Terence Corrigan: Time to rethink race-based laws

Key topics:Debate over BEE’s impact on growth and investmentCritique of race-based laws like the Employment Equity ActCall to shift focus from race quotas to class-based support.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 Terence Corrigan*I’ve followed the contretemps between Martin Van Staden and Anton Harber with interest, and I was pleased to see that Harber submitted his critique to the Daily Friend.Our outlet strives to make a contribution to maintaining South Africa as an open society by publishing comment from a liberal perspective, as well as by providing a space for public discussion. The question of race in our law and policy environment is a matter of enormous importance, and this is a much-needed discussion. Discussion, after all, precedes action.I’ll leave the substance of their debate to Van Staden and Harber, except to make two points. Firstly, there’s a difference between acknowledging the existence of racial discrimination and justifying or condemning it. Discrimination is a normatively neutral concept; whether it is good or bad depends on how one feels about what it is meant to achieve and one’s assessment of how it’s doing at this. I note this in relation to one of Harber’s early interventions on the matter. Here, he obliquely objected to the Index, including particular legislation on the grounds that it was aimed at redress for past wrongs. An example here would be the National Water Act. It seems to me that one may argue for the advisability or necessity of such an approach, but not that it makes race a legal consideration, or that it enables discrimination.Secondly, not all discrimination is of equal weight. Harber points to requirements for boards to be constituted with an eye to representivity. Here I’d reiterate that it makes race a relevant consideration – though, accurately enough, not the only one – and the impact of this is unlikely to be anything approximating, say, the impact of empowerment or labour regimes..Noble goalsTo this I’d add that intentions and outcomes do not always align. Pursuing noble goals can prove enormously destructive as they face the realities of their own impracticability, or in the costs they impose in reaching their objectives. The intention of redress is not on its own an adequate justification for maintaining a problematic policy. Nor does the fact that a particular type of thinking helped to produce a problem mean that that the problem can (or should) be addressed through adopting a comparable approach. This is precisely what now finance minister Enoch Godongwana was advocating in approvingly citing National Party Prime Minister Hendrik Verwoerd back in 2013. “Verwoerd used the quota system therefore we should too!” he declared. “We unashamedly say we will use quotas in every sector of the economy!”In other words, there’s no contradiction between acknowledging that race-based policy wrought extensive damage and did injustice to black people, and scepticism about whether contemporary race-based policy will undo that state of affairs. The recent regulations made in terms of the National Water Act aim to compel agricultural “transformation” through linking water licences to the racial profile of applicants. Will this give a leg-up to a new generation of aspirant back farmers, or simply undermine existing operations? Agriculture is a complex and difficult sector – one not understood by those attempting to regulate and “transform” it – so I can’t help thinking the latter is a more likely outcome..“Up for debate”I was more intrigued by his remarks towards the end: “There are certainly some race laws that are up for debate – and I cite the BEE law as the best example – but this is undermined by his shoddy research. The Institute of Race Relations would boost its credibility if it did a serious list of laws that need revision.”Once again, Van Staden can handle the question of the quality of the research. But I welcome the invitation to list the laws that need revision.The first of these, as Harber avers, is the Broad-Based Black Economic Empowerment Act of 2003. Probably more than anything else, this has proved a burden on business and has undermined our competitiveness as a country. Simply put, it demands that businesses operate on non-business principles, effectively subjecting investment to steep taxes, and killing growth in the process.Business organisations both from the European Union and the United States have publicly referred to the dissuasive effects of BEE on investment into South Africa. We at the Institute of Race Relations have heard much the same from sources in Asia.Nor does the criticism originate only from outside the continent. In 2013, Aliko Dangote, Nigerian business mogul (and probably the wealthiest person in Africa) had some harsh words for the policy, likening it to previous measures in his home country, which had done little but chase investors away. He went on: “If you want real economic empowerment, then you have to do this based on merit and increased access to the capital markets. If you make it difficult for me to invest in one country, then I will move my capital somewhere else where it is easier to invest.”Read more:.BEE: Time to rethink race-based economic policy - Patrick McLaughlin.Of course, BEE has its stalwart defenders. Those who perceive a benefit for themselves can hardly be expected to do anything else. What is interesting is the paucity of hard data on the impact of BEE, and of defences of the policy in terms other than its intentions. (Intentions and outcomes are not the same thing, remember.).Black middle classCarol Paton penned an engaging piece on News24 recently in which she tried to answer the question “What have 20 years of BEE brought us?” She argued that they had made a significant contribution to the growth of the black middle class, and black business success. But against that, she noted the politicisation of the economy, the use of empowerment for corruption, the disproportionate rewards of the policy accruing to a narrow circle of individuals, and of course what BEE has meant (or in her cautious phrasing, may have meant) for South Africa’s failure to grow. That’s been at a direct price tag of about R1 trillion.This is the key factor, it seems to me. And if BEE was meant to be a growth stimulus, it has failed dismally. At a bare, incontestable minimum, it has not driven growth. That much is in the growth and investment numbers. The real story, I think, is that BEE has operated like a great big elephant in the room that has made a lot of investors (and not just foreign investors) reluctant to enter in the first place.Paton is quite correct that actual