AGAINST ECONOMIC RECKLESSNESS III - IT’S NOT ON TOP, IT’S INSIDE

Introduction

Since 1994, empowerment initiatives have focused heavily on conditions at the top of South African society.  First to happen was the rapid and very great enrichment of a number of politically well- connected individuals, inciting envy and high expectations to this day.  Yes!  That’s what we want! – not a modest car and a mortgage.  Ad hoc deals were replaced with a broader framework when the Broad-Based Black Economic Empowerment Act was passed in 2003, and amended in 2013.  Under these Acts, an extensive and complex system of regulation has emerged  [1]. 

At the heart of the system is a scorecard weighted as follows:  ownership (25%), management control (15%), enterprise and procurement development (40%), skills development (20%) and socio-economic development (5%).  The first two elements are directed at the top of enterprises, the last two have broader implications, while enterprise and procurement development seeks to extend BEE to producers of intermediate inputs, and are primarily directed to the top of these intermediate enterprises.  Alongside this legal system there is a shadier world of use of public position for private gain, by means of both extortion and collusion, now reaching epic proportions.

The system has two costs.  First, it directs resources upwards, which might have been used to spread benefits and transform conditions more widely among the poor and excluded, consolidating democracy rather than engendering cynicism about it.  Secondly, it has created a ‘state within the state’, which resists democratic pressure rather than accommodating it.  A responsive government, seeing the country enter a period of very weak growth, would have formulated a strategy to support the poor through it and made an effort to communicate the circumstances and its responses to the population at large.  Apart from some aspects of taxation in the 2016 and 2017 Budgets, we have seen nothing of the kind.

Empowerment reform, then, not only can be, but must be, a plank in the pro-democracy platform. 

 
An example of re-orientation: measures to improve the position of young people

As an example of what might be done in one of many fields, this brief suggests three related initiatives to improve the situation of the twenty million people between the ages of 15 and 34.  Attention to issues facing them is both spotty and not sustained, even though there is widespread agreement that the current situation of many young people is a ticking time bomb.  The initiatives are:

1. Do more to integrate youth socially. There is, on average, a long period between leaving the educational system and entry into employment.  Employment improves prospects for marriage and cohabitation among young men.  High youth unemployment means late marriage. 

The little information we have indicates that late marriage has been common for a very long time.  Historian Jeff Guy argued that the Zulu practice of organizing young men into age regiments dissolved and allowed to marry only at the king’s command was not only a source of royal power, but also a means of controlling fertility in an ecologically difficult environment.  In less centralized systems, young adults could also add value to agricultural production in their household of origin.  All that is a dead duck now.  Just 85 thousand young people reported themselves as employed in agriculture in the tribal areas and a further 242 thousand on the commercial farms, together constituted 5.2% of total youth employment. 

With most of the young living in urban or quasi-urban settlements, low productivity employment has changed into open unemployment.  Approximately six million young people not in education or employment spend a long time sleeping and watching TV or listening to music and, particularly in the case of young women, spend little time outside their homes .What they need is accessible sites for activities and interaction, including advice.  In the end, time is the scarcest resource:  the task is to improve its use.  Entry into paid employment is not the only activity which should be promoted.

2. Develop the Expanded Public Works Programme so that young people can provide services to young people.  In so far as physical facilities need to be constructed, young people should be involved in their construction as far as possible, and paid for it.  Advisors and activity facilitators should also be drawn from the young, with appropriate training provided.  The general objective should be to add layers of activity continuously.

3. Develop export processing zones as a source of new employment opportunities for the young.  As part of its proposed growth agenda, the Centre for Development and Enterprise has proposed establishing an export processing zone in the Nelson Mandela Bay metro [3].

Firms locating in the EPZ would enjoy the following benefits:

• Duty-free imports, rapid customs and export clearance formalities.
• Subject to certain basic safeguards on employment practices such as working conditions, plant safety etc., firms would be free to negotiate wages and working hours in-house with their employees.
• Subject to certain safeguards, firms would be able to expand and contract their workforces as market and demand conditions change and/or rely on piece-work contracts for the remuneration of their staff.

There would be two restrictions on firms locating in the EPZ:

• Production would be solely for export. Firms located in the EPZ would be required to export 100 per cent of their output.
• Only new firms and/or new activities would be permitted. Firms with operations in South Africa would not be permitted to move any existing operations to the EPZ.

The general objective would be the capture of new international demand, rather than substituting existing supply to meet domestic demand.   The opportunities for youth in EPZs would complement the effect of the wage subsidy for young employees.

Conclusion

A transition from top-heavy to bottom-heavy empowerment offers the opportunity for greater consolidation of democracy and more widespread social inclusion.  Such a transition is not compatible with the domination of narrow and highly extractive interests within the state.  Pro-democratic mobilization will be needed before progress can be made.

Charles Simkins
Head of Research
charles@hsf.org.za

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[1] Aspects are discussed in Charles Collocott,Radical Socio-Economic Transformation, State Procurement and Broad-Based Black Economic Empowerment, HSF Brief, 4 April 2017

[2] On this see Charles Simkins, What do young people do with their time I and II?  HSF briefs, 14 February 2017

[3] CDE, Growth Series Report 7, 2016