South Africa’s oligarchy – The true scourge: Koos Malan

Key topics:

• South Africa functions as an oligarchy, not a true democracy.

• BEE, cadre favoritism, and grants enrich elites, not citizens.

• Oligarchic system is unsustainable, causing corruption and decay.

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 Koos Malan*

South Africa’s post-1994 dispensation is often fondly praised as “our democracy.” This is inaccurate because South Africa is something fundamentally different and not at all worthy of being praised as “our democracy.” South Africa is an oligarchy (in its full description an oligarcho-anarchy) – a corrupt form of government that Aristotle described more than 2,300 years ago in Book III of his Politeia.

Oligarchy in South Africa involves the government practice in which a small self-enriching and self-serving elite rules only for its own benefit, instead of in the interest of the whole. The wielders of power – the oligarchs – and the closely connected inner circle of insiders are the chief beneficiaries of the system – extremely so – while the vast majority, including the vast majority of black people, are excluded, neglected or openly disadvantaged in all sorts of ways, yet in which their support, or at least its submission, is collectively bought – bribed – with a variety of measures to keep the oligarchs in power.

But the oligarchy dare not appear oligarchic because that would jeopardise its continued existence. It must appear democratic because, as the French statesman, Francois Guizot, explained already by the middle of the nineteenth century, democracy had by then already largely become the only form of government that could claim legitimacy and support.

Read more:

Following the constitutional transition (1994-1996), South Africa has been granted a comprehensive package of democratic institutions. These include universal suffrage, regular elections, a multi-party system, freedom of the media as part of the right to freedom of expression, the right – save for increasing restrictions - to operate civic, business and similar organizations, and various other rights.

These things are undeniably valuable. They help to reveal malfunctioning and enable some improvements. However, they fall way short of guaranteeing a genuine democracy. On the contrary, they create a deceptive façade that disguises the true oligarchic character of the system with the veneer of democracy.

Transformationism: The oligarchy's three-part strategy

The oligarchy, led by the feuding ANC factions, employs three main strategies. All three pose with masks of constitutionalism but are ultimately devious strategies to entrench the oligarchs' power and neutralize perceived enemies. The combined package of the three oligarchic strategies is known as transformation (or more appropriately, transformationism).

BEE, or the further enrichment of the oligarchs

Firstly, the oligarchs use what is misleadingly called black economic empowerment (BEE) to entrench their – the ANC and its circle – power and wealth. The peculiar South Africanism of tenderpreneurs forms an important part of this. For the sake of legitimacy, the illusion is created that the entire population, especially the black population, benefits from this. Therefore, the strategy is falsely called not simply black empowerment, but rather broad-based black economic empowerment (BBBEE).

The flip side of this is to neutralize what the oligarchs fear as their greatest threat, namely capable and wealthy white entrepreneurs. It is this perceived threat that the oligarchs single out for their worst abuse. They are “counterrevolutionary, white monopoly capitalists” who are still vilified as benefitting from the sins of long-gone apartheid. And it is these white capitalists who are forced, under the cloak of BEE stratagems, to cede control and assets to the oligarchy, namely the politically connected black oligarchs masquerading as businessmen.

Affirmative action and cadre preference

Secondly, the oligarchs entrench their power through cadre favouritism, behind the policy of affirmative action. This is to maintain the support of the black middle class by reserving jobs for them, especially in the civil service, police, and so-called state-owned enterprises such as Eskom, Transnet and the like.

The flip side of this is that white people, due to the supposed ceaseless benefits of the astonishingly immortal apartheid, are the ones denied appointments and promotions and are thus the target of economic marginalisation.

Social grants

Third, the oligarchs entrench themselves with state subsidies. While the support of the middle class is bought with cadre favouritism and “affirmative action,” the support of the poor at the bottom of the economic spectrum is bought with social grants.

The fall of the oligarcy

The oligarchy is unsustainable. In fact, we are currently witnessing it unravelling, irreversibly on the road to collapse. All three of its mentioned elements are failing.

The oligarchs

BEE enriches the oligarchs in, and those immediately surrounding, the ANC bigwigs. Reported in Daily Investor the conservative estimate of Prof William Gumede of Wits School of Governance, is that a trillion rand has since 1994 circulated between roughly only 100 tycoons (precisely the oligarchs) in pursuit of so-called BEE initiatives.

The upshot of this is that local white entrepreneurs as well as foreign investors have been disadvantaged and often outright prevented from investing. They are forced to relinquish significant percentages of their assets and control over their businesses in favour of the oligarchs (“BEE partners”) without sufficient compensation.