research into these matters is sparse, and that business may be animated about them in private, but is coy on the topic in public. I think we could all benefit from a clearer understanding of this, but I for one have no hesitation in saying that it needs to go.The second piece of race-based legislation I’d nominate for repeal is the Employment Equity Act of 1998. This is particularly topical given the introduction of a new round of regulations. These are extremely coercive, introducing what look a lot like quotas in all but name, and prescribing crippling fines for companies that fail to live up to them. Coercive is what they were intended to be; remember that the former Minister of Employment and Labour (something of a misnomer as there is a chronic dearth of the former and thus not a great deal of demand for the latter) announced the intention to be “very hard” on employers. Pledge fulfilled, I suppose..Swirling aroundThis has been swirling around for a while. In 2022, Dis-Chem CEO Ivan Saltzman put out a memo declaring a moratorium on the appointment and promotion of white people with this explanation: “These are harsh measures [the instructions it issues] and necessary if we are to remain profitable and to avoid a potential fine of 10% of turnover which would cripple the business. This is a real threat at this stage.”That threat is even more real now. That’s the point. The Employment Equity Act has handed power to a bureaucracy – now with an additional 10,000 (and later 20.000) inspectors – to intrude into firm-level hiring and promotion decisions, which it has very little understanding of or concern about. Anyone doubting that should have a look at the voluminous output of the Employment Equity Commission, with page after page of tables detailing the proportion of people by their demographics across all manner of sectors at all levels of employment.What I struggle to find is anything trying to explain this. The reality is that running a business is a very different prospect from “inspecting” one, and still less from issuing directives from a ministerial office. South Africa has a chronic shortage of skills, and restrictive labour legislation makes many firms wary about taking on any new staff. Trying to match a firm’s needs with the spreadsheet of a government official is much easier said than done. Ask our dysfunctional municipalities.Read more:. RW Johnson – Space Race Mark II; This time US v China for moon base.The demands of the Act also impose costs on businesses, both direct and indirect. One measure of this is the growth of a service industry to assist with “transformation” compliance. Here’s a comment from one such outfit in the wake of the Saltzman affair: “Saltzman is also correct when he says that failing to meet racial targets may soon trigger ‘a potential fine of 10% of turnover, which would cripple the business. This is a real threat at this stage.’ But so is alienating your employees and customers through a poorly-crafted plan and response. In order to be prepared, businesses need to instead invest in a well-thought-out diversity, inclusion, and equity plan which is sensitive to all stakeholders and which considers the realities of transformation.”.White privilegeAh! Investment in the equity plan. This piece goes on to extol the relevant firm’s expertise, and persuade the reader to make said investment with it. A new generation of consultants go even further and promise crisis response, coaching in dealing with white privilege and so on (it’s a particular brand of capitalism that can sell you your own sense of guilt). It’s a lucrative field.It is reasonable to ask whether this is a productive employment of resources, or whether it makes sense for an insulation manufacturer or trucking company to be spending them in this way. Or, perhaps more to the point, whether employers are really as dispensable as the regulations imply.I would also suggest that the rationale for the Employment Equity Act rings somewhat hollow now. South Africa, economically and socially, is a vastly different place from what it was in 1998. Black people have made enormous strides in the economy. The problem it seems to me is not the surreptitious prejudice that may have been feared at that time, but the general failure of the economy to grow, and the truly catastrophic state of education and training. Being “very hard” on employers seems a very foolish thing to do. This Act can go too.Thirdly, I’d like to repeal the Public Procurement Act of 2024. This is a fairly straightforward proposition. It codifies the principle of set-asides and prequalification criteria, and allows a wide range of officials to determine preference premiums payable in public procurement. (And in deference to something Harber has written, let me acknowledge that preferences can be applied to grounds other than race.) Treasury had described the caps on premiums in the previous legislation as too restrictive.In other words, it hardwires paying more than is necessary for goods and services. Given the fiscal situation, there is something deeply counterintuitive about this..Costs of premiumsIncidentally, there has never been any official estimation of the costs of premiums. This is despite the role that crooked procurement played in state capture, not to mention the current squeeze on state finances. As I’ve previously pointed out, Gabriel Crouse estimates that premiums cost around R150 billion a year. Those funds could be put to far better use.So, this can go too. Replace it with a procurement system based on value-for-money. Millions of South Africa’s poorest people depend on state services, and paying premiums is an effective act of redistribution from them to the more affluent – in many instances, to politically connected “businesspeople”.In making this suggestion, the report of the Zondo Commission is instructive. It said that ideally the imperatives of transformation and value for money should be in agreement with each other. Where they are not, value for money should take precedence. Frankly, the South African state has shown little ability to manage and balance competing priorities.That, then, would be my initial list of race-inflected laws that I would advocate repealing.Note that what they have in common is not just that they foreground race, but that they come with a worldview – implied or explicit – about the proper state of the world. Call this, crudely, demographic representivity. This is the view that in the absence of discrimination, rewards and status would be evenly distributed across the society. As the work of Thomas Sowell has demonstrated, that simply lacks empirical support, anywhere. Different groups – however one chooses to define them – do not all follow the same paths for socio-economic mobility. (Beware, too, how one defines “groups”: communities may be defined by links of culture, language and religion, which stand to exercise a greater influence on individuals’ life choices than race.)Read more:.Mashaba doubles down on ‘Rainbow Nation’ dream of SA overcoming race-based politics.DemographicsDon’t misunderstand. Historical discrimination in South Africa actively held back the potential of black people, particularly of black Africans. But it does not follow that in the absence of this background, all institutions would reflect the demographics of society as a whole or even of local workforces. By all means, let us work to make sure that opportunities are open for as wide a spectrum of people as possible to enter whatever fields they may choose – but don’t confuse this with a predetermined outcome. Proceeding on this assumption will only lead the country into blind alleys.I’d also add that the existence of destructive race-based legislation is only a part of what ails South Africa. The problem, unfortunately, is far larger. The dysfunction of our governance institutions owes something to the obsession with representivity, but also to both a formal and informal politicisation of the state. Think here about the powers conferred on political office holders in terms of the Public Service Act, as well as the ANC’s counter-constitutional programme of cadre deployment. In all these respects, the very idea of meritocracy was rejected.Or, on a matter more personal to me, consider the Expropriation Act and the entire Expropriation without Compensation agenda. Ironically, here a lot of the official discourse was geared explicitly at appealing to racial nationalist sentiments. But the legislation itself was remarkably colour-blind. I have argued repeatedly that this was a largely ideological measure aimed at fortifying state control over property in general, and not just land. If there was a frequently unconcealed loathing of the “white farmer”, the policy drive was not about transferring very much of anything into the hands of black people. Rather, as former minister of land reform and rural development Gugile Nkwinti put it, title deeds would be off the table and a “progressive, revolutionary government” (his words) would decide who might have access to land. Certainly, there is a dread continuity between the pre-democracy era and today in landholding for the residents of the erstwhile homelands..Steep cumulative priceWe are paying a steep cumulative price for all of this, and nowhere more acutely than in the failure of the economy to grow. Not that it’s an easy environment, even before law and policy are factored in – though I’d suggest that the legislative environment has set about distributing the spoils of an economy which that same legislation has prevented from growing.The final question is invariably, ‘so what do we replace it with…’? Sowell, again, sardonically responded that when a building is on fire, it’s best not to replace it with anything. Given the state of the economy and the long-term retardation it has experienced, perhaps that’s as much as is possible. I would like to think, however, that something more proactive may be possible.Growth needs to become the central priority for state policy, irrespective of who drives it. First. Do no harm. South Africa has the luxury of picking and choosing winners – if ever that was possible – and certainly not to be “hard” on employers who fail to carry out counterproductive state policy. Policy might even recognise that employers are a positive good, although that might be beyond the current ideological repertoire.To do this, go back to first principles. Get the basic functions and services of government right. Water, power, security. Education and healthcare. This means using whatever skills are available and pushing unapologetically for merit, capability and efficiency in state operations. Hold failures to account, and nurture talent. Some quick wins may be possible, but this is a long-term endeavour. Here again, South Africa impoverishes itself when it declines to use the full range of expertise it can call on. It doesn’t have the latitude to do this any longer..Based on class.Finally, rethink race-based preferencing with a model based on class. Substantively, that exists with the social grant system. I’d recommend expanding this, along the lines of the Economic Empowerment for the Disadvantaged model that Anthea Jeffery designed. I’d like to throw in a particular suggestion: because of the overhang of our cities’ segregated design, many of the country’s working poor have to spend an unconscionable portion of their wages on transport. So how about thinking about a variant of enterprise zones in South Africa’s erstwhile townships: tax breaks to set up shop there. To my mind, it would make sense to incentivise entrepreneurs of all stripes – black, white, Nigerian, Inuit – where they can make an outsized social impact. Extending preferences based in race is neither economically efficient nor particularly socially impactful.It’s a question of incentives, really. In other words, we need to move from passing out rewards to creating them in the first place.Incidentally, as I was concluding this article, I paused to check the news. I see that Adriaan Basson has a piece calling for a “national dialogue on BEE, unemployment and growth”.In my view, BEE has had a direct bearing on unemployment and is antithetical to growth. Dialogue, however, is intrinsically important. It’s to be valued, so I reiterate my appreciation to Harber. I am also pleased that some reflection on BEE is taking place on platforms like News24 and the Daily Maverick – though I say with some pride, that the Daily Friend has led the way here. Take this as a contribution on the matter from me..*Terence Corrigan is the Project Manager at the Institute, where he specialises in work on property rights, as well as land and mining policy. A native of KwaZulu-Natal, he is a graduate of the University of KwaZulu-Natal (Pietermaritzburg). He has held various positions at the IRR, South African Institute of International Affairs, SBP (formerly the Small Business Project) and the Gauteng Legislature – as well as having taught English in Taiwan. He is a regular commentator in the South African media and his interests include African governance, land and agrarian issues, political culture and political thought, corporate governance, enterprise and business policy..This article was first published by the DailyFriend and is republished with permission

Terence Corrigan: Time to rethink race-based laws

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