Economic Transformation in South Africa: A Democratic Alliance Perspective
18 August 2017
Note to Editors: The following lecture was delivered last night by the DA Leader at the Wits University School of Governance on 17 August 2017, hosted in collaboration with the University of Pretoria’s Centre for the Study of Governance Innovation (GovInn).
Programme Director, Prince Mashele
Director of the University of Pretoria’s Centre for the Study of Governance Innovation, Professor Lorenzo Fioramonti;
Director of the Wits University School of Governance,
Ladies and Gentlemen,
I stand before you to deliver this Lecture on economic transformation under the immense pressure, of what Lyndon Johnson called “the fierce urgency of now”.
In the DA we have been spending sleepless nights thinking about what to do to stop South Africa’s economic decline, to give hope to millions of our people who languish in poverty and unemployment.
Recent political developments in our country have worsened the parlous state of our economy. Corruption, state capture and the disintegration of the ANC have combined to reduce South Africa to a junk status.
Both local and international investors have lost confidence in the ability of our country’s corrupt leadership to grow and manage the economy well. That things are falling apart everybody can see.
Even ordinary South Africans no longer see the state as an instrument of their development. It is obvious that the state is being used to enrich a few politically connected friends and families.
When things are so bad, South Africans look to the second largest political party, the DA, for solutions.
As infighting, corruption and factionalism continue to tear the ANC apart, I am mindful that millions of South Africans expect my party to offer hope. The weight of history is on our shoulders.
South Africans expect from the DA a credible leadership with a clear vision and concrete ideas on how to turn our country from despair to inspiration.
At a time like this, there is no room for politicians to play semantic games with pretentious and woolly slogans like radical economic transformation – slogans that are tantalising but without practical meaning.
The South African economic situation is dire. More than nine million people are without jobs. About half of our young people are not working. The gap between the rich and the poor continues to widen.
The growth in the number of citizens who receive social grants cannot be sustained by an economy that is in decline. Neither can the state continue to expand the size of the bureaucracy, acting as the “employer of last resort”. Even the provision of quality services cannot be guaranteed by a state with dwindling resources. For the provision of such public goods needs revenue from a thriving economy.
Ladies and Gentlemen,
When the situation is so bad, we have no luxury to deliver lectures on transformation as if transformation is a stand-alone item outside the wider crisis of the economy.
Hoping to reap the fruits of transformation from a collapsing economy is like expecting milk from a dying cow. We must save the cow for all of us to get milk. The economy must grow for us all to get our fair share.
What, then, is South Africa’s economic crisis?
Ours is a crisis of confidence, and a crisis of production. As we ponder the future, the questions that arise are:
- How will South Africa regain the confidence of a global market that increasingly sees us with wary and sceptical eyes?
- How will we build a meaningful relationship of partnership between business and government in South Africa, so that entrepreneurs feel confident to invest, build and create here?
- And what will South Africa produce and sell to the rest of the world?
The historic backbone of our economy, mining, is in serious decline. Hoping for the return of the diamond or gold rush of the late 19th century is a pipedream.
Even demand for other mineral resources – such as platinum, iron ore, etc. – fluctuates in response to the vicissitudes of international trade. Our vast wealth of coal reserves offers no hope in a world seeking to reduce dependence of fossil fuels.
South Africa’s manufacturing base, built over the years on the back of cheap electricity and steel, is also in decline. The truth is simple: if we cannot manufacture things, we will have nothing to sell to others in the world.
The growth of the services sector has not and shall not mitigate our economy’s crisis of production. Sustainable jobs can be created only if our economy produces value-added products for both domestic and international consumption.
In response to our country’s economic crisis, the ideas proffered by the DA’s political opponents are either sterile or destructive. They range from a suicidal dalliance with nationalisation to a blind faith in redistributive consumerism.
We in the DA think differently. We offer better ideas to build a growing economy that is both innovative and inclusive. Only a healthy tree can bear the fruits of economic transformation. A dead tree can only provide wood, not fruits.
Addressing historic injustices
The historic distribution of socio-economic privileges along racial lines continues to impose a heavy burden on South Africa’s contemporary politics.
For centuries, black people in South Africa were victims of race-based laws meant to keep them on the lower rung of the economic ladder. In addition to missed opportunities after 1994, the general socio-economic underdevelopment of black people in our country today can be accounted for chiefly on the basis of race-based colonial and apartheid policies.
The DA is deeply troubled by this great historic injustice. We are determined to address the situation by levelling the playing field to ensure that history does not continue to undermine the economic potential of the vast majority of South Africans.
