BEE: Dead or alive?

Written on politicsweb.co.za

BEE: Dead or alive?

James Myburgh

 

JOHANNESBURG – In the Mail & Guardian last week two very conflicting views of the future of BEE were presented. On the one side Reg Rumney argued that a different approach was needed. BEE deal making – the “transfer of equity and high-profile positions and windfalls for the politically connected” – had become discredited.

It had “at times” been a mask for corruption, set a bad example for society (of wealth too easily acquired), and had led to a “growing resentment of the enrichment that BEE deals seemed to represent.” Rumney concluded by argued against persisting with the current approach: “One definition of madness, the saying goes, is to do the same thing over and over and expect different results.”

On the other side of the argument stood Keith Levenstein the chief executive of EconoBEE. He argued that the policy was still necessary and – with having been tweaked a couple of years ago – simply needed to be implemented properly.

The current advocates of BEE, and even those currently having second thoughts about it, tend to assume that it is a unique and necessary response to our particular history (of apartheid). In fact, this sort of approach was tried in many ‘new nations’ after the old lot gave up power, based on precisely the same grounds, and usually with the same results.

The ANC’s policy of transformation was aimed, as elsewhere, at achieving racial equality through overcoming the ‘imbalances of the past’. The plan was for the ANC to intervene in state and society to redistribute resources from the white minority to the black majority – from job opportunities and government contracts to private company equity.

A generation ago the worldview underpinning this programme was prevalent in the Third World. Across Africa and Asia the prosperity of productive minorities, relative to the newly politically empowered majority, was viewed as ‘unearned’ and a ‘legacy of colonialism.’ Moreover, many of the ‘unintended consequences’ of BEE that we are witnessing today were identified and described by the economist P.T. Bauer some thirty years ago.

Transforming a society quite obviously requires the use of coercion. As such it justifies both the centralization of power and the removal of restraints on its employ. One consequence of this, as Bauer noted in 1981, is the worsening of the inequality of power between rulers and ruled.

Given how power corrupts, once rulers have appropriated for themselves the ability to allocate resources at will, looting and self-enrichment follows soon after. In our case the arbitrary powers the ANC has accumulated – over the allocation of jobs, tenders and mining licenses – have almost invariably been used to benefit a narrow class of cronies.

Another consequence noted by Bauer is that these policies lead to the politicization of life in society as “economic activity comes to depend on political decisions.” This exacerbates political conflict as the question of who rules becomes of critical importance.

In his defence of BEE Levenstein implies that the policy is necessary to reduce poverty. He states: “We all have equal rights, but the people living in the squatter camps – the poorest, the least educated, Another holders of the worst jobs – are all still black. The millionaires remain white.”

There may be other reasons to pursue BEE, but uplifting the poor is surely not one of them. As Bauer noted such a focus on “the relative positions of different groups” actually diverts “attention from the causes of poverty, especially the causes which underlie real hardship, and from the possibilities of effective remedial measures.”

In South Africa’s case, poverty is due most obviously to unnaturally high levels of unemployment. This also exacerbates income inequality as a huge proportion of the population is without work. Many black South Africans hold the ‘worst jobs’ because they are unskilled.

It is almost impossible to see how onerous BEE criteria – or the many other components of Africanisation – facilitate job creation, service delivery (including of housing to residents of the aforementioned squatter camps) or the provision of quality education and skills training.

It is hard enough to keep government procurement honest when contracts are determined by professional civil servants on the criteria of price and technical capacity alone. When ‘BEE criteria’ are given equal weighting to capacity (and party hacks make the key decisions) it becomes almost impossible to award tenders cleanly, cost-effectively or with any confidence that the contractor will actually deliver in the end.

The consequences for service delivery have been dire. As Finance Minister Pravin Gordhan stated last year: “Can it be right that a provincial department spends R250 million of hard-earned taxpayers money on a project that never sees the light of day; or R40 million on a school that should cost R15 million? If you appropriated funds for a department that said it will build houses, what do you do when the houses are not built or when those that are built collapse even before the recipients move in?”

These policies have also seriously hindered economic growth most immediately by deterring investment, particularly in the mining sector. Moreover, as Tim Cohen has noted, while many businessmen see the potential advantages of BEE they realize the “costs are huge and have to be borne by the economy. BEE happens at the expense of shareholders – essentially pensioners present and future – and corporate expansion opportunities, which means jobs. Instead of issuing shares to raise capital to expand, companies are issuing shares to provide a gift to small groups of people lucky enough to be able to participate. “

Efforts at effecting the large-scale redistribution of resources from one group to another have other negative effects. As Bauer noted such an approach “diverts people’s energies and ambitions from productive economic activity to politics and public administration. It also encourages attempts to benefit from politically-organised redistribution, or to escape its consequences. An even more evident result is that these policies systematically transfer resources from people who are economically productive to others who are less so.”

In sum, he argued, the pursuit of equality of outcomes “is more likely to harm than to benefit the living standards of the very poor by politicizing life, by restricting the accumulation and effective deployment of capital, by obstructing social and economic mobility at all levels, and by inhibiting enterprise in many different ways.”

The old argument for BEE was that while it might not make economic sense it was necessary for political stability, not least to buy off demands for nationalisation. This is proving not to be the case. South Africa risks falling into a vicious cycle: The measures taken to effect equality (of outcomes) are hindering economic growth, hobbling service delivery and exacerbating poverty. This continued poverty serves, in turn, as a rationalisation for even more stringent measures to achieve the elusive grail of equality

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