispense with the judiciary in total? State departments or institutions could become unitary states within states, legislators, judiciary and the executive - all in one.

An example of this, in South Africa, is the Competition Commission. It is not a court of law. As in the tobacco case "guilty” parties are all encouraged to admit "guilt” – arrive at a settlement – and then hand over billions or rands to the regime. As in the tobacco case no link can be found to any harm caused.

The regime has made it very clear that it does not have to demonstrate any harm - all it needs to do is extort a settlement and collect the money. Since the Commission’s inception billions of rand have been transferred from the private sector to the state outside of both the tax and judicial systems.

The success of the regime has inspired an ever growing "10% brigade”. Government institution after institution is claiming the right to grab 10% of a private sector company’s turnover using the Competition Commission as a model; success breeds sucess.

Of exclusive benefit to the State

What started as New Socialism – a way of compensating injured parties without the State making payments – soon morphed into a system for the benefit of lawyers – and is now evolving as a system for the exclusive benefit of State institutions. 

State institutions are perfecting ways to extract cash from the private sector, for its own benefit, outside of the tax and judicial system. As the state has reached the limits of taxation, this new system can be expected to play an ever increasing role – here comes the 10 per cent brigade and others.

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