Arguably the biggest pain point in post-democracy South Africa has been the economic empowerment of the marginalised majority of the country. The conversations that have happened and ideas generated thus far have been laden with partisanship and self-interest. Often, we have engaged from our own vantage points, and have proposed solutions and criticism of these solutions based on limited perspectives. Any sustainable reform of our approach to economic empowerment needs to not only focus on extending opportunity, but extending opportunity to a people capable of seizing it. Twenty years after the promulgation of our constitution, it is high time we start addressing our shameful legacy in a more nuanced and innovative way.
There are basically two types of economic inequalities: wealth inequality and income inequality. They are interlinked, but very different. Wealth speaks to assets owned net of liabilities. If one were to sell all their assets and pay their debts, wealth is the money that is left over. Income refers to the addition to one's wealth over a defined period of time. Salary, dividend and rental income are recognisable examples. It is, therefore, a logical conclusion that if you are wealthy, your ability to generate superior levels of income is far greater. The inverse can also be assumed to hold true. This is precisely the challenge faced in South Africa.
Our history of colonisation and apartheid has resulted in astronomical levels of wealth and income inequality, by design. Wealth affords the opportunity to generate income, which in turn increases wealth. These opportunities come from access: to education, networks, relevant life experiences and coaching. This virtuous cycle is mirrored by a vicious one, experienced by those without wealth. It makes the levels of inequality in South Africa unsustainable and ripe for self-correction; through the social mechanisms we engage with such as crime, violence, protest and animosity. We simply cannot go deeper into the future without solving for this critical issue.
Even Adam Smith, who represents the most classic of liberal economists once said: "No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable."
A return to transformation fundamentals
In business circles, the word "transformation" has become extremely loaded with negative connotations. Too often, I have managed to find myself present in conversations where people talk of transformation candidates or a transformation partner. For the uninitiated, this refers to a black person, as defined in the relevant legislation, required to satisfy a requirement in same for business to continue uninterrupted. The black person is often viewed independently of the value that they can add over and above their ethnicity. It doesn't take a rocket scientist to conclude that nothing is being achieved here.
I am not in the business of allocating blame, but in that of finding solutions. Allocating blame only serves to antagonise key stakeholders, making it unnecessarily difficult to find common ground. But in order for us to not fall into the same traps as the current black economic empowerment (BEE) dispensation, we need to better understand its shortcomings.
Transformation is first and foremost not incremental but represents a significant change. It is the complete overhaul of the prevailing dispensation for a better and more relevant one. The most critical aspect in achieving any sort of radical change is to first have a transformed mind.
Transformation is first and foremost not incremental but represents a significant change. It is the complete overhaul of the prevailing dispensation for a better and more relevant one. The most critical aspect in achieving any sort of radical change is to first have a transformed mind. Without a prepared mind, any attempt at radical change is futile. This is where I believe we have missed the point entirely.
When it comes to economic transformation, the holders of economic power are required to understand why it is necessary. This understanding needs to not only be relevant at an overall economic level but also applicable at the microcosmic level of their individual lives and businesses. The biggest disservice we can do for economic transformation is to reduce it to a transfer of assets from one party to another. In reality, it is an integrated set of efforts geared toward changing the drivers and beneficiaries of economic growth, in order for it to be more sustainable. This outcome works for everyone, regardless of colour or creed.
Holders of economic power are also humans, and as such, respond to incentives. As it stands, the incentives for the holders of economic power are weak. Furthermore, the punitive measures are either non-existent or poorly-administered. The advantage that the carrot has over the stick is that it requires less active intervention to achieve intended results. The carrot positively drives the effort of the intended subject towards it, rather than in continuous attempts to avoid it, as the case has been the case with the stick. Therefore, as a policy maker, incentives should form the foundation of any call to action.
Broad-Based Black Economic Empowerment reform
Broad-Based Black Economic Empowerment (B-BBEE) has been an inadequate legislative response to wealth and income inequality. Don't get me wrong, we needed and still need intervention, but the way the B-BBEE codes have been drafted, it simply drives the wrong behaviours, both from the wealthy and from the aspirant. It places an unhealthy focus, by both parties, on ownership rather than value.
