MICHAEL AVERY | BEE has become a gatekeeper to patronage, not a pathway to growth

A senior South African business person and entrepreneur who has created more jobs and distributed more wealth — and certainly paid more taxes — than any politician in the country reached out after my column on Adam Smith to say, “We must do all we can to persuade government to let go, tolerate some chaos and loss of control, and let the private sector get on with it.”

Of course, and I wish more business leaders would say so in public. It is left to columnists to wade into the fetid depths of the debate, prepared for the brown stuff to be flung by people who honestly believe entrepreneurs want to build businesses in a stagnant economy. Just imagine.

There is this tendency when we tackle the BEE shibboleth to speak of transformation as if it exists in some abstract moral realm, far removed from the grubby mechanics of power. That illusion becomes harder to sustain the moment one looks closely at how the system actually works.

A recent study by Ivor Chipkin and Jelena Vidojević, "Elite Contestation in South Africa, 2006-2018: The Making and Unmaking of a Power Elite", dispenses with the pieties. South Africa’s political economy, they suggest, turns on something more prosaic: control of “the gate”, access to licences, contracts and economic opportunity.

That gate, crucially, is not guarded by impersonal institutions. It is controlled by people. By networks. By those who know which door might open and which remains stubbornly shut. Broad-based BEE was meant to prise open that gate. Instead, it has furnished it with hinges, locks and a set of rules that can be interpreted, bent or enforced depending on who is asking and who is answering.

Deputy president Paul Mashatile insists that BEE has delivered progress. If it disappoints, he argues, it is because it has been badly implemented. One can almost hear the exasperation among its supporters: “If only the machine were properly oiled, it would hum.”

But the machine is doing precisely what it was built to do. Once access to the economy depends on satisfying politically defined criteria such as ownership thresholds, procurement points or empowerment credentials, the state ceases to be a referee and becomes a dealer. Cards are handed out. Some hands are stronger than others. And the table, one quickly learns, is not entirely level. Where cards are dealt, rents appear. It is one of the more reliable laws of political economy.

Chipkin and Vidojević describe how during the Zuma years this logic hardened into the systematic logic of state capture. State institutions were repurposed “to generate huge rents for private consumption and to sustain select politicians in their political work”. Cash. Contracts. Jobs. A steady flow of inducements, lubricating the machinery of loyalty. One hesitates to call it corruption, if only because the word suggests deviation. This was no deviation because it was working exactly as planned.

It is tempting at this point to retreat into abstraction and speak of inequality, redress and the unfinished business of apartheid’s pernicious history and legacy. All of which is true, and none of which answers the more immediate question of what kind of system we have created in trying to address these wrongs.

The answer is not flattering. Political contestation, the same paper argues, often centres not on policy but on access and who controls the positions “that allow them to control the gate to patronage”. It submits that what appears on the surface as a struggle for justice may also be a struggle for jurisdiction over the spoils (certainly not a struggle to be poor, as Smuts Ngonyama famously quipped).

Thomas Piketty

Into this uneasy debate comes a more elegant argument, dressed in the language of global economics. Thomas Piketty and his admirers remind us, correctly, that extreme inequality is corrosive. It distorts demand, breeds instability and channels capital into unproductive corners. Look at East Asia, they say. Land reform first, growth later. Look at Brazil. Higher wages, falling inequality, no collapse. Redistribution and growth, hand in hand.

It is an argument that flatters our sense of historical injustice and offers the comfort of precedent. One would like to believe it. But analogies, like maps, are useful only insofar as they correspond to the terrain.

East Asia’s reforms were executed by states of formidable capacity, with a certain cold discipline. They dismantled old structures and then, with remarkable restraint, allowed new ones to emerge. Property rights were clarified. Markets expanded. The state withdrew, just enough.

South Africa has taken a different path. Here, redistribution has been threaded through a dense web of regulation and discretion. It does not simply transfer assets. It mediates access and decides, often in opaque ways (just ask any corporate lawyer having to navigate the labyrinthine layer of public interest under section 12A of the amended Competition Act), who qualifies, who complies, who must wait.

And so, where Piketty warns against rent-seeking, South Africa has, with a sense of irony that is lost on those who raise his work as gospel, found a way to make rent-seeking part of the system’s operating system. And so the system reproduces itself.

There is, of course, another path, one that does not deny the need for redress but refuses to confuse it with allocation. Consider something as unglamorous as a title deed. The Free Market Foundation’s Khaya Lam project has transferred tens of thousands of such deeds, turning tenants into owners and unlocking capital that had lain dormant for decades.

It is, in a way, radical, because it empowers without intermediation. One begins to wonder how different the economy might look if such principles were applied more broadly. And let’s not forget the Progress in International Reading Literacy Study finding that by grade 4 eight out of 10 South African children cannot read for meaning. You simply cannot reduce poverty or transform the economy without tackling education first. But this is unglamorous, long lead time, unsexy stuff.

Of course we need to normalise society. Mashatile is right to say this mission cannot be abandoned. But it does not follow that it must be administered through ever more elaborate systems of compliance and ever more intrusive forms of oversight.

At some point one must ask whether the gate itself is the problem. Whether the very act of guarding it and deciding who may pass, on what terms, has created a structure that feeds on itself, indifferent to the growth it was meant to encourage.

• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at michael@fmr.co.za.