EED over BEE: A smarter path to true economic empowerment

Key topics.EED replaces race-based BEE with a non-racial, means-tested approach.A new scorecard rewards businesses for investment, jobs, and tax contributions.Tax-funded vouchers empower the poor with better schooling, housing, and healthcare..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here..If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Anthea Jeffery*.This piece was written in response to Stephen Grootes's piece in the Daily Maverick, "BEE on borrowed time — why attacks on SA's social engineering project won't abate this time", on 10 March. It was offered to, but declined by, the Daily Maverick..Stephen Grootes writes that "BEE as we currently understand it…may start to change or even fade completely. But there appears to be no public discussion about what to replace it with"..Public debate has indeed been limited, but the development of an effective alternative to BEE is nevertheless well advanced. We at the IRR have been working for many years on a better strategy, which we call "Economic Empowerment for the Disadvantaged" or "EED". This has three core features:.a non-racial focus in keeping with the Constitution;an EED scorecard (in place of the current BEE one) which recognises business contributions to upward mobility through investment, growth, jobs, tax revenues and the like; anda tax-funded voucher element that reaches right down to the grassroots and empowers the poor with sound education, housing and healthcare..A non-racial focus.EED, like the social grants system it would complement, would rely on a means test to determine disadvantage and stop using race as a proxy for this. EED would thus extend to poor whites, but this group is so small – only 1% of those living in poverty – that the benefits of EED would still go overwhelmingly to black South Africans. At the same time, EED's non-racial approach would reaffirm the Constitution's founding values, while bringing an end to odious race classification and unlawful racial preferencing..A scorecard that rewards vital business contributions.The BEE scorecards developed under the BEE Act overlook all that the private sector contributes to upward mobility by investing, employing, innovating, paying taxes and so on. By contrast, under a new EED scorecard, businesses would earn EED points for:.maintaining and expanding production and/or sales;sustaining and increasing operating profits;retaining and expanding jobs;sustaining and increasing investment;contributing to tax revenues (through employee tax payments as well as their own);generating export earnings;engaging in research and development (R&D);increasing the skills of all staff; andemploying and promoting people on an expanded concept of merit, that takes account of how individuals have responded to adversity..South Africa's population is growing at 1.3% per year, twice as fast as the economy (0.6%). This problem has been apparent for more than a decade. It means that South Africans are getting poorer every year and that has to change. Businesses are the engines of economic growth. BEE is strangling them – EED would turbocharge them..Tax-funded vouchers.EED would reach down to the grassroots by equipping the poor with the sound schooling, housing, and healthcare they need to get ahead. In the 2024/25 financial year, some R640bn was budgeted for schooling, healthcare, and housing (and related infrastructure), which is a considerable amount. However, the state's top-down delivery system is so mismanaged and often so corrupt that outcomes are extraordinarily poor..As regards schooling, roughly 81% of South Africa's Grade 4 pupils cannot read for meaning in any language, while 61% of Grade 5 pupils are unable to add and subtract whole numbers. Not surprisingly, thus, more than half of all pupils drop out of school or fail their final examinations. In the housing sphere, although millions of small and badly built "RDP" homes have been provided at considerable cost, the housing backlog (at 2.3 million units) is bigger now than it was in 1994 (1.5 million). In public healthcare, some 80% of state hospitals and clinics are so badly managed that they cannot comply with minimum healthcare standards: even on such basics as hygiene and the availability of medicines..Read more: BEE: Limited benefits, widespread harm – Anthea Jeffery.EED recognises that current budgets in these vital spheres cannot be increased. The key need is rather to get far more bang for every buck. This can be done by redirecting much of the revenue now being badly spent by bureaucrats into tax-funded school, housing, and health vouchers for the poor. Low-income households empowered in this way would have real choices available to them. Schools and other entities would also have to compete for their custom, which would keep prices down and push quality up..South Africans like the voucher idea too – as IRR opinion polling over several years has consistently shown. In 2016 some 85% of black respondents expressed support for school vouchers, while 83% endorsed both healthcare and housing vouchers. In addition, 74% of black respondents said these vouchers would be more effective than BEE in helping them to get ahead. Subsequent IRR polling on these issues has repeatedly shown the same pattern, with at least 80% of black respondents supporting school, healthcare and housing vouchers. In 2024, in the IRR's most recent opinion poll, 92% of South Africans favoured school vouchers, 83% supported healthcare ones, and 80% endorsed housing vouchers. Asked if vouchers would be more effective in helping them than BEE, 81% answered "Yes" and 12% "No". (The remaining 7% were undecided or uncertain.).School vouchers.The school voucher idea is a simple one. Instead of funding public schools directly – and maintaining that funding irrespective of how poorly schools perform – the government works out the per capita amount it is spending on children in low-income families and allocates that amount to each child's parents..Writes Professor James Tooley, vice chancellor of the University of Buckingham in the United Kingdom and an expert on low-cost private schooling in 22 countries across four continents: "Parents choose a school for their child, and the funding goes with the child to the school of their choice." Schools use this funding to pay their operating costs, including teacher salaries. "In the competitive market for schools that results, popular schools attract more children… Importantly, schools become accountable to parents," who can take their offspring elsewhere if dissatisfied. The introduction of vouchers "spurs competition and innovation in schooling, leading to great improvements". Dysfunctional state schools come under pressure to retain their pupils, prompting them also to improve their performance..School vouchers have a long history. One of the first voucher schemes was introduced in the Netherlands in 1917, while in Denmark vouchers and school choice go back to 1849. The Czech Republic introduced vouchers for private schools after the disbandment of the Soviet Union in 1991. Vouchers are also available in Sweden, Estonia, Chile, Colombia, Bangladesh, Guatemala, and