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Red alert: Our growing culture of dependency

Johann Redelinghuys is previously founder and chairman of Heidrick & Struggles South Africa, now The Director of the Chairman's Institute and of Portfolio&Co

There seems to be a fine line between helping people who are in need, on the one hand, and leading them into dependency and entitlement on the other. How do we balance the two?

In the twenty years of ANC-led government, there has been substantial economic progress for a large sector of our population. More than 2.9 million new houses, mostly funded by the government, have been built. Social welfare beneficiaries have increased from 3.5 million in 2001 to more than 16 million in 2013. And almost a third of all households have the state as the single biggest source of income.

By 2012, according to Frans Cronje of the Institute of Race Relations – quoting from his publication “Our next ten years” – a number of black households were saying that “welfare is almost as important as employment”.

This would suggest that we may be approaching the point seen in some socialist economies where the comforts of welfare payments may make it less attractive to go out and find a job.

The government, having promised “a better life for all” in their 1994 election manifesto, has delivered on this promise and has improved the circumstances of millions of poor people, having injected large amounts of cash into their lives. A significant result is that the ANC manages to sustain the support of more than 60% of the voting public.

All this has come at a cost. The ANC’s largesse is funded by a diminishing tax-paying minority. It is estimated that 99% of the tax revenue now comes from no more than 3% of the population.

The chances of that number expanding and more tax payers being added to the total are not great. Much as the government tries, in its confused way, to create real jobs, it is not happening. All it does is create more jobs in the sheltered employment of the public sector. According to a recent piece by Stephen Mulholland in Business Day, “THE government in South Africa now employs more staff than the private sector. We have more people on the state payroll than the US, which has a population six times the size of ours and a gross domestic product (GDP) some 45 times bigger than ours.”

Numbers for the much-vaunted stimulation of entrepreneurial growth are also disappointing. The percentages of people successfully establishing a new business that can pay them an income are one quarter of that of their counterparts in Brazil, and half of those in China. Our appetite for risk and for building new ventures is therefore much below that of our partners in the other BRICS countries. Entrepreneurs who have chosen to locate their businesses in other countries mention South Africa’s complex regulatory issues and its state-led bureaucracy as significant obstacles.

Some of the stories told by famous entrepreneurs recount how they were desperate and risked everything to start a new venture to put food on the table and make a life for their families. But if there is a safety net in the form of a social grant, maybe the desperation is not as keenly felt.

We are great at distributing wealth but not so good at creating it. Some of the fault may lie in our colonial past, where there was always some higher authority that could be looked at to bail us out of whatever problem we were facing. Paternalistic colonialism created much of the hand-out culture we see today; the culture that expects to be provided for, and which in the end results in the sense of entitlement.

A splendid example of dependency resulting in entitlement was evident last week at the Tshwane University of Technology (TUT) where classes were suspended following student protests related to their National Student Financial Aid Scheme (NSFAS) payments. These are students who want to be funded by the state and who then set about burning vehicles at the Soshanguve campus to express their dissatisfaction and to make their point that there were not adequate funds in the NSFAS. They also demanded the resignation of the Vice Chancellor Nthabiseng Ogude. When the university suspended classes and evicted students from the university residences, the Student Representative Council won an interdict at the High Court against the “unlawful eviction”. The University was ordered to pay costs.

Should we not, for the benefit of all, start a program where those receiving state aid should also have to contribute to its upkeep? If students were put to work to “earn” some of their grants by cleaning and maintaining buildings, they may be less inclined to burn things down when they want to express their anger. Old age pensions now start for those who are 60 years old. But there are many at that age that are still healthy and well. Can they “earn” their grants by assisting and caring for those even older? Picking up some of the responsibilities will moderate some of the dissatisfactions and the sense that, especially in the angry youth, they are “owed a living”.

The government’s ability to implement its social policies is being threatened by slower growth and less tax revenue. South Africa’s 2013 budget deficit of 4.8%of GDP is considerably higher than that in other BRICS countries. Added to that is a substantial slowdown in Foreign Direct Investment by as much as 43% in the past twelve months, with such investment having risen instead in most other emerging markets.

Business growth, the key provider of tax, is being hampered by all kinds of government sponsored obstacles. In the years when such ANC policy directives favoured a private sector-led growth, such as its GEAR and AsgiSA initiatives, the prospects were better. Then, presumably with some or other dissatisfaction in the tripartite alliance, the new direction moved toward state-led growth. This does not bode well. As Humphrey Borkum, then chairman of Merrill Lynch, said after Polokwane: “Every company on the JSE is more efficient and competitive than any of our para-statals.” He went on to point out that privatising businesses, instead of attempting to nationalise them, would provide a much healthier tax base and the ability to fund better education, housing, health care and aid to the poor.

But government is not inclined to listen. It is as if the ANC is out to obstruct and make things difficult for those who drive the capitalist economy and who are the real wealth creators. In January 2013 the director of the Centre for Development and Enterprise, Ann Bernstein, referring to the CDE research report “Job destruction in the South African clothing industry”, said that government policy was actually “destroying jobs in South Africa”.

Advice to the ANC, if any were asked for, must be that aid has to be carefully dispensed so as not to undermine the backbone and responsibility of the people. Then love and look after the real wealth creators, the ones who pay tax and carry your burden. It is they who will be your meal ticket for a long time to come. DM



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