RET: A struggle at the top of the pyramid

Illana Meltzer and David Christianson say the racial composition of the elite is already rapidly changing

The radical economic transformation debate is a struggle at the top of the pyramid

To debate the merits of Radical Economic Transformation (RET) without reference to socio-economic data is nothing short of political sloganeering, diverting attention from poorer sections of society where, as the data shows, radical transformation is a pressing need.

The term RET was re-injected into South Africa’s public discourse by President Zuma’s speech at his second inauguration, in 2014. On that occasion he promised that, ‘the structure of the economy will be transformed through industrialisation, broad-based black economic empowerment and … strengthening and expanding the role of the state in the economy’. Others have used similarly imprecise definitions with deputy President Ramaphosa leading a group who argue that RET is nothing more than 'inclusive economic growth'.

But such a soft definition is evasive. It was clear when Finance Minister Malusi Gigaba's advisor, Wits economist Chris Malikane, published his views on the matter, that the definition of RET which resonates among its proponents is all about who own the 'commanding heights of the economy'. Malikane advocates nationalisation as a route to racial redistribution at the head of the economy; others, like the Black Business Council, are likely to favour a more direct transfer; 'BEE on steroids' as one commentator puts it.

Of course RET is, at one level, simply the election slogan of a political party – or at least the dominant faction within it – facing the test of a general election 2019. But rather than seeing it solely within an electoral context, it may be more useful to cast back to the strategic roots of the concept and ask whether it need necessarily be an elite obsession only?

RET originates in the idea of a national democratic revolution. The theory, it will be recalled, is essentially Marxist and regards South Africa’s 1994 transition as only the first ('bourgeois') phase of a 'revolution'. It is the event which, so the narrative goes, will transfer state power to the proletariat who will use this as an instrument to transform society in radical ways.

The Marxist theory of the National Democratic Revolution reads as no more grounded in reality today than it did when first unveiled but points to something which can be empirically tested. How has society changed – or 'transformed' to use the language of the present debate – and how radical is this?

This is a fair entry point to a discourse where almost all the competing definitions of RET imply that it has to related to wider social issues. Finance minister Malusi Gigaba, used such a formulation in his budget vote speech in May: According to him, RET is ‘changing the structure, ownership and institutions of our economy to include all South African in opportunity and wealth creation, particularly marginalised groups such as black people, women and youth’.

Income distribution across and within society is one of the two key sets of metrics here, alongside poverty indicators. It is well-known that income inequality, measured in terms of the country’s Gini co-efficent, has hardly shifted in the last 20 years. It was O.59 in 1993 and 0.65 in 2014, according to the World Bank's expenditure-based calculations (see here). Yet the Gini coefficient is a crude metric and often conceals more than it reveals. In fact the racial composition of the top of the pyramid has shifted quite startlingly in recent years.

Numbers released by Cape Town based research and analytics consultancy Eighty20, based on AMPS figures, show that there has been significant growth in the number of higher earning households, and that the composition of this segment has shifted noticeably. In 2010 only 34 percent of households earning R30 000 (in 2011 Rands) or more was Black (African); by 2015 the ratio had shifted upward to 43 percent.

In absolute terms the number of black households at the top of the pyramid had almost doubled while the number of white households had broadly stayed the same. In the segment below this (incomes of between R15 000 and R30 000 in 2010 Rands), Black households now dominate (53 percent in 2015 up from 44 percent in 2010) while white representation is down from 43 percent to 32 percent.

Looking at these top two segments and confining analysis to racial demographics only, it is difficult to escape the impression that there has been a fairly radical transformation already. Ignoring issues like inter-group trust and social dynamics, the significant shift at the top of the pyramid would suggest that South Africa’s transition to a non-racial elite is substantially underway. Although the state is far from an insignificant driver of this trend, it is less central than some of the most enthusiastic advocates of RET seem to think.

It is often claimed that the emerging black middle class is a creature of government employment. But the figures belie this claim. Data from the Employment Equity Commission highlights that, in 2015, there were 9 150 black senior and top managers employed in the public sector (out of a total of 1.4 million Black people employed in the public sector) while two-and-a-half times that figure –  23 500 – were employed by business. That is not to say that this journey has run its course by any means.

This number would have to increase fourfold to rid the private sector of a visible skew towards whites, holding all else constant. But as a growing number of affluent black households enrol their children in better schools and create access for them to opportunities that have historically been the preserve of white children in South Africa, this transformation is likely to occur even with limited further state intervention.

Indeed, if the data is accurate, transforming the top in South Africa appears to be relatively easy; achievable on the back of existing policies within the existing economic structure.

It is transforming the experiences of the majority of South Africans who remain stuck in poverty that remains a larger challenge. While the World Bank’s poverty figures – based on an income threshold of US$1.90/day – show that while there was a large reduction in poverty in South Africa between 1996 (when the poverty rate, or proportion of the population living below its defined poverty line, was 33.8 percent) and the global economic crisis of 2008 (when the poverty rate had fallen to 16.9 percent), there has been very little movement subsequently. The Bank’s poverty rate for South Africa in 2016 was 15.9 percent, obstinately close to the figure a decade ago.

Clearly it is in the lowest income quintiles that any proposed policy to induce radical economic transformation be tested. The seizing-up of movement in the poverty figures since 2008 suggests that the impact of increased social grants had played through the numbers by that year. While a radical change in the overall quantum of grants would clearly have an impact, this is not possible within the current fiscal envelope.

Clearly, the radical change South Africa needs is in its capacity to absorb more workers, many of whom have been poorly educated by the democratic revolution’s own department of very basic education. Surely, it is how we do this, rather than current arguments about who owns what at the top of the pyramid that should be the primary focus of the debate.

Illana Meltzer is a Director of Eighty20. David Christianson is a business writer and consultant.