Although the new Expropriation Act is rightly objected to, among other things, because of the threat of expropriation without fair compensation (confiscation), BEE has for almost two decades already involved a comprehensive bane of confiscation of property at below fair market value. This, as Piet le Roux of Sakeliga has aptly pointed out, amounts to the oligarchy applying targeted domestic sanctions against a section of the South African citizenry, namely white businesspeople. The effect of this is to disincentivise or sometimes effectively ban local as well as foreign investment and business-building.

It stands to reason that those with capital and entrepreneurial know-how are not willing to give up assets and business control willingly, with the result that investment capital flows to other parts of the world or into spheres where BEE has not yet sunk its claws.

But the disadvantages of these sanctions against white businessmen and foreigners are much wider. Millions of black people who could have been employed thanks to productive, value-adding investment now have to forfeit employment because of BEE. BEE therefore exacerbates unemployment, poverty and misery.

BEE also leads to corrupt and otherwise questionable practices. The state’s procurement policy favours BEE contractors – tenderpreneurs – who often charge exorbitant amounts for goods and services or who make money as unproductive middlemen between the state and actual suppliers. Gumede explains that the local oligarchy’s approach to BEE has created a model of corruption, in which oligarchs establish firms with the sole purpose of doing business with the state at exorbitant price premiums, to the detriment of taxpayers.

Considering this, it is clear that we are not dealing here with broad black economic empowerment, but rather a scenario of repeated oligarchic enrichment (ROE).

The cadres

The (buying) of the black middle class through affirmative action – often cadre favouritism – especially in the public service is also unsustainable. It has led to a bloated public service whose salary bill is unaffordable. There are too many officials, and they are paid too much.

Moreover, it is exorbitantly top-heavy. The number of highly paid generals in our often corrupt and struggling and internally feuding police (currently on display,  amongst others, before the Madlanga Commission of Inquiry) and the army compared to ordinary members represents world records. Elsewhere in the public sector, the pattern is similar.

Recently, Moletsi Mbeki emphasised that the South African civil service is far too large and that civil servants' salaries are at least twice as much as in countries with comparable levels of development. This view, valid as it is, is nothing new. Already in 2015, RW Johnson described the South African civil service as a predatory bureaucratic bourgeoisie, which the oligarchic ANC leadership apparently cannot or will not do anything about precisely because it buys support for the oligarchy.

The needy

28 million of the country's 64 million inhabitants are currently dependent on a variety of state grants. The oligarchs view this as a great achievement and as evidence of their benevolent care. The opposite holds true: it is evidence of failure, because it occasions a large-scale undignified existence of dependence instead of a dignified culture based on remuneration for service or profit from business activities. Moreover, it is unsustainable because grants are financed from a shrinking tax base (targeted domestic sanctions and oligarchic looting) and fiscal waste (cadre welfare). The number of true, value-adding income taxpayers who aren't tenderpreneurs, idle civil servants, or some other category of value extractor amounts only to a few million in a population of nearly 65 million.

Read more:

The millions of grant dependents are in part directly caused by the growing unemployment rate of 32% of the economically active part of the population.

If local white and foreign business-builders were not compelled by state power under BEE to cede assets and control to the oligarchs, there would of course be much more investment, more jobs, lower unemployment and fewer people dependent on state alms. But in that case the oligarchs would have to forfeit their lavish undue privilege – something the oligarchic regime are not prepared to agree to.

SCOURGE

On close analysis we do not have a truly democratic government. And oligarchic rule for its part is no genuine form of government at all. It is a form of collective scourge.

Due to the harassment of capital allocators and value-creators, investments are curbed and millions of people are deprived of the opportunity to be employed and lead dignified, independent lives.

As a consequence of cadre favouritism, billions are being wasted on an increasingly sclerotic public sector while the public is plagued by a collapse in public services.

Astronomical amounts are squandered under the wasteful contracting with the oligarchic circle, and the general public is plagued by  dilapidated infrastructure.

The scourge of the oligarchs' project of transformationism is comprehensive. However, the oligarchs themselves, with the ANC leadership at the helm, cannot reverse it. Their own interests are simply too closely intertwined with it. They will continue. In fact, Cyril Ramaphosa has recently defended the oligarchy's "model of empowerment" with growing zeal. 

Yet, as the enrichment of the oligarchs continues, and the South African state keeps withering with it, those communities who develop the ability can be expected to grow increasingly independent of the oligarchic state, carving out and cultivating enclaves, domains, and micro republics of civility, safety, order and growth.

*Koos Malan is a constitutional jurist from Pretoria.