Analyses of racialised disparities in both labour and product markets illustrate the need for strengthened economic redress. Photo: Delwyn Verasamy/M&G
The debate about racialised socio-economic redress is at the centre of South African public policy debates. It has even permeated trade relations with the United States, which ironically has its own version of economic redress for minority groups in certain states. Yet US President Donald Trump is challenging redress policies in a country that has systemic racialised class and gender socio-economic inequalities.
His views are echoed in Professor William Gumede’s intervention in this debate. His article, which appeared in the Sunday Times on 25 May, essentially advocates for black economic empowerment (BEE) to be removed.
There is general consensus in society that the current black economic empowerment model has largely failed to produce the intended socio-economic outcomes. But this does not mean the constitutional and policy imperatives underpinning redress should be abandoned.
Several researched analyses of racialised disparities in both labour and product markets illustrate the need for strengthened economic redress.
Gumede’s extreme position overlooks this empirical evidence and draws on the following flawed arguments.
First, he uses the term “political capitalists” to describe individuals or enterprises that obtain state contracts or private equity in firms without any knowledge of business operations. These political capitalists are described as inherently parasitic by Gumede and he further suggests that they all have connections to the ANC-led political alliance.
This generalisation is problematic because it assumes that only black-owned businesses obtain state contracts and established white corporations do not rely on state procurement. Policy and basic market intelligence reports refute this claim and illustrate how large corporations equally benefit from government contracts.
Additionally, the term “political capitalists” is conceptually and theoretically flawed because it creates a superficial divide between political and economic actors in a society. Political economy studies highlight that business and state relations are inherently connected in economic history. In simple terms: there is no Chinese wall between political and economic developments in a society.
The second problem with Gumede’s view is that he says BEE is primarily responsible for structural issues such as deindustrialisation, poverty, inequality and unemployment. This proposition is not backed up by evidence and he does not explain how he arrived at this conclusion.
Research literature on economic trends challenge Gumede’s position. Deindustrialisation in South Africa has been caused by structural changes in the economy, especially since the early 1990s. Trade and financial liberalisation exposed our domestic manufacturers to competition in key sectors such as textiles.
In addition, the country’s financial sector has prioritised short-term investment returns and implemented investment risk strategies that make it difficult for enterprises interested in long-term economic activity associated with sustaining South Africa’s industrial base.
Furthermore, there are several studies on the causes of poverty and inequality. This research explores multidimensional causes and does not cite economic redress policy as an impediment for addressing systemic socio-economic exclusion.
In other words: there is no factual basis for Gumede’s proposition on the causal link between BEE and the economic structural fault lines cited above.
Another flaw in Gumede’s article is the erroneous and sweeping generalisation about corruption. He attributes corrupt or patronage-based networks in the economy to the creation of BEE. This narrow approach is not based on a holistic understanding of corruption in the economy.
The Zondo Commission Report and other authoritative market behaviour investigative accounts elucidate illegal economic activities that go beyond the scope of BEE policy implementation. For example, practices such as price collusion, tax evasion and dividing product markets.
Actually, some of the established multinationals that Gumede and others laud were cited as facilitators of corrupt dealings in these reports. Corruption is a significant impediment for inclusive growth in South Africa. But it is incorrect to suggest that it is solely caused by BEE. Economic rents such as incentives, subsidies and preferential procurement policy instruments are used across the world successfully. These measures are not abnormal or inherently corrupt if used for developmental purposes.
Dr Khwezi Mabasa is a part-time sociology lecturer at the University of Pretoria and Economic and Social Policy lead at Friedrich-Ebert-Stiftung South Africa.