the state of Punjab in Pakistan..In the United States (US), school choice – based either on vouchers or a variety of educational scholarships and tax credits – has been introduced in more than 30 states. Vouchers have proved particularly popular among black American families, who have used them to remove their children from bad inner-city schools and enroll them in better-quality suburban ones. .Housing vouchers.Here in South Africa, the millions of "RDP" houses provided by the state since 1994 are generally small, badly located, and shoddily built. Beneficiaries have often said that they could build bigger and better houses for themselves if the relevant tax revenue was given directly to them instead..In the 1970s, several developing countries encountered similar problems with their state delivery models. They began providing housing vouchers or subsidies directly to poor families, so that they could build the homes of their choice..Chile was the first to adopt this approach and became its primary exemplar. Initially, its subsidies were confined to the building of new homes – but this contributed to urban sprawl as land for development was cheapest on the outskirts of towns and cities. Its revised voucher system can now also be used to buy existing houses or improve the homes that families already own. Rent-to-buy subsidies are available too. .Similar policies have been adopted in Brazil, Colombia, Costa Rica, Ecuador, India, Mexico, and Panama. Rental vouchers are also available in the US, via the tax-funded Housing Choice Voucher scheme introduced in 1974. In 2022 these vouchers – which can now be used to buy homes too – went to some 2.3 million low-income families across the nation. This voucher system has been described as "a proven solution" which has "reduced homelessness, housing instability and overcrowding". It has empowered many households to move to higher-income neighbourhoods with better schools and less crime, helping to improve college attendance and earnings potential..Health vouchers.Tax-funded health vouchers are used in several developing countries to give the poor access to private healthcare. In 2006 the United States Agency for International Development (USAID) summed up the underlying rationale, saying:.Health care policies in developing countries have traditionally focused on public financing and provision… Low-priced or officially free public health care was intended to ensure the entire population's access to care. [Yet] in many developing countries, people, including many poor, seek better-quality health care in the private sector and pay out of pocket. The extra financial burden this imposes on the poor results in unequal access to care and low utilization of needed services, [including] reproductive health/family planning (RH/FP)..In response, policymakers are trying various demand-side approaches to financing health care, that is, subsidizing the consumer of health care directly. One approach is the use of vouchers. Vouchers are targeted at identified under-served groups (such as the poor), for specific services (such as RH/FP), and are usually for use in the private sector, as public care is supposed to be free or low cost..By 2013, health vouchers had been introduced in 12 countries, including Armenia, Cambodia, Kenya, Nicaragua, Tanzania, Uganda, Vietnam and Yemen. Most voucher programmes provided low-income women with access to ante- and post-natal care, as well as institutional deliveries..In 2013 a London-based consultancy evaluated the voucher programmes in these 12 countries and reported that "vouchers had improved demand for services". Added its report: "Voucher clients often reported that the voucher brought them status, and that they were better treated than they otherwise would be." Vouchers also incentivised private providers to improve the quality of their care..The consultancy report acknowledged that vouchers tended to be dismissed as "a narrow policy tool", available only for specified groups or stipulated services and largely irrelevant to the achievement of universal health coverage. However, vouchers could easily be extended to bigger groups and a wider package of health services. The report concluded: "Vouchers play a key role in furthering universal health coverage because they can be strategically deployed to address…a wide range of health services and target groups… We all know that achieving universal health coverage requires a combination of innovative solutions. Vouchers may be one of the most exciting and flexible ones of the lot.".In 2021 much the same message came from an external assessment of a health voucher (and micro health insurance) scheme introduced in Bangladesh. This scheme was targeted at poor and extremely poor families living in urban slums and on pavements, most of whom had been using "informal providers resulting in adverse health outcomes and financial hardship". Detailed evaluation found that the voucher scheme had "enabled higher healthcare utilisation [and] lower out-of-pocket (OOP) payments among the enrollees, who were happy with their access to healthcare, particularly for maternal, neonatal, and child health services". Beneficiaries were keen to gain access to a wider benefits package in the future. The costs of the voucher programme had been reasonable, while still greater "cost containment" could be achieved by "purchasing health services…on a competitive basis from the market". Hence, "scaling up similar schemes…would contribute to achieving universal health coverage"..Shifting from BEE to EED.For the past 30 years, South Africa has been chasing down the wrong policy path on BEE. BEE focuses on redistribution, rather than growth. It breaches the Constitution's founding value of "non-racialism" by requiring racial classification and racial preferencing, while fostering racial division. In practice, it has hobbled investment, reduced growth, worsened unemployment, wasted scarce revenues, and promoted corruption..By contrast, EED puts its emphasis on all the right 'Es', for it aims to bring about rapid economic growth, excellent education, very much more employment, and a renewed focus on vibrant and successful entrepreneurship. In addition, whereas BEE demands compliance with unrealistic racial targets that help the few and harm the many, EED concentrates on empowering and uplifting the truly disadvantaged. It does so via a means-tested and tax-funded voucher system that enhances individual choice, encourages competition, promotes innovation, provides substantial value for money – and gives the poor a meaningful capacity to hold both public and private providers to account..Read also:.EWC, BEE setting up Godongwana and GNU for failure – IRRSA's GNU: A fragile stability facing economic challenges – KatzenellenbogenBig business exodus signals economic storm for SA: Ivo Vegter.*Anthea Jeffery holds law degrees from Wits, Cambridge and London universities, and is the Head of Policy Research at the IRR..This article was first published by Daily Friend and is republished with permission.

EED over BEE: A smarter path to true economic empowerment

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