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Here's What Radical Economic Transformation Should Actually Mean In South Africa

You can count on the South African capitalist class to fight RET to the bitter end.

19/07/2017 03:59 SAST | Updated 19/07/2017 03:59 SAST
Dean Hutton/ Bloomberg/ Getty Images
Workers pass a sign outside the headquarters of the Johannesburg Stock Exchange (JSE) in the Sandton district of Johannesburg, South Africa, on Thursday, Dec. 19, 2013.

Despite South Africa's laudable, albeit fragile, democratic strides over the last 22 years, black South Africans, by and large, continue to be locked out of the economy. In many instances, the fortunes of the country's poor have even worsened. Little wonder the term "Radical Economic Transformation" (henceforth RET) has garnered such appeal. As is the fate of most overused terms, there is little to no agreement as to what it means. What is worse, there is virtually no agreement as to what policies may be instituted to bring it about.

On the latter question, most people simply resort to ready-made answers proffered by their ideological and economic position in society. Take, for example, Bonang Mohale and Jabu Mabuza's opinion on the kind of policy posture the government has to take in order to bring RET about. They argue, "We need foreign investment to achieve radical and meaningful transformation." Government policy ought, therefore, to ensure a policy regime conducive to investment.

On the other hand, Matthews Phosa has argued that the solution is increased spending on the poor. He argues, that the government should refrain from bailing-out failing SOEs and instead spend more on the poor. As the SOEs don't appear to be going anywhere quickly, this suggestion entails simply spending more money on the poor. Clearly both suggestions are incompatible, at least in the current atmosphere. As statements by credit rating agencies during their recent downgrade Jamboree evince, increased spending on the poor is almost certainly going to be viewed as antithetical to Foreign Direct Investment.

Terms such as "spending ceiling", "fiscal discipline" and "structural reforms" were employed in the statements released by all three rating agencies in order to make exactly the point that more government spending is not good for investment. But perhaps part of the confusion as to what policies would be favourable to RET is due to the fact that we never actually define the term so as to ascertain that we all have the same referent in mind. To define it, we should briefly survey the current situation.

In 2016, a study by data and earnings analytic consultancy firm, Analytico, found that while white males without a professional degree, working in the formal sector, have a median monthly salary of R21,700, black males with a professional degree earned about R12,456 less. Black females find themselves at the bottom of the stack. According to StatsSA, generally speaking, whites earn five times more than blacks. Wealth follows a not-so-different trajectory as income. Tax and survey data reported on by the Mail and Guardian in 2016 showed that "10 percent of the population own at least 90 percent to 95 percent of all assets (including stocks, mineral resources and land), although they earn 'only' about 55 percent to 60 percent of all income".

What this suggests is that while we can appeal to the disproportionate share of the income received by the top 10 percent to explain some of the wealth gaps, historical acquisition explains much too. Wealth and income inequality have a snowball effect on education, health, and housing. Radical Economic Transformation, I should like to think, means an upending of this situation, producing in its wake a society in which inequality ceases to exist, or at the least a society in which race is no longer a predictor of one's fortunes. This would mean a number of things have to be done.

The government needs to demand that companies do more to close the income gap which exists not only between races but also between genders.

Much of the education system, which is in shambles in terms of teaching and standards, needs to be fixed. Tuition fees need to be scrapped from universities to lessen the impact of the massive income gap and provide a ladder of opportunity to previously disadvantaged youth. The government needs to invest in building good homes for the 11 percent of people in informal housing. The government needs to begin taking land more seriously than it appears to be doing today. The government needs to invest more in the healthcare system, and begin to treat the addiction epidemic ravaging the black community as a serious health issue.

The government needs to demand that companies do more to close the income gap which exists not only between races but also between genders. The government needs to require that companies increase broad-based black ownership (here I am imagining a primary school teacher in a Durban township owning shares in some mining company, not the black elite ownership we have now). The government also needs to put in place rules which prevent larger, more established companies from crushing new black companies, and enforce existing rules. The government needs to tax corporations and wealthy individuals more than it currently does, in order to solve these problems.

How can this be achieved in a capitalist society such as South Africa's?

Firstly, what is capitalism? Or rather, who is a capitalist? The latter question is easier to answer. There are at least two conditions every capitalist typically satisfies: (i) their primary aim is to maximise profit, and (ii) minimise competition. A capitalist that is neither of these is not just a bad capitalist, they are a soon-to-be-inexistence capitalist. A capitalist whose aim isn't the maximisation of profit, sooner or later, gets pushed out of the market by a capitalist who's aim it is to maximise profit. Almost by definition, more money can be made relative to how little real competition exists, since companies with market control can set prices that maximise their bottom-line.

Now, try to imagine a capitalist who wants to maximise profits endorsing higher taxes for themselves, more competition in order to allow for the entrance of new black companies, and having to fork out funds to eliminate the pay gap. Imagine capitalists acceding to being forced to sell a given portion of their shares to ordinary middle-class black people around the country, and risk the markets reacting in such a way as to place their profits at risk. Well, neither can I. You can count on the South African capitalist class to fight RET to the bitter end.