It is popular these days to say that Black Economic Empowerment (BEE) has not worked and needs to be reformed, tweaked, changed, adjusted, revised, or otherwise fiddled with to ensure that it benefits the majority of South Africa’s people.
The tweaking or reforming argument is a response to overwhelming evidence that the policy has benefited a small political elite while fostering extensive corruption. People who make the reform argument are patently too embarrassed by what they know to be true of the policy to unreservedly endorse what is now a generally corrupt practice. Yet, for reasons of white guilt or black racism and insecurity, they remain so devoted to the racial dogma underpinning the policy that they cannot disavow it. Hence they chose the cop-out position that it be reformed.
The South African Institute of Race Relations (SAIRR) has never been one for cop-outs and therefore earlier this year released a statement and policy paper calling for the whole practice to be scrapped. The call was remarkably well received considering the implications of what was being called for. However, many correspondents asked what the SAIRR intends to replace it with? Before we get to that here are some of the reasons why the policy should be removed from the statute book:
1. BEE perpetuates racial discrimination. Racial discrimination was wrong during Apartheid times. It continues to be wrong in post-Apartheid times. The Population Registration Act was abolished when Apartheid ended, with good reason. Without it, what basis is there for identifying South Africans as belonging to one of the four (only four!) racial groups?
2. BEE is monumentally expensive. It diverts money away from productive uses – e.g. education or investment in infrastructure – and to the creation of departments, inspectorates and accreditation agencies that contribute nothing to the economy.
3. BEE deters local and foreign investment. Not only because it is onerous and costly, but also because it is complex, opaque and subject to change without notice. It is a drag on the economy that contributes to unemployment and low growth.
4. BEE is unjust. It excludes the vast majority of the population from its supposed benefits, and instead creates a society of insiders and cronies.
5. BEE covers up problems. It creates the illusion that we are creating a more integrated economy and society, when what we are really doing is perpetuating a society split in two – between well-educated haves and poorly-educated have-nots.
6. BEE does not work because it diverts attention from the real problem: collapsing education. If as much attention were focused on education as on BEE, South Africa would be on a much better footing.
7. BEE is immoral. It gives the poor, who are mostly black, the illusion that the government is doing something to improve their lot, and it allows whites to think they are buying social peace at a reasonable price. Both are mistaken.
What then do we replace it with? Our senior colleague John Kane-Berman has the benefit of having been around when the institute challenged the racist policies of the Apartheid government. He tells the story of campaigning against the Group Areas Act. A few people where able to agree that the act as it stood was not a good thing but could not bring themselves to endorse its scrapping as they would ask what the state could possibly replace it with? The answer was obvious: it did not need to be replaced with anything. Rather govern the country justly. Allow all citizens to move and reside where they choose.
The same advice remains true today. Ensure access to good education in an environment conducive to investment and high levels of growth – and you meet all the conditions necessary for real economic transformation. At a growth rate of between 5% and 7% of GDP, in an environment of world class education, income levels will double every decade or so while demands for a skilled workforce will pull millions of people into the middle classes.
Of course there will those people who argue that if the state does not directly intervene then existing inequalities and racial prejudices will see the benefit of growth accrue to a small minority of people. However, this is to reveal lamentable lack of understanding of economics or the functioning of a modern capitalist society where skills and capital have no colour and are directed by forces of supply and demand. In fact ensuring that only a small minority benefits is exactly the result of the state-directed BEE policy that many now think can be tweaked into benefitting the majority of South Africans. Yet by obstructing the free flow of capital and skills within the economy the policy must by its very nature undermine the growth, investment, and entrepreneurship necessary to pull millions of people into the middle classes.
Taking the state out of people’s lives is generally a better bet than trying to find a place for it in directing their lives. It is peculiar that many who have lived through the horror of Apartheid-era state abuses, and post-1994 state corruption, wastage, and incompetence, find this proposal difficult to stomach. DM
John Endres is the CEO of Good Governance Africa and Frans Cronje the deputy head of the South African Institute of Race Relations.
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