Black economic empowerment is supposed to ensure that the hoary cliché — “our greatest resource is our people” — comes to life. The intention is to open opportunities across the economy for black South Africans whose potential as economic actors has been constrained for years.
But what if it did the opposite?
This is the question that a Harvard panel of economists asks. The panel was commissioned by the government to study constraints to growth.
The final recommendations made by panel chair Professor Ricardo Hausman — director of Harvard’s Centre for International Development — raises familiar concerns about the impact of a rigid empowerment dispensation on the economy.
But it is his remarks about the effects of BEE policy as pursued in skills and job creation that might be most telling: “The growth strategy of [the government] has to be based on the people that South Africa has, not on the people that it wished it had,” he says.
That means expanding those sectors of the economy that can absorb large quantities of unskilled labour — principally those that produce exportable goods.
It is a familiar suggestion, one that government and business have made little progress on in recent years. The balance of the economy is shifting more towards domestic demand with areas such as retail, services and construction dominating.
Hausman cuts through the usual debate about whether micro-economic policy should favour skills or labour-intensive industries by pointing out what should be obvious: highly skilled people create opportunities for less skilled people.
“All empirical studies of labour demand show that high-skilled and low-skilled workers are strongly complementary, not substitutes. Coffee and tea are substitutes while coffee and sugar are complements. The implication of complementarity is that the greater the supply of one, the greater the demand for the other.”
Hausman asks why this is not happening through the market mechanism. Part of the answer, he suggests, might be BEE.
“There are elements of BEE that should form part of any strategy for shared growth in South Africa. Reversing discrimination allows society to use the talents of its entire people. A more equal distribution of ownership and control will make property rights more secure, encouraging investment and risk-taking.”
So far well and good, but: “… there are ways in which the implementation of BEE can also create important trade-offs between ownership and control, on the one hand, and shared growth, on the other.
“For example, it may complicate firm creation, exacerbate skills constraints in managerial positions, create greater regulatory burdens and uncertainties and thus discourage investment and job creation.”
The impact of empowerment rules on the availability of skills is a crucial part of this picture.
“The shortage of highly skilled workers causes a lower demand for low-skilled workers. So the lack of engineers may cause the loss of hundreds of blue-collar jobs.
“If the rate of substitution is low, the constraint on highly skilled workers may cause such a low demand for low-skilled workers that the wage at which they would be employed is unacceptably low.
“Since the shared-growth strategy involves maximising the job opportunities of the less skilled, it is fundamental that the high-skill constraint be relaxed.”
One way to do that is to make immigration much easier — a proposal the government has staunchly resisted since Mangosuthu Buthelezi and his adviser, Mario Ambrosini, proposed it almost a decade ago.
But it is also important to “stop and reverse the emigration of high-skilled whites”.
“There is substantial anecdotal evidence that BEE rules may be sending a negative message to both young white university graduates and those in senior management.
“In addition, BEE rules are increasing the demand for high-skilled previously disadvantaged South Africans at a time when they are already facing a very high and rising demand. To the extent that this tightens the skills constraint at the top, it lowers the demand for lesser-skilled workers and thus widens income and opportunity disparities among the previously disadvantaged.”
This reasoning represents a major inversion of the accepted wisdom surrounding both the skills crunch and BEE. Pushing skilled whites to one side and trying to keep foreigners out actually worsens the position of the vast majority of black South Africans.
“There is now very strong demand for blacks for senior management positions and it is likely to increase significantly with current growth trends,” Hausman says. “As firms try to comply with this element of the BEE scorecard, they will face an increasing skills constraint at the senior management level.
By contrast, there is ample room to improve empowerment through job creation, training and supplier development for people currently at the bottom of the income distribution.
“We shall propose that the scorecard be rebalanced to encourage these latter types of activities. It would also be useful to define sunset clauses for BEE: if the policy is successful, it should become redundant,” Hausman says.
Like all the best heresies, this one seems to be supported by common sense. It takes political courage to reform your own policies and to do it early in the game, but if we want to cut the Gordian knot now between empowerment and growth, someone has to take the plunge.