Black empowerment threatens to turn South Africa into another East Asia, writes Ben Turok
President Nelson Mandela’s recent statement at the National Council of Provinces that he will root out of the government “those who betray the calling of the public service” and who enrich themselves, and his attack on the culture of entitlement, gives me the courage to write on the topic. I have been contemplating asking whether black empowerment can lead to crony capitalism of the kind reported in East Asia.
The question intrigues me for, while I do not accept the crisis in Asia is primarily due to crony practices in government, it has played a part in causing great distortions in the financial structures.
Cronyism has been defined as the practice whereby every project sanctioned by a special group carries an implied government guarantee of success. When foreign funds flowed in beyond the capacity of the countries to absorb them productively, they first flowed into inflated real- estate ventures where cronyism flourished, and then flowed out again, causing the financial crisis.
The problem of crony capitalism is not new in the Third World. Africa, after independence, saw its emergence on a grand scale as a new elite used state power to gain a major foothold in the economy through parastatal organisations and by becoming intermediaries in the private sector between the state and foreign private capital.
This system, labelled neocolonialism, took root remarkably quickly and created a domestic class which exercised political and economic power in their own interest. Conspicuous consumptionism became the order of the day and the elite developed a culture of mimicking the lifestyles of the colonial masters. The interests of the people were neglected.
Given that the international environment for successful development became unfavourable for all Third World countries as the terms of trade turned against them, the greed and corruption of the new elite greatly exacerbated the situation.
These harsh thoughts need repetition as they are rapidly being forgotten. But does all this have any relevance for South Africa? Do the thoughts of Mandela echo any of these fears when he castigates those public servants who want to enrich themselves “at the expense of our efforts to create a better life for all”? Has this anything to do with black empowerment?
On the face of it, the answer must be negative. The president was attacking various forms of greed and corruption without linking it to black empowerment.
But we have to look further. First, we must recall the Freedom Charter laid down that “the people shall share in the country’s wealth”. But how is this to be achieved? Through redistribution, or what? And how is this to be linked to the notion that the primary goal of this government is transformation?
Some argue black economic empowerment is the route to achieve the objectives of both redistribution and transformation. Since apartheid was universally held to be a particular form of colonialism, few will dispute the need for both.
But does redistribution refer to individuals, or to classes of people? Cyril Ramaphosa has said “economic empowerment is the mammoth task of delivering the majority of historically disadvantaged South Africans from impoverishment to a position of economic power”.
Others place the emphasis on the need to “deracialise the economy” – to unblock the obstacles faced by potential black entrepreneurs to facilitate their entry into the highest positions in the economy.
But the entry of some black entrepreneurs into the arena of white privilege, such as the stock market, is not what everyone has in mind.
Ramaphosa has warned: “To define black economic empowerment only by the transfer of share ownership to black companies is shortsighted and skews the central thesis of the Reconstruction and Development Programme.”
He might also have pointed out that most of this activity does not add real value to the economy, it does not necessarily lead to productive investment and probably merely inflates the market value of shares. Nor does it create employment for anyone other than the persons actively engaged in building these financial structures.
For a government committed to redistribution and equality, the lessening of overall inequality is a matter for celebration. But the congratulation has to be tempered by the knowledge that even now the richest 20% of households have 65% of all household money at their disposal, while the poorest 20% have only 3%.
Another way of looking at persisting inequality is by comparing the top and bottom cohorts of income earners. The proportion of income earners in the bottom fifth increased from 34% in 1990 to 38% in 1995, though their annual incomes increased from R6 899 to R18 359.
More remarkable is that the top fifth of income earners increased from 2% in 1990 to 6% in 1995. And incomes increased from R46 800 to R118 800 per annum.
How is this new wealth being acquired? The manoeuvres on the stock exchange, company acquisitions, mergers and the like account for much of this. It is also clear many white companies are opening avenues for black managers at high salaries – some no doubt on merit, some for the purposes of granting legitimacy, especially where government tendering is concerned.
But there is also a significant process of empowerment of black business through state institutions, especially parastatals. Much of this is justified and deliberate government policy.
Said Reuel Khoza, chief executive of Eskom: “Those in politics have initiated a policy and put a government procurement system in place designed to draw blacks into economic activity and benefit that they were previously excluded from. Their privatisation policy is unambiguous about ensuring the Africanisation of the future ownership of current state assets.”
However, Transnet’s Saki Macozoma has warned that we cannot afford to create “second-class companies that can only survive because they have got a Transnet contract. We are doing them a disservice.”
Of course, this practice was rampant in the days of apartheid, when a relative of a minister was able to get credit merely on the basis of a government order. But this is the route of crony capitalism, and Macozoma’s warning is appropriate.
No doubt some will argue the country can only benefit by increasing the numbers of the wealthy, since they contribute more in taxes. The evidence is: in 1994, 30% of taxpayers were in the category R10 000 to R20 000. By 1997, this had fallen to 11,5%. Fewer poor people are paying tax than in 1990, which shows the government has eased the lot of many of the poor.
At the same time, in 1994, 3% of taxpayers were in the category R100 000 to R150 000, moving up to 6,5% in 1997. So either the government increased the number paying tax at the top end, or their number grew because of greater wealth. Perhaps both are true.
Certainly, of actual tax collected in the low category of R10 000 to R20 000, the proportion of total tax collected fell from 3,4% in 1994 to 0,45% in 1997. However, the proportion at the top end, R150 000 plus, increased from 14% in 1994 to 23% in 1997.
It would seem the government is meeting its obligations to the poor by reducing their contribution to the fiscus, while black empowerment is increasing the take at the top. This has the unfortunate effect of increasing black inequalities, while at the same time providing financial resources for the state.
On this evidence, which is patchy and inconclusive, it does seem the state is directly and indirectly permitting the emergence of a new black elite, justified by the concept of black empowerment.
We have not reached the stage where this can be called crony capitalism as it is experienced in Asia. But we probably need to be aware of what might happen if we do not take care.
Professor Ben Turok is an ANC MP