The mining charter: Market forces will not deliver economic transformation

By Yonela Diko

In October 2015, the Nelson Mandela Foundation invited the rock star economist, Thomas Piketty, a man who – true to his Rock Star Status – is independent and brutally frank, like someone who knows his name is carved in the books of history even if he never sell another speech. In that gathering he outlined to a captive audience why he thinks South Africa is still so dramatically unequal – and suggested a few things that can be done about it.

Piketty began with the jarring claim that Europe’s success in reducing inequality had more to do with violence than market forces.

“It is due, to a large extent to the very violent shocks of the first World War, the Great Depression, World War 2 and, most importantly, to the new social policies, welfare state policies, new fiscal policies [and] progressive taxation that were finally accepted by the elites after these violent shocks […] which put strong pressures on the elite in western countries to accept reforms, which until 1914 and World War 1 were refused,”.

Then Piketty drew parallels with South Africa. ‘If you look at the South African wealth data, especially within the top 1%-5%, it will be up to 80% white, so although things have changed a little bit, we are still very much with the same structure of racial inequality that we used to have. So now how can we make progress?”, Piketty asked.

While Piketty refrained from saying so explicitly, the implication seemed to be that South Africa needs its own violent shocks to force the issue.

Then Pickety went for the kill. “I think it’s fair to say that black economic empowerment strategies, which were mostly based on voluntary market transactions […] were not that successful in spreading wealth. So I think we need to think again about more ambitious reforms,” he said.

After that Piketty Lecture, South Africa’s former finance minister Trevor Manuel said, ”while we all know Piketty is right, no one – not the South African government, not big business, not the economic elites – is in a hurry to implement his ideas”.

To be frank, this was a disappointing response from Manuel. Here was an opportunity presented by a world renowned economist who the markets cannot ignore, telling us that South Africa will never break the back of inequality until it employs some violent shocks into its system. Piketty was effectively saying the market forces will never deliver to us our transformation agenda, which is is both morally and surprisingly, economically correct.  A 2012 World Bank report on South Africa traced the differences in life opportunities for South African children and unsurprisingly found large differences based on race, gender, location and household income.

It is a fact that South Africa’s income inequality has hardly changed despite the introduction of social transfers that now reach 17 million poor South Africans. Inequality remains high, partly because the number of jobs created over the past 23 years barely kept pace with growth in the labor force

Thanti Mthanti, Senior Lecturer at the Graduate School of Business Administration, University of the Witwatersrand, in his article titled ”Systemic racism behind South Africa’s failure to transform its economy”, published on 2 February 2017 on the Wits website, echoes Piketty’s sentiments about the lack of transformation, particularly in the business sector and the failure of black economic empowerment by government.

”Transformation rules and the interests of informal racist agents have proved to be incompatible. As a result, whites have used racism to crush the perceived threat to their property rights. They are able to attain their goals since the ownership and control of listed companies and banks is highly concentrated in their hands. They are able to use their oligarchic power – and grand corruption – to maintain the status quo. They stifle black advancement and also engage in grand corruption, by falsifying their empowerment scores to get large construction tenders, banking and mining licences. In this way, they subvert black advancement and entrepreneurship. White oligopoly power is so effective in marginalising blacks because it has one or two friends in the ANC government’, Mthanti says.

Mthathi then accused the governing party for not enforcing its own transformation or land distribution laws. Instead, he says, sometimes ANC uses state power to protect white oligarchs.

But is this true. Is the government not enforcing its own transformation laws?

The recent actions by Minister Zwane may well be said to be a government finally awakening to it’s lacklustre approach to enforcing its transformation laws and business’s tendency to fight these transformation aspirations. There are two contentious aspects that arise out of the charter Minister Zwane has released. The first is the 30% black ownership target as well as the “continuing consequences” principle, often referred to as “once empowered, always empowered”.

Although the attack is on Zwane, simple because of his rather unfortunate dealings, Thebe Thabani takes us further back to March 2015, when former mining minister Ngoako Ramatlhodi was due to release the 10-year review of the first mining charter that had expired in 2014. This was put on hold to allow the parties to seek a declaratory court order to clarify the issue of ownership. At that time, the markets went on a free fall, with mining stocks plummeting, again just to assess whether transformation was taking place seemed to be incompatible with the interests of informal racist agents.

Now, 13 years later, a target of only four percentage points higher has a similar effect. What is to be done?

Piketty, who has nothing to gain or lose told us that black economic empowerment strategies, which were mostly based on voluntary market transactions, were not that successful in spreading wealth. So he thinks South Africa needs to think again about more ambitious reforms.

26% to 30% is not even ambitious. We must therefore tell government that without enforcing these BBBEE targets and without ambitious programmes of change, the social tinder is going to explode.

The ANC Policy Conference held in Narec, south of Johannesburg seemed aware of its weaknesses concluding that in order for the ANC to give meaning its radical posture, the centre needed to hold. It would be a sign of weakness if ANC became excessively negotiable with monopolies and their race posture, monopolies that clearly did not support ANC resolutions. The ANC government must commit to its own resolutions and support ministers and public servants who were implementing them.The dream cannot be differed indefinitely

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