We recognise it as an anomaly that the distribution of wealth, opportunity and skills remains skewed along the same discriminatory racial lines established under apartheid. Left uncorrected, this state of affairs will be used by opportunists to further divide our nation.
The DA believes that economic transformation is most effectively achieved by multiplying poor black people's access to income generating activities that can provide routes out of poverty and into the middle class.
We believe that the economy must play a critical role in uniting – not dividing – our people. This is the principle that informs our perspective on economic transformation.
The uniqueness of our policy on transformation is in the DA’s emphasis on growth. A wealth redistribution model that is not accompanied by interventions to grow the economy is bound to fail.
However, having read Professor Fioramonti’s book Wellbeing Economy, I must say something about his insightful criticism of a purist focus on growth alone. The DA’s ultimate objective is not only to maximise economic growth, but to maximise the wellbeing of all citizens. Every citizen, regardless of race, should have access to the opportunities and benefits that a growing economy provides.
And when I say economic growth, I say that in the full awareness that GDP is not an ideal measurement for economic inclusion. That’s why we take very seriously a variety of other indicators of societal wellbeing, such as measures for inequality, poverty and unemployment.
But I do believe that for South Africa to pull millions out of poverty, we need more job-creating economic activity.
The experience of the past two decades confirms the soundness of our policy perspective. Alongside growing unemployment, the Black Economic Empowerment (BEE) model of the past has produced a few black millionaires who have set up no businesses of scale to employ ordinary South Africans.
That BEE as has been implemented is unsustainable is obvious. The DA believes in unlocking real economic opportunities for black people, by implementing an empowerment model that will extend access to economic opportunities for far wider than a tiny group of politically connected black individuals.
And this is an imperative that does not only benefit black South Africans. Our country can only thrive over the long term with a strong, broad and powerful middle class. No country of 60 million people can sustainably thrive with a comparatively tiny middle class.
This is the shared objective that both black and white South Africans have. We truly are all in this together.
As an aside, leaders in our society can't just retain the leadership of one race, a narrow racial constituency. In South Africa, all of us who claim to lead are obligated to lead for everyone.
It is the most cynical and easiest path of bad leaders to simply retreat with their constituencies into the same racial lagers as defined for us by colonialism and apartheid.
It is much more difficult, but essential for our shared future, for us to build bridges and bring people together.
Under a DA-led government, black entrepreneurs who seek financial support from the state and its finance institutions will have to show that they will produce actual goods or services, and that they will create real jobs. If they have brilliant ideas, then an enabling will be there to assist them to convert their ideas into concrete productive projects.
We cannot continue to enrich a tiny group of connected few who neither contribute to economic growth nor create jobs.
Tragically, the capture of black economic empowerment to empower the elite has actually locked out many black businesses — because tenders and deals only go to the well-connected cronies. Ordinary black entrepreneurs are left out in the cold.
This must be done in a manner that does not give cover to forces that are opposed to transformation. I must make it abundantly clear: Expanding economic opportunities to black South Africans is a national imperative. There is no way out of it.
Black South Africans need an economy to protect. It must be as outrageous to any race when someone states that when the Rand falls, “we will pick it up”.
The DA supports share schemes in the private sector that give wealth to workers and make them partners and part owners of businesses.
Instead of channelling money into the pockets of a few cronies who add no value to a company, it makes sense for the workers who produce wealth to benefit, and for them to be represented in decision-making structures and processes of companies. This model has been tried and tested in countries like Germany. It is about time that we experiment with it more seriously here in South Africa.
It is DA policy for the South African economy to be a facilitator of racial integration rather than being a source of division. This is a national imperative towards which all patriotic citizens must strive.
We have an objective to move our current nationalist orientation towards a citizens’ orientation.
Nationalism has been the orientation of South African politics for hundreds of years - most recently through the National party and now the African National Congress. This must be a critical change, for a post nationalist era in South Africa, for the first time ever.
In a nutshell, these are the elements that constitute the DA’s policy on black economic empowerment. Our strategic objective is racial harmony and nation building. It is not punitive redistribution. That is why our model is growth-centred.
Our economic model
In the current period of global economic upheaval, confusion drives economic discourse. The erstwhile champions of globalisation – the U.S. and Western Europe – are showing signs that they now doubt their commitment to free-market economics. This is a cul-de-sac that the world has been down before. It is a dead end. The economic nationalism of “America first” may make for good slogans, but it makes for poorer people, with lower wages, paying higher prices.
