Progress hinges on putting poverty alleviation before BEE
Apart from encouraging graft, prioritising transformation is unworkable even with ideal governance
Progress requires framing challenges in ways that make them solvable. Instead, SA’s 1990s political transformation was predicated on the hope that a legitimate government would provoke equitable outcomes, and that hope morphed into misconceptions that became too politically combustible to confront.
Meaningful economic progress hinges on accepting why poverty alleviation must be prioritised ahead of black transformation. That this wasn’t debated in the lead-up to May’s elections reflects how dangerous delusions are enshrined to the point of being politically irreproachable. It is easy to presume that poverty alleviation and black transformation are complementary. Yet this only holds if poverty alleviation is firmly favoured. Prioritising transformation is unworkable even with ideal governance, yet it encourages corruption.
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Twenty-five years ago only about 10% of SA’s blacks had lower-middle-class incomes or better. About 10 years ago that key indicator was near 40%. Then the trend reversed. Not only has much ground been lost, the long-term trajectory is bleak. The earlier positive trend was never sustainable.
SA has never pursued a policy course consistent with achieving broad prosperity as defined by, say, 80% of blacks reaching middle-class incomes within two generations. The 1994 elections spurred various efforts to recruit black leaders onto boards and to participate in business deals. In the short term, this form of black transformation was politically necessary and thus economically sensible. Yet it could never resemble a workable blueprint for achieving broad prosperity.
Good governance doesn’t have to banish corruption but it needs to constrain it while adopting effective growth policies
Putting aside corruption issues and the drawbacks of overprioritising transformation, the policies that boosted the size of the elusively defined black middle class were never remotely sustainable as they preclude adequate economic growth. Rather, low-income households benefited through various forms of redistribution that could not be expanded sufficiently to truly pummel poverty.
Global poverty has plummeted since apartheid ended through dozens of countries combining good governance with global integration. Good governance doesn’t have to banish corruption but it needs to constrain it while adopting effective growth policies. Such policies must be anchored by principles such as property rights and merit.
Without property right protections businesses won’t invest adequately. Without a merit-based culture, it is impossible to compete effectively and achieve the market access provided by global integration. Without far greater global integration to fuel sustained high growth, the majority will remain poor indefinitely, thereby tempting hyper-populism that would undermine the interests of all South Africans.
The belief in black transformation is buttressed by the beliefs that SA is an inherently wealthy country and that the government’s key role is to distribute the wealth equitably.
Over about the last decade SA has been so consumed by its own challenges that there has been little notice of just how fundamentally the global economy has pivoted.
Consider how the most profound trends acting on the world economy favour global integration while disadvantaging resource-dependent nations: services continue to outgrow manufacturing; digitalisation and the information economy are becoming increasingly dominant; and, spurred by climate change concerns, the world’s most formidable disruptors continually create alternatives to extraction-dependent growth.
The overall effects are positive, as global poverty has been nearly eradicated in all other regions. This region’s laggard status traces to overreliance on resource extraction and grossly inadequate global integration.
It is appealing to favour both transformation and poverty alleviation, but as long as growth is low the two compete against each other. The costs incurred for prioritising black transformation ahead of poverty alleviation are difficult to pin down. But it could easily be that promoting 10 professionals to levels they wouldn’t achieve through merit for another 10 years could increase the number of poor people who will never be formally employed by 100.
Eskom has showcased such profoundly negative ripple effects. The costs of overprioritising transformation can’t be reversed. If tomorrow SA were to adopt policies no less effective than those of Asian high-flyers, it could take a generation to achieve nearly full absorption of each year’s school graduates. Long before then, unemployed school-leavers will have become the perennially unemployed who are routinely overlooked in favour of younger workers.
For SA’s economy to eventually resemble those of successful emerging nations we must start by accepting that both good governance and global integration are non-negotiables. Such acceptance is perfectly consistent with focusing on poverty alleviation, whereas overprioritising transformation corrupts governance and precludes adequate global integration.
Given all the hurdles and unhelpful rhetoric, the policy compromise that is workable politically and economically begins with carving out special regulatory dispensations for export-focused entrepreneurs. Such creative business people will devise workarounds for high costs and poor service delivery as long as on core issues, such as property rights and merit, global norms apply.
• Hagedorn is an independent strategy adviser.