Populist groups made big gains in the elections; parties that promise more gradual and realistic solutions lost out. That should set off alarm bells about economic policy.
Voters aren’t naive or careless. Rather, they responded to the failure to deliver on the economic pact that implicitly underpinned the transition to democracy. That pact had two key elements. First, the government would not disrupt ownership and control of the economy. Instead, it would expand services to historically deprived communities, enforce labour rights and end overtly racist practices. Second, on that basis, the economy would grow more rapidly, scaling up employment opportunities and boosting incomes. Established businesses and the rich would pay taxes to improve services in working-class communities, but only at rates aligned with global norms.
The 1994 pact promised prosperity for the majority while avoiding risky economic disruptions. The government kept to its side of the bargain, avoiding disruptive actions on the economy while extending basic services in black communities. But the economy didn’t deliver. Most visibly, the employment ratio — the share of adults with employment — has fluctuated at about 40% since 1994, far behind the global norm of 60%. Unusually deep disparities in earned income and asset ownership persisted. Thirty years after the transition to democracy, SA still ranks among the most unequal countries in the world.
There has been some progress. Redistribution by the state, through improved basic services and social grants, mitigates the worst effects of economic inequality. And more black people have joined the upper class. In 2023, over half of households in the richest 10% were black, up from near zero, though still far from full representativeness.
A central cause is that very little was done to promote labour-intensive activities that could scale up job creation and open space for small business.
Incremental improvements over the past 30 years have done little, however, to alleviate persistent, visibly unfair differences in economic earnings and power. The election results point to the social and political risks of leaving these extraordinary inequalities in place.
In particular, serious people have long promised sustainable, evidence-based, low-risk solutions. If they can’t deliver, voters have little choice but to turn to populists, defined here as groups that make big promises with no actual implementation plans. International experience suggests that populist rule leads to big, disruptive, symbolic actions, which fail to deliver sustainable solutions but often bring runaway inflation, capital and skills flight, industrial-scale looting and ethnic scapegoating.
From this standpoint, the real question is why SA failed to build a more inclusive economy over the past 30 years. A central cause is that very little was done to promote labour-intensive activities that could scale up job creation and open space for small business. Instead, industrial policy prioritised world-class industries. By definition, that approach can only generate mass employment if sales soar and production shifts to more labour-intensive activities, whether in manufacturing, services or agriculture.
Industrial policy has largely ignored these opportunities, instead foregrounding auto, steel and other historically strong but capital-intensive industries. Labour-intensive manufacturing remains stunted compared with other upper-middle-income countries. Moreover, global trade in manufactured goods has stagnated for over a decade, making a sudden jump in exports improbable.
Slow growth in labour-intensive production ruled out a revival of small business, which apartheid largely destroyed. In other countries, a fifth of adults are self-employed; in SA, just one in 20. That’s a hard gap to overcome. Historically, most households were deprived of assets, education, infrastructure, market access and entrepreneurial experience. Addressing those deficits requires collective action to support both new product lines and innovative forms of ownership, including township enterprise, the public and private services, and the social economy.
These are tough challenges. Support for labour-intensive activities and small business requires big new systems and institutions, and entails serious risks. Moreover, the government still has to maintain services for established businesses. But if the new administration doesn’t begin to reshape the economy to deliver for the majority of voters, SA risks vastly worse problems down the road.
• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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