There needs to be a resurgence of faith in open markets and greater global integration. India are pioneering this now - showing the world that the “glorious isolationism” of the 20th century is neither feasible nor glorious.
Mankind is passing through an ironic epoch in history – a time when China, a country that used to hoist the flag for socialism, is now the most enthusiastic evangelist of globalisation and its engine of market economics that delivers stunning improvements in the basic quality of life of the poor.
In a chaotic time like this, it is tempting for political parties to question the correctness of their long-cherished ideals, and go with the wind. The DA shall not be blown by the gusty winds of international economic nationalism and their domestic variant of nationalisation and crony capitalism in Marxist garb.
History has proven that nationalisation throttles the creative and productive capacities of people. It does not free the human spirit. It actually ends in disaster. One need only look at the tragedy of Venezuela today.
There are no indications that socialism in Russia will rise again from its grave, or that China will any time soon revert to the stagnant socialist days of Chairman Mao.
On the other hand, almost all market economies that have experienced serious downturns have been able to get out of the hole – even if it takes long.
Imperfect as it has proven to be, the inclusive market economy remains the most agile and resilient way of improving the lives of the poor over time.
What is needed is a regulatory system that will tame destructive greed, and facilitate a fairer access to the opportunities that humans require to build a better life. This is why I find Professor Fioramonti’s book on Well-being Economy interesting.
The idea of well-being as an organising economic principle calls for open-mindedness.
Professor Fioramonti does concede that, “There is little hope for a country that embraces wellbeing as its political objective to succeed in a world dominated by the growth mantra.” This, unfortunately, is the world we currently live in.
We stand ready to modify our ideas to deal with the peculiarities of South Africa’s economic situation. Even as we from time to time take tactical detours, the strategic ideal of creating a society where all shall have equal opportunities remains our ideological guiding light.
Once the playing field has been levelled, there shall be no need for race-based special provisions. There shall be equal opportunities for all – black and white.
The role of state-owned companies
The debate on the extent of state’s role in the economy remains central to the political debate in our country today.
Our position is that there is a critical, facilitative role for some state-run companies in the South African economy, but that many of the state monopolies play no positive role at all any more and actually only impoverish people with corruption and monopoly pricing.
Ours is not a dogmatic position on the matter. Our flexible approach allows for openness in dealing with each state-owned company on its own merit. Those that add no demonstrable value, abuse their monopoly positions to fleece the public, or where services could be much more efficiently delivered by the private sector, should be disposed of.
I must point out that the DA is not satisfied with the state of state-owned companies in South Africa today. Many of them have been crippled by corruption, maladministration and financial mismanagement.
The DA has a clear set of solutions to these problems. We have a zero-tolerance for corruption. When we take over power, we will immediately unleash law enforcement agencies to drain corruption out of all state-owned companies. Every corrupt official shall go to jail.
The introduction of private investors as even minority shareholders in some state-owned companies would go a long way to stabilise both governance and financial management. Private capital will not sit back and watch its financial interests being ruined by maladministration.
The DA does not support the constant bailing-out of state-owned companies that are mismanaged by politically-connected officials. When we are in power, we will professionalise the governance of all state-owned companies. There shall be no political deployees in management structures or on boards of directors. Only technically qualified South Africans will manage state-owned enterprises.
The crippling mismanagement that have been going on in these companies shall be halted the first day a DA-led government steps into national office.
De-concentrating the economy
The South African economy is highly concentrated. Too few companies control vast economic sectors. Every formal sector of the economy is dominated by a handful of companies. As John Stuart Mill correctly observes,
Where competitors are so few, they always end by agreeing not to compete. They may run a race of cheapness to ruin a new candidate…
The economic history of South Africa is littered with too many examples of this – from the early days of the Randlords in mining to our contemporary times of price-fixing in the construction of stadia for the 2010 Fifa Soccer Wold Cup.
High concentration throttles the spirit of entrepreneurship by implanting in the mind of society the prohibitive attitude that it is a waste of time to come up with new ideas in an economy that is controlled by an exclusive club of plutocrats and cronies.
This is precisely the negative attitude the DA seeks to reverse. We support the strengthening of South Africa’s competition regime, to punish and root out anti-competitive conduct in business.
One of the most ill-informed criticisms of the DA, among a crowded field, is that the DA is somehow the party of “big business”. The DA is a liberal party in true sense of the word: we stand opposed to power concentrations wherever they occur - in big business, in big labour, and in big government. If anything, it is the ANC, like the Nationalists before it, that cozy up to big business in the ultimate “mutually corrupt relationship”. Power is where power goes.
