Tuesday, December 01, 2009

The harmful effects of BEE

Speech by the CEO of the South African Institute of Race relations, Mr John Kane-Berman, to the Solidarity trade union, Pretoria, November 25 2009.

In the long run it will do more damage to its supposed beneficiaries than to whites.

Empowerment which disempowers

I wish Solidarity every success in its current series of court cases against the new racial discrimination being practised in this country. But I want also to step back from that to look more broadly at affirmative action both in the form of employment equity and in the form of black economic empowerment (BEE). In the long run it will do more damage to its supposed beneficiaries than to whites.

About 10 years ago the Institute hosted a panel discussion about affirmative action. One speaker was Temba Nolutshungu of the Free Market Foundation. He, like the Institute, was one of the few critics of the Employment Equity Act of 1998.

Mr Nolutshungu predicted that the main beneficiaries of affirmative action would be whites. Formerly protected white youth who found that the Act limited their job prospects would be forced to turn to the technical trades or become entrepreneurs. Young blacks, on the other hand, would be channelled into "low-risk soft option" positions.
This would reinforce white dominance and blunt the entrepreneurial spirit among young blacks.

Another factor undermining black entrepreneurship relative to white is that so many blacks have been absorbed into the public service. Whites displaced to make way for them have been forced to set up their own businesses. Professor Lawrie Schlemmer, a vice president of the Institute, observed in April 2007 that the number of small businesses owned by whites had increased very rapidly because of the exodus from the public service.

One of the perverse consequences of affirmative action policies is that blacks are poached. Whites not constantly headhunted are able to build up a track record of experience in particular firms whereas blacks frequently on the move are not. This must count against blacks in the job market.

To quote Tito Mboweni when he was still at the South African Reserve Bank, "I have sought to recruit many competent black people, and no sooner have we recruited and trained them than they leave... I am stopping this recruitment of black people. I am okay with my Afrikaners. They stay and do the work, and become experts."

Turning to BEE, Moeletsi Mbeki has pointed out that "when a listed company whose shareholders include the black workers' pension funds gives 10% of its shares to the black politicians, it is redistributing the wealth of the black worker...to the politicians." The same applies to white workers whose pension funds are used to enrich the politicians to whom Mbeki refers.

Another objection to BEE is that it is more about white than about black achievement. White-owned companies are given ratings for doing things for blacks. BEE empowers white firms to get contracts from the black government.

Brian Molefe, CEO of the Public Investment Corporation, complained in August 2007 that whites were not doing enough to develop black talent.
But how much are blacks doing to develop black talent? A recent applicant for appointment to the Bench, who happened to be black, pointed out that Jacob Zuma used white not black senior counsel. The new chief justice rebuked her for being disrespectful.

Given its record in education, the Government is not doing much to develop black talent. Nor is "transformation" doing much. This is because the focus is on making white companies harness blacks, rather than on creating new black or non-racial institutions. Gaby Magomola, who at one time headed the African Bank, said a year ago: "We have to move away from the notion of acquiring minority equity stakes as black people in established companies.
We have to look at creating our own businesses from ground zero."

It is sometimes suggested that BEE requirements are not very different from the policies used by Afrikaners to build up their economic power. But there is a difference: in the 1930s the savings of tens of thousands of individual Afrikaners were mobilised to start financial institutions.

Why have the savings of the burgeoning black middle class not been similarly mobilised to create black financial institutions? What has happened instead is that BEE requirements have caused a growing proportion of these savings to be deposited into the big four established commercial banks, helping them to obtain relevant ratings in terms of BEE charters and codes.

Moeletsi Mbeki adds that BEE "strikes a fatal blow against the emergence of black entrepreneurship by creating a small class of unproductive but wealthy black crony capitalists [who] do not envisage themselves as entrepreneurs who can initiate and manage new businesses... This is the most striking difference between the black elite of South Africa and the elites of Asia, where the driving ideology is entrepreneurship."

BEE is now a runaway train as codes and charters and additions thereto roll off the presses. And the demand for more of them seems to escalate daily. "The property industry is still lily-white," somebody once complained. Well, the real way to change that is surely to go into business in competition. But the culture of transformation inhibits this.

Yet another objection to BEE is that its requirements have almost certainly deterred foreign direct investment (FDI), in the mining industry in particular. Lower FDI has meant lower rates of economic growth, so BEE has retarded the generation of jobs.

Although jobs are the only real answer to poverty, our Government's answer to poverty is not jobs but social grants. Although Jacob Zuma has said that there is ‘something wrong" in the fact that more than 14 million people depend on social grants, he is powerless to stop this other runaway train.

Apart from social grants, the impact of poverty is reduced by the so-called social wage, which includes such things as free housing, water, electricity, healthcare, and education.

Writing in July 2007, Jovial Rantao, deputy editor of The Star, said:
"The message circulating in low-income communities is that if you want anything the Government will provide." He added that what he termed the "so-called delivery protests" had nothing to do with service delivery but everything to do with failure by the Government to provide everything free."

I think it is time to re-configure President Thabo Mbeki's old "two-nations" divide.
Instead of rich-and-white versus poor-and-black, we have a growing divide between whites who have been liberated from the false protection of things like job reservation and now have to look after themselves and blacks who are becoming increasingly dependent on the State.

This is profoundly disempowering. As Professor Achille Mbembe of Wits wrote in April 2007, "It risks codifying within the law and in the minds of its beneficiaries the very powerlessness it aims to redress."

Another point was made in January 2006 by Khathu Mamaila in a column in City Press," when he wrote: "The ANC coined the freebie policy when it tried to garner support from voters [but] the unintended consequence was the blunting of individual initiative" and its replacement "with the culture of entitlement."

Some people in the government are worried about this. Writing in September 2009, Vusi Mavimbela, director general in the president's office, said
"this culture of seeping entitlement" was what made a young adult buy a new BMW, park it outside his shack, "and then help initiate an anti-government protest demanding free houses".

Entitlement implies victimhood. One can see this at work in the fiasco at Eskom. Jacob Maroga, that company's chief executive, was clearly a poor manager, which led the board to sack him. Presumably affirmative action is what entitled him to the job in the first place and because that is about race and not about competence, lack of managerial ability was not seen by him or the Black Management Forum (BMF) as a reason to fire him.

Once a victim, always a victim.
Therefore, in the BMF's view, racism was the sole reason the board fired him rather than Bobby Godsell.

The Government refuses to put a sunset clause into affirmative action policies, so this sense of victimhood is passed on to the next generation even though many young people were born after the ANC came to power. Black youngsters accordingly are born into victimhood and the sense of entitlement that goes with it. If they don't particularly feel like victims, presumably their teachers and parents will have to explain to them that they are.

In conclusion, let me say this: the Government's empowerment policies are harmful to race relations, injurious to equality of opportunity, destructive of entrepreneurship, and damaging to the economy. So I hope your court cases all succeed.

At the same time, it is essential to embrace the challenges of entrepreneurship and self-reliance that have been forced upon you.

As Steve Biko might have said, ‘White man, you're on your own.'

Source: www.sairr.org.za - [emphasis by Ed.]

3 Opinion(s):

Viking said...

Very interesting!
some new perspectives in here...

Zarky said...

A great article, it is nice to see that others think along the same lines as what I do. You think you are clever but you are shooting yourself in both feet - I am so proud of this governmunt, they are creating jobs for whites by breaking everything and then the whites come and fix it again and again... I might even vote for you the next time round - lol!!!!

Dave Tootill said...

The more the ANC steals, the less there is left for them to steal.Just a pyramid scheme.