President Jacob Zuma’s state of the nation address promised to act against “economic concentration” — a euphemism for “white monopoly capital”, the phrase beloved of many of his cronies and proxies. To this end, he promised to ramp up the Black Industrialists Programme, to open up the R7-trillion property sector to black players, and to lock in 30% black stakes for all large state contracts.
As always with Zuma, these resolutions should be taken with a truckload of salt: the man rarely does anything with his power except dole out patronage. If anything, his adoption of the “white monopoly capital” narrative could rob it of its mass appeal.
But this official policy turn towards “radical economic transformation” may be used to step up the Zuma cabal’s campaign against the obstacles to their dreams of industrial-scale kleptocracy — finance minister Pravin Gordhan and the banks, whom they cast as agents of a nebulous conspiracy of pale greed, founded on apartheid theft.
The broad strokes of this narrative are easy enough to refute. Black wealth in SA is much greater than in 1994, and much bigger than Zuma has claimed. The single biggest investor in the economy is the Public Investment Corp, which controls R1.8 trillion in pension-fund equity for public servants, most of whom are black. The latest figures show SA black-and white-owned portions of the JSE’s equity are roughly equivalent at 23% and 22%, with foreign ownership at 40%. Black home-ownership has rocketed.
But the myth of “white monopoly capital” — in truth a political diversion by a failed president — will not die any time soon because it contains fragments of truth. Commercial property and farming are still white man’s games. Only a fifth of executives at the JSE’s top 40 firms are black. And when averaged per capita, the JSE share ownership breakdown means whites own nine times more equity than blacks.
The myth of white monopoly capital will not die any time soon because it contains fragments of truth
The pace of black advancement has stalled, and was never fast enough to bridge the chasm. Empowerment policies have served only to deracialise income patterns within a still-small middle class. A mainly black labour aristocracy of civil servants has been built, along with a sprinkling of black plutocrats. While these shifts are significant, they are no match for the scale of the problem.
Imagine describing the structure of our economy to a liberal, capitalist Martian — she’ll wonder how it works at all, in moral or practical terms. This is the most inequitable economy of significance on Earth. Amid tepid global growth, automation and protectionism, we won’t lose that title unless something big happens. That big thing could be constructive or destructive. It’s up to us.
Like the frog in a kettle we have been immersed in the hot water of economic injustice for so long that we fail to notice it’s getting hotter.
To political analyst Moeletsi Mbeki, the phrase “white monopoly capital” is a clumsy attempt to describe a skills imbalance. “I think it was Irvin Jim of Numsa who popularised it. My suspicion is that it derives from Zavareh Rustomjee and Ben Fine’s 1997 book, which identified the minerals-energy complex as the core of SA’s economy. But now, in the hands of the naive Left and propagandists, this complex has been simplified into white monopoly capital.”
Colonial dispossession and migrant labour form the backstory of our inequality, says Mbeki. “But a much more enduring factor was job reservation, which created an artificial scarcity of skills, allowing the skilled to charge a premium. You can see this continuing with the failure of public education. Asian economies are more egalitarian because they have very successful mass education systems. In SA it was a deliberate policy to keep prices of white labour high, but now the incompetence of the state has perpetuated the same result.”
While we await an education revolution, what can be done with economic policy? To SA’s richest citizen, Christo Wiese (worth R80bn), black advancement has been impressive, but the crisis is real.
“We have to accept there is inequality, and that it is unsustainable,” he says. “But the place to look for a solution is not, with the greatest respect, taking from those who are perceived to have and just give to those who are perceived to have not. The solution is that every policy decision should be driven by a simple question: will it create or destroy jobs? I don’t have all the answers. But in our group we’ve created 10,000-15,000 new jobs every year for the past decade — you never read about that in the press.”
Unlike libertarian ideologues, Wiese does not believe SA’s relatively inflexible labour laws are curbing growth. “I’m not too fussed about them. And I have no difficulty with the minimum wage at the proposed level [R20/hour] as it’s so low that I don’t think it will destroy jobs.”