The world is understanding that owning things is meaningless if you cannot derive significant benefit from ownership. The opportunity cost of this sort of ownership is too high. It is now clearly evident that people find more value in not being tied to an asset but having unrestricted access to its use. Nowadays, access and flexibility are the most significant factors shaping how human beings want to experience the world. Take Uber for example; they do not own a single vehicle but own the access to transportation - that is where the true value is. Airbnb is another example of how hotel owners are being disrupted by owners of access to accommodation.
Wealth doesn't come from ownership alone; but from the ability to generate cash flows, either through the smart use of assets or through the sale of that asset to a better owner. The currently marginalised South Africans will only be the best owners of these assets if they have the skills to derive maximum benefit from ownership.
A further confirmation of this trend is the rise of flexible workspaces such as WeWork and Regus, who control access to office space. Businesses are becoming less inclined to sign long-term leases, let alone own the buildings they operate in. They choose to rather allocate the capital to their core business, improve their flexibility in a rapidly changing world, and access the non-core services (like office space) on a needs basis.
The point is, wealth doesn't come from ownership alone; but from the ability to generate cash flows, either through the smart use of assets (owned or rented) or through the sale of that asset to a better owner. The currently marginalised South Africans will only be the best owners of these assets if they have the skills to derive maximum benefit from ownership. Without the skills, any asset transfer made, whether for value or not, results in a deadweight loss to society as a whole. The application of government finances to acquire these assets just exacerbates that loss.
So, instead of clashing heads over assets changing hands, lets focus on getting our people to a skills level requisite for them to become productive and entrepreneurial members of society. Only then do asset transfers start to make sense.
Skills first, "the land" second
In a globalised world, where financial and human capital is more mobile than ever, the key currency is a unique and relevant skill, not land. As the Zulu saying goes, Sibanga usheleni ingaba sibanga upondo! (directly translated – we are tussling over 10 cents instead of 2 Rand). The 2 Rand here refers to the economic prosperity that awaits a globally competitive South Africa.
As an African, I understand the sentimental attachment to land. A people who have been brutally stripped and subsequently deprived of land by law for over a century can be fully understood for wanting their fair share. This is an important point. I am fully supporting of land redistribution, but never in isolation. A programme of land redistribution needs to be preceded and supported by a relentless programme of education and skills development.
On a list of priorities, productive land has to come first. In a country where circa 27% of those willing and able to work are not employed, we need to focus on up-skilling our people to effectively compete in the global marketplace. Therefore, value (outside of that which is sentimental) is not in the land itself, but in its usefulness to the owner and society as a whole.
Reparations are extremely important for healing and for reconciliation. The cry for economic empowerment, whether in the form of land redistribution, BEE, affirmative action or preferential procurement are calls for inclusion, not exclusion. My call though, is for the economically marginalised majority to not lose focus.
Secondly, not all land is created equal. The apartheid government ensured that when they moved black people from land, it was land that was ripe for economic activity. The land was supported by favourable conditions. These include climate and infrastructure such as roads and railways. In addition, the owners of this land were afforded the opportunity to accumulate the skill and knowledge to be able to use the land to its fullest potential. Granted, the slave-waged labour afforded to them made it easier to compete globally. But without the other aspects of land ownership, it can be of little value to the owner and the state. Any asset is worth more when it is in the hands of its best owners.
This is why we need to create suitable owners of our people in order for them to create value, whether through the effective use of land or through leveraging other assets, such as the human mind.
Reparations are extremely important for healing and for reconciliation. The cry for economic empowerment, whether in the form of land redistribution, BEE, affirmative action or preferential procurement are calls for inclusion, not exclusion. My call though, is for the economically marginalised majority to not lose focus. If economic freedom is the goal, then it is imperative that priorities change to represent the roadmap to this goal. Focus should first and foremost be on reforming our education system and skills development, increasing access by lowering the barriers to entry (such as cost) and improving its quality. The calls for economic inclusion will thus be strengthened if made not from a position of victimhood, but from a position of power.
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