The example of the US shows black economic empowerment doesn’t work

South Africa’s ostensibly intractable socioeconomic problems are a consequence of government policy, whether deliberate or unintentional. No amount of indulging in scapegoating such as blaming colonialism, imperialism, apartheid, the private sector or the now discredited concept of white monopoly capital can negate this self-evident truism. The fault, ultimately, lies squarely and exclusively with policymakers, specifically those in the parliamentary arena who have the final say in originating and crafting policy with which the rest of the population, especially private enterprise, must comply.

A most socioeconomically damaging policy is affirmative action, as well as the euphemistically termed broad-based black economic empowerment in South Africa. For the neediest and more economically depressed black majorities it does not and inherently cannot bring about the economic empowerment and upliftment for which it was conceptualised. 

The story of affirmative action in South Africa mimics all cases in all countries where such policies have been implemented. It is curious why South Africa persists in pursuing this demonstrably iniquitous policy in the face of glaring universal evidence of its failure.  

Despite more than 50 years of affirmative action policies implemented to benefit the black sector of the American population, the statistics indicate a fundamental flaw in the very concept itself.

This is substantiated when the household incomes of the ethnic diversity that constitutes the American nation are compared. According to the report Income and Poverty in the United States:2015 (Bernadette D Proctor, Jessica L Semega and Melissa A Kollar), the picture is as follows:

US household income earnings per ethnic group – estimated

• Asian $74, 382 (margin of error $ 3470)
• White household not Hispanic $60 325 (margin of error $606)
• Hispanic any race $42, 540 (margin of error $849)
• Blacks $35, 439 (margin of error $759)

If one looks at the highest income group, the Asians, it has to be emphasised that in the US, no affirmative action intervention was ever instituted on their behalf. The result is a product of their own initiative and hard work with no government assistance. 

In South Africa, as in all country cases with affirmative action programmes, the experience is notoriously uniformly negative. It is morally and economically incumbent on policymakers to eliminate such a harmful measure. Removal of affirmative action would drastically reduce the flight of both intellectual and financial capital on the part of the members of the population who are unnecessarily alienated by this policy.  

The overall socioeconomic problems that afflict the country are manifested in terms of a contracting, junk status economy; unemployment levels above 35% when including those who have given up looking for work; and the poor management of most state-owned enterprises.

The solution to these challenges lies in understanding some very basic principles of human nature. People are motivated by pursuing self-interest-informed initiatives that address their socioeconomic aspirations. Entrepreneurial owners seldom draw any personal income for quite a while as they focus on growing their business to realise profits from the risks they take to establish a going concern. 

To deal with the socioeconomic challenges that confront the country, the following specific principles should be adopted:  

1. Government to implement policies that will bring about or enhance economic freedom as defined by protection of private property, freedom of exchange, freedom to choose and freedom to compete. By the same token, government must abrogate those policies that impede or undermine the economic freedom of the citizens.
2. Open up the labour market so as to allow voluntary employer-employee arrangements preferably, or the long-term unemployed to enter into voluntary contractual arrangements with employers on any basis that is acceptable to them.

There are, however, some specific measures that government can implement without violating the principles that are stated above.

• As the financial services industry is the lifeblood of the economy, government must desist from interfering with the efficient operation of this sector, which, over the years, has been delivering a sophisticated service with innovative products.
• Government should give shares in state-owned enterprises to poor people. In this scenario, the beneficiaries would be identified on a strict means-tested basis across all colour lines.
• Give superfluous state land to poor families on a one-family-one-plot basis with basic infrastructure provided.

These non-ideological policy measures, being compatible with human nature and economic principles, are very easy to implement and would effectively address the multifaceted self-inflicted challenges that beset the country. It is a sad reality of the conduct of policymakers that they pander to narrow vested interests and focus on the short term for garnering votes instead of adopting a long-term approach that is informed by the big picture.

Nolutshungu is a Director of the Free Market Foundation. His views do not necessarily represent those of The Citizen

This article was extracted from Nolutshungu’s address to the 2017 Trust Seminar presented by C2M and MHI