Why black economic empowerment was flawed from the start

As one newly converted to opposing black economic empowerment – a policy which former president Thabo Mbeki’s brother, Moeletsi, called a “disincentive” to other racial groups – I’ve had to do a lot of “what now?” thinking. The signs have been there for a while that the policy, an amendment to which precipitated what is now being described as a race row, has been ineffectual in providing opportunities to the so-called previously disadvantaged at the rate and scale expected. I had accepted its ineffectuality as a problem in implementation, not with the policy itself. It had to be poor implementation that saw the rise of the tenderpreneur and BEE fronting, and created an environment where the policy benefitted a small sector of the designated group. Unfortunately the policy itself was, as I’ve come to accept, also conceptually flawed at two important levels.

The first was that perpetuated thinking along racial lines, which was a hallmark of the system of apartheid it sought to redress. It asked people to pick a race and conferred preferential treatment based on that race. This served to strengthen the resoluteness with which South Africans clung to the race by which they identified. It also foregrounded in the minds of South Africans the economic and social significance of race. This was always a highly-probable outcome of course, but one which (I imagine) the drafters thought tolerable provided the policy’s objectives of providing economic opportunities to those previously denied such and making South Africa economically equitable were reached.

The second flaw, as put forward by Moeletsi Mbeki, was that BEE aimed to benefit the majority of the country (approximately 95% of the population falls within the designated group). This in effect made it a pointless and impossible exercise. The exercise was the equivalent of sharing a pizza pie previously enjoyed by 5 white men with 95 other people. It made the incorrect assumption that the pie was big enough to share in the first place, but what was always going to happen was that either the first in line were going to receive the largest slice or everybody was going to receive a morsel so small it would have been negligible. There was simply (due to apartheid) never economic resource enough to go around, which feeds back in to the first flaw. Because there was never enough to go around, BEE was never going to make South Africa more equitable. All it was going to do, all it has done is to strengthen racial identities while polarising along racial lines, a surefire recipe for slow-building disaster. It has also left many in the designated group angry, wondering where their promised redress has gone.

I’ve made some broad oversimplifications thus far, but not to the point of rendering the argument invalid. Yes, BEE (in its broad-based form at least) is not just about the redistribution of economic wealth; it’s also about providing access opportunities to previously disadvantaged individuals through equity in the workplace, and skills and enterprise development. At the epicentre of all of this though is redistribution of economic wealth – the pizza pie for 5 if you will – because that is where the base resources to unlock the other objectives lie. If you look at it from an individual perspective, no amount of access to opportunities can act as a substitute for having the resources to allow you to access the opportunities.

So, for example, on one hand you had a vacant post made available for a member of the designated group with the appropriate skills and on the other, you had masses in the designated group who (due to apartheid) were without the skills and, most critically, the economic resources to enable them to acquire the skills. BEE only partially addresses this gap by, for example, incentivising the provision of funding for the training programmes to upskill members of the designated group, but there is also a large, unfunded and at times prohibitive opportunity cost to the individual. That time spent gaining skills could have been spent earning a living with the little skills attained thus far. If members of the designated group had economic resources enough, the opportunity cost would have been less prohibitive. This conundrum has many permutations, but the conclusion is the same: economic opportunity without the economic resources to take up the opportunity is and will always be a damp squib.

Some in response may site the emergence of a black middle class as a success and credit the phenomenon to BEE. But I’ll stick my neck out there to say that once the barrier to opportunity (i.e. apartheid) was removed, a strong black middle class was always going to emerge regardless, thanks in part to the group’s greater population numbers. What remains debateable is whether and by how much BEE helped accelerate the process.

At this point, I find it necessary to emphasise the necessity of some kind of policy of redress in South Africa, not only because it is just, but also because like a living organism, the parts of the country’s body economically atrophied by apartheid need fast and effective rehabilitation if the country is ever to be globally competitive. Doing nothing, as some suggest, will lead to a permanently disabled society.

So this is where I find myself in asking, what now? The solution to the first flaw is simple. Find another way of identifying the designated group other than race. The second flaw is a little trickier because it would require growing the size of the pie while understanding and providing for the time lag inherent any growth process and in having skills catch up to opportunities. I have yet, despite the problems sited with BEE, to see any alternative redress policy put forward that adequately addresses the current concerns. This brings to mind something that Stephen Walt wrote in Foreign Policy: perhaps the most obvious reason why foolish ideas persist is that someone has an interest in defending or promoting them.

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3 thoughts on “Why black economic empowerment was flawed from the start

  1. Loudly South African says:

    You ask “what now?”
    Well, either one lives life as an individual or as a member of a group – whether racial, gender, professional, etc. Obviously the degree to which moves along the continua between the individual and one’s various group identities is not, umm, in black-white but a matter of degree and situation.

    One result of the Western Enlightenment was to raise the profile of the individual, although one may argue that the econo-narcissism of pure laissez-faire has over-done it (would that the bankers and gnomes in 2008 had been more public spirited). This thinking for oneself is discouraged by centralists and dictators, including Gaddafi and many in the ANC.

  2. toni_gon says:

    you make valid points but omit to take into account, or mention that the apartheid regime was racist as well as corrupt, and that the lack of economic participation by all population groups was a result of that.

    So for a new government who had at their their core, a agenda of equality and non racism to take the very same practices and use them to enrich themselves just as the previous tyrants the NP had done, is not only ironic, it makes a mockery of the so called democratic process where all men are presumed equal, in the case of the ANC, cronies are far more equal than others.

    Their current policies, which are driven purely by greed and are designed to drain the public fiscus, as fast as possible, as they are running out of time,will not benefit their vote cows, one iota.

    Until we have a society that does not tolerate systemic and endemic corruption, of the type used by the ANC to stay in power at any cost, we will continue to decline in global terms towards the typical Third World banana republic state.

    Africa is full of proof of this, my question is: Why do not more people see this?

  3. Scott says:

    I think you’re asking all the right questions. I also don’t have an answer to the what now question, but I’ll pose one thought about a potential benefit of BEE such as it is: Isn’t it important even just for the transformation of the composition of those at the table for the small pie? That is, shouldn’t corporate South Africa be more reflective of the population in hopes (I know this part is a stretch) that those now coming to the table will have the interests of those they left behind as currently disadvantaged? I think there is value in the doors to elite status being forced open.

    But, in the end, you’re still right that the pie is too small to be that significant to most people and that something must be done to grow the pie and give skills to those wanting to take part in the economy. But I tend to think that’s a separate policy issue from the BEE question.

    But do you think it’s possible to change BEE to address these issues? Perhaps make the focus of it on channeling a portion of corporate profits into tested and measurable opportunity development? Saying to the business community “you must support education and skills development” but giving a degree of latitude to do so apart from inefficient structures like the SETAs?

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