But vital foreign skills are being shut out by immigration policy, he says. “When we (at Shoprite) open a supermarket in another African country, there hasn’t been a pool of talent to run a modern supermarket — we need to look to SA for senior management to get those businesses off the ground. The same is the case for hi-tech companies looking to invest in SA — how difficult is it for them to get work permits? I understand the problems with unions, but it should be a simple approach — for every US$1m of FDI you bring, I give you 10 work permits for 10 years. You fill in the names. Clever countries do that. It’s not only the money, it’s the skills.”
Wiese defends his own empowerment record by citing Pep’s franchising subsidiary Flash, with which 100,000 township operators are selling airtime and prepaid electricity to local communities.
But retail won’t spark the GDP growth that would fuel black wealth on the required scale — only export growth will do that. Wiese says adversarial labour relations have starved the economy of creative ideas for worker equity.
“We should compete against low-wage economies in sectors like textiles. Do deals with the workforce in the rural areas — make them shareholders or link wages to productivity. Say to labour, you come in as partners. We get an auditor to show us the other input costs, and here’s what we can sell the product for, so what can we do? There’s such a lack of imagination about these things. And that’s a consequence of all the sloganeering.”
Mbeki champions the Pietermaritzburg footwear company Eddels for its nimble reaction to foreign competition. “Losing market share to Asian imports, they worked with all the staff to find out, how do we become competitive and productive? And they found the management system inherited from white job reservation days very inefficient and expensive. So they cut supervisors, and workers decided the pace at which shoes were assembled, with a completely transparent, computerised bonus system in place to [reward] them.
“Now productivity is up and there are no supervisors on the floor.
“We had a closed economy in 1994 — we industrialised due to tariffs and sanctions. After 1994, what we should have done is modernise our technology and training, like China did, to gain competitiveness. But what the ANC did was go in head over heels, removing tariffs without the necessary investment to save and modernise the textile industry, for example.”
Hence our manufacturers hold anything but a monopoly; they’ve been clobbered.
As for retailers, Wiese snorts at the claim of a monopoly. “It boggles the mind. Every man and his dog can go and open a shop. That’s how we started the Pep group, with one small shop in a small Northern Cape town. So it is open to everyone. And there are black South Africans who have built major businesses that way.”
Of course, it’s not that simple. Pep’s shared dominance, with a couple of other chains, of the discount clothing retail market is a barrier to the expansion of smaller competitors, if not a barrier to entry. The dominance of the big food retailers, including Shoprite, depresses farm-gate prices to the point where only large commercial farmers can supply them.
That pattern of anti-competitive dominance by big players is replicated across the economy. The market leaders in telecoms, private health care, retail banking, commercial property and gaming enjoy juicy profits in the context of a hobbled economy.
To some extent, these returns are down to strong management and innovation in those sectors. But a lack of price competition is often part of the formula, as anyone who pays data charges, banking charges or health insurance premiums will attest.
Some shareholders who benefit are black. Some of the profits feed back into the real economy. But much of it flows abroad or into the pockets of well-off local investors, usually white, who tend to reinvest it offshore, or buy luxury imports or unproductive property.
Well, you say, that’s the nature of the capitalist beast. But if we’ve learnt anything since the 2008 recession, it’s that the prevailing model of capitalism, fixated on shareholder value and tax avoidance where possible, damages its own prospects by stunting and alienating its markets and workforces. The damage is greater in an economy as top-heavy as ours, with state corruption bleeding the poor from the other arm.
Rich South Africans like to think of themselves as stoically carrying the country through difficult times — but if you consider how much state spending flows straight back into corporate revenues and profits, the relationship is a bit more ambiguous.
For Mohale Ralebitso, founder and CEO of Itataise Investments, this scenario is the legacy of a dismal failure since democracy to reimagine our economy. Ralebitso is a fiercely independent voice — he recently quit as CEO of the Black Business Council in the wake of its decision to defend Zuma against calls for his resignation, but he also angrily rejected SaveSA’s Sipho Pityana’s condemnation of that position.
For Ralebitso, the racialised rhetoric against big business is inaccurate and destructive. “We lump them all together as white monopoly capital as though they agree on everything and they conspire. The truth is, they don’t have to conspire. The issues they have to engage with will make them all behave in pretty much the same way.