The story of the humble origins of modern information and technology giants such as Microsoft, Apple or Facebook is well-known. These global corporate giants were first incubated in the minds of ordinary men, before they were hatched out into practical initiatives. Over time, they were nursed to become big, well-known companies. Such is the power of the small guy in a market economy.
Trends elsewhere in the world, particularly in such fast-growing regions as South East Asia, suggest that the future of the world economy is in small businesses.
We live in a world where knowledge is getting more and more diffused, so that ordinary men and women are able to come up with simple ideas that end up manifesting the bigness of humble visions. The point of enterprise development is to facilitate the translation of ideas into companies and products.
A society that hopes to be in the top league of economic innovators is one whose state institutions are designed to stand ready to assist private citizens who come up with brilliant small ideas to turn them into big economic projects.
Creative citizens must know where to go to give their ideas wings to fly. The DA believes that, to unlock South Africa’s economic potential, we must invest heavily in enterprise development.
Education and skills development
A properly designed and well-functioning national system of education ought to do two things: (1) sharpen the appetite of citizens to seek more knowledge, and (2) equip citizens with the technical know-how to participate actively in the economic activities of society.
The former is an essential ingredient for personal development and self-fulfilment. It engenders a critical spirit in a democracy. The production of goods and services depends on the latter.
Whether or not the youth who go through South Africa’s system of education re-enter society as voracious seekers of knowledge is hard to tell. What is clear from international studies is that, compared to her peer countries, South Africa’s level of entrepreneurship is low.
That South Africa’s system of education is currently not supplying the economy with much-needed skills is a commonplace. Our ranking of 138th in global maths education shows that our country’s system of skills production is deficient where it matters most.
Various sectors of the economy are in desperate need of engineers and a whole range of artisans. The failure to supply the economy with such critical skills is linked to the country’s poor performance in mathematics and science.
The Trends in International Mathematics and Science Study (TIMSS) shows that South Africa is not in the category of top performing East Asian countries like Hong Kong, South Korea and Japan.
For our country to undergo an economic turnaround, we must jack up the performance of our children in mathematics and science. There is no other way. And indeed there is no shortcut. It is a source of great frustration to me that our children are so often told in school that they “are not good at maths” and should consider giving it up. It is true that some people are born more able to compute numbers than others - but everyone can and should learn the basics of mathematics, because it is the universal language on which our world is built, and in which new ideas are written.
In a nutshell, South Africa’s system of education is in serious crisis. It is at the same time a crisis of quality, a crisis of quantity, and a crisis of funding. Barring a handful of former Model C and private schools, the bulk of our country’s public schools need urgent interventions by a new government that is serious about fixing the currently dysfunctional system of basic education. The DA is already pioneering, with exciting results, Charter Schools that allow a partnership between public and private sectors to deliver much improved education to the poor.
The types of artisanal skills that the economy is hungry for necessitate that our country must strike a good balance between the production of university-trained theoreticians and technicians who can create and fix things.
A core proposal that I have made before, and wish to make again, is a one year national programme for all qualifying matriculants who wish to learn skills and gain some basic work experience - a matric plus!
The heads of our educated citizens must brim with ideas that assist society to solve practical problems. The DA’s approach to education and training centres around the production of knowledge that frees the mind and prepares the individual to participate actively in the production of goods and services.
Ladies and Gentlemen,
A corrupt and incompetent state is a disaster for the economy. A democratic state that is accountable and has the leadership and technical capacities to direct development can be an engine for wealth and job creation. It is the latter that the DA is working towards.
It is important to spell out our vision succinctly. The DA believes that South Africa needs three important ingredients: (1) a visionary and coherent politics; (2) a skilled and knowledge-loving population; and (3) an ever-modernising, competitive economy that creates jobs for all. This can be done only through the facilitative role of an accountable and technically capable democratic state with a modern outlook. The DA’s politics is driven precisely by the quest for this noble ideal.
Our view is that transformation is a component of the economy, which is why we do not deal with it as if it is an isolated phenomenon. We place it at the centre of the whole economy – a growing economy that creates jobs.
We believe that the implementation of the economic programme I have outlined tonight can and will benefit all South Africans – black and white. We are more than ready to debate with whoever claims to have better ideas. The DA is a listening party. We are always ready to experiment with new ideas that work.
Thank you very much for lending me your ears.
 Fioramonti L., 2017, Wellbeing Economy, South Africa: Pan Macmillan, p. 131.
 Mill J. S., 2004, Principles of Political Economy, New York: Prometheus Books, p. 159.
Issued by the DA, 18 August 2017