“And against that backdrop, the thing that always seemed least urgent was to make them more representative, inclusive and competitive – because we let it go on for too long. And now it seems too gargantuan a task, but it has to be attended to.
“We’ve wasted 20 years of opportunity to better organise SA, not at company level, but at SA Inc level. That has to be part of the business agenda. It’s not something to be left to politicians. All stakeholders should have been part of that dialogue: the demobilisation of SA post-democracy was a mistake.”
The way forward, he says, is not for the state to punish the giants, but to use its power to sustain new enterprises that will plug into those giants. The model, he says, is the state-directed South Korean boom.
Mbeki, however, says South Korea is not a useful comparator. “After World War 2, the US government drove the industrialisation of South Korea, because they were afraid of communism. It was not a natural result of state intervention — it was due to the special circumstances of the Cold War. Similarly, in Malaysia and Indonesia, the British and then the CIA crushed the socialist movement, and helped to develop exporting economies.”
Chris Malikane, associate professor of economics at Wits University, punts a northern European socialist dream. If the SA state owned most of the mining sector, as the Norwegian state owns most of its oil sector, it could conquer inequality while still permitting the dynamism of private investment.
That boat may have sailed, says Malikane. “Local white capitalists and international Western investors have become alarmed by the Zuma government’s alignment with the Brics economies, and with the Guptas. There has also been a rupture within the ANC, which for most of the democratic era has effectively partnered with white capital.”
Ralebitso believes the state should use more of its power, though not to nationalise. “If we give away significant chunks of the concentrations of capital, we will end up with the same outcome in 10 years if we don’t deal with the underlying issues. The same people who have capital now will still have it, and those who receive it now will have to consume it. Unless they consume it differently, we’ll get to the same outcome. It may be worth doing at a human level, but at a strategic level it doesn’t solve the issue.
“For example, where does all the social grant money go? We didn’t see the welfare net as a market-making enterprise which starts as a social intervention.
“As you roll out welfare you should create a layer of regional industry that prevents the dominance of three or four operators, such as the major retailers, who have been the major beneficiaries of the welfare net.”
Ralebitso says the rural economy will never come good without aggressive state support for new, consumer-facing black enterprises. “We need a parallel offtake mechanism which doesn’t pivot only on state procurement, but targets those communities into which you’re pumping welfare money — in proximity to them, you need a range of outlets that will deliver the services those communities need.
“There wasn’t any of that. So what happened? That money went through the same channels as all the other money. So you lost the ability to transform.”
The state tender system has failed black business, he says — partly because emerging black contractors’ big suppliers are overpricing or withholding inputs, and partly because the state pays late. So procurement is wasted as a transformative tool.
“The reason we have Afrikaner-owned institutions of significance today is that state procurement was used a lot more aggressively. We had too light a touch and too incremental an approach. The state is our most natural lever to change behaviour in spaces where, as commercial animals, we will change less readily.”
Mzwanele Manyi, an avid basher of “white monopoly capital” and chairman of the Progressive Professionals Forum, agrees.
“In terms of the Construction Industry Development Board, for you to get a lucrative job, a 2010 kind of project like a big flyover, you have to be a level 9 bidder,” he says. “If you look at the criteria, they require everything that an emerging black contractor is not about to have. Those resources are important, but it could have been structured such that a black contractor can have access to them without being penalised for not having them in-house. As a black contractor you should be able to subcontract the engineers required, without having to become another Murray & Roberts.”
Economists scoff at the state’s ability to nurture new ventures, predicting a rash of ill-conceived failures.
Says Remgro boss Johann Rupert: “There were 200 members of the Afrikaans Chamber of Commerce in 1948. By 1978 two had survived — my father and Albert Wessels. It takes decades to produce a business like Remgro.”
Ralebitso says failures are inevitable and can be minimised. “You should look at those businesses that failed.
“What did they give rise to with the lessons learnt and networks built? A lot of Afrikaners benefited from those failed experiments.”
Then there is the pool of idle domestic capital — a pool greatly expanded by the sale of SABMiller. “Close on a trillion rand is sitting doing nothing,” says Ralebitso. “Yes, we need confidence, and that’s government’s problem, but as a business person, what’s your responsibility and opportunity?”
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