Van Staden: If you still oppose privatisation, you don’t really understand South Africa

A new opinion piece argues that the backlash against the DA's local government manifesto, which proposes private tendering, independent power producers and ring-fenced revenues for water and electricity, misreads South Africa's realities. Citing low institutional trust, high ethnic diversity and intense multiparty competition, the author contends the developmental state model that worked in East Asia has no precedent here. Eskom's decline from apartheid-era efficiency to state capture is presented as proof that centralised utilities invite rent-seeking. The piece concludes that only genuine privatisation, not the DA's cautious partnerships, addresses these pressures..By Martin van Staden*.The Democratic Alliance (DA)’s recent local government manifesto has predictably provoked a backlash.The party proposes – as it rightly should – that municipalities it governs after the November elections will draw private firms into the provision of water and electricity through competitive tendering, independent power producers, and public-private partnerships, while ring-fencing utility revenues so that ratepayer money can no longer be treated as a political slush fund.Critics – from the GOOD Party to academics and journalists – have responded with the usual tropes and vibes: “this introduces the profit motive”; “it will make essential services more expensive”; “it risks excluding the poor”; “we must build a capable state instead”.These objections are all premised on a fundamental refusal to confront the realities of South African politics. Those who still oppose genuine privatisation of state assets do not truly understand the country they live in. Instead, the South Africa in their minds is not entirely dissimilar from a Nordic state or East Asian tiger.RealitySouth Africa is a low-trust, highly diverse, competitively democratic society.Generalised interpersonal and institutional trust is low by global standards. Afrobarometer’s 2025 study reports that some 40% of South Africans do not trust the President or Parliament “at all”, and 31-35% “just a little”. Some 36% do not trust the Electoral Commission at all, and 31% only a little. Trust in local municipalities, the ruling party, opposition parties, and the police sit at similar levels. Some 51% of South Africans trust their own relatives “a lot”, but 17% do not trust their neighbours “at all” and 32% “just a little”. “Other South Africans” are only trusted “a little” at 51%, “not at all” at 21%, and “somewhat” at 24%. This also maps onto mistrust across ethnic lines.Ethnic and cultural diversity ranks among the highest in the world. South Africa ranked as number five (85.6%) in the Historical Index of Ethnic Fractionalization (HIEF), which analysed ethnic diversity globally from 1945 to 2013.Very (and increasingly) competitive multiparty elections, including intense factional competition inside the dominant party, are also notable.Under these three conditions, the classic developmental state model of relatively weak market institutions combined with a strong government-led economic programme has no successful historical precedent. The East Asian cases repeatedly invoked in South African policy debates simply do not apply.Japan, South Korea, Taiwan, and Communist China achieved rapid industrial transformation under conditions of low ethnic diversity, relatively high social cohesion or particularised trust, and either authoritarian insulation or (in Japan’s case) democracy constrained by elite consensus and homogeneity. Their high-growth phases occurred before, or outside, the full combination of low trust, high diversity, and competitive multiparty democracy that characterises South Africa.The working modelBy contrast, diverse democratic societies that have sustained prosperity, such as the United States, Canada, and Switzerland, have done so primarily through the market mechanism, strong property rights, federalism or decentralisation, and institutions that diffuse rather than concentrate economic power.Their trust levels are moderate rather than Nordic or East Asian, they are notably and increasingly diverse, and their success has not depended on a “capable” developmental state directing investment and subordinating markets.Free markets lower the stakes of political competition, by reducing the size of the prize available for ethnic or factional rent-seeking. They limit the concentration of corruption risk that arises when large economic institutions sit on the state asset register under democratic contestation.Eskom as a case-studyThe experience of Eskom illustrates the point.During the previous dispensation, South Africa as a whole was low-trust, highly diverse, and authoritarian. A measure of authoritarianism has historically proven capable of cancelling out the developmental-state difficulties that low trust and high diversity imply, such as in Yugoslavia and to a degree Singapore.The group that controlled Eskom, being the Afrikaner and English white managerial and engineering class, thus operated as an internally high-trust, low-diversity community with shared technical norms.Authoritarian insulation protected the utility from the full force of multi-group democratic rent-seeking. The result was a world-class, largely self-financing utility that delivered some of the cheapest and most reliable industrial power on the planet. The unacceptable price was legal race discrimination and an absolutised conception of state authority.Under circumstances like this, the state could foreseeably play a direction-giving role in the economy.After 1994 the institution initially retained much of that competence. Electrification expanded dramatically while residual elite culture and skills still shaped operations. Unlike other revolutionary movements, the African National Congress (ANC) did not hollow out Eskom of its expertise and institutional memory overnight.Competent black, Indian-descended, and coloured professionals were instead added to this existing high-trust environment.Over time, however, the implications of competitive democracy became harder to resist. Higher expectations around so-called “transformation”, more political cadres seeking lucrative and prestigious state or state-adjacent offices, and influential criminal networks applying pressure on specific ANC factions to get the gravy train going, transformed Eskom (among many others) into a high-value spoil.And so political appointments, cadre deployment, aggressive transformation targets that accelerated the departure of experienced technical staff, and systematic State Capture documented by the Zondo Commission turned the utility into a vehicle for enrichment and factional politics. And while these things were the focus areas, building new capacity and maintaining the national power grid became a lesser concern. The rest is history.The high-trust assumptions that had sustained competence could not (and cannot) be reproduced once the rules were rewritten by competing worldviews in an open democratic contest. Temporary operational recoveries – like the one we currently find ourselves in – obviously remain possible under focused leadership; but sustainable, depoliticised, world-class public utility management does not.Access for the poorThe same logic applies with even greater force at municipal level, where oversight is weakest and corruption most pervasive. This is the key area of contestation in the November elections.Keeping large water and electricity assets under central political direction in a low-trust, high-diversity democracy creates precisely the concentrated rents and incentives for politically targeted abuse that Eskom demonstrated at country scale.Real privatisation – or genuine private provision through competitive contracting that removes residual state safety nets, monopoly protections, and the prospect of renationalisation – would diffuse that risk.It may well result in higher prices for some services! As American economist Thomas Sowell has observed: “There are no solutions, only trade-offs.”That is a cost that must be faced honestly and embraced eagerly given the constructive implications privatisation holds for medium- and long-term economic growth.The state, of course, would retain the capacity to subsidise or voucherise access for the poor if it chooses. But what it cannot do, under present socio-political conditions, is operate centralised utilities free of the rent-seeking dynamics that competitive democracy in low-trust environments necessarily generates. Perish the notion!“Failures” of privatisationCritics of this proposition often point to European privatisation “failures”.We have by now all heard of the apparent “disasters” of British Rail’s privatisation and the problems associated with Thames Water.The problem with pointing to these examples is that the accuser has a misapprehension of monopoly and the disciplining effect of the market on private enterprise.Competition is fundamentally about contestability, not the mere presence of other competitors. There only exists a monopoly if the market is not contestable, not merely because there is only one, dominant or even lone incumbent.And one of the enduring features of faux-“privatisations” of utilities historically has been the state keeping the market uncontestable. After all, if the utility is no longer state-owned or state-directed, then it must necessarily also lose the state privileges it once held, but the politicians who “privatise” are often not willing to go the distance.In the case of the “privatisation” of British Rail, the Conservative government there simply established a “private” company that became the sole owner of rail infrastructure throughout Britain. The state still retained a regulatory veto over how the rail network is to be run.A competing company arriving to contest, willing to pay market compensation to buy up farms and properties to establish a rival rail network, would have been laughed out of the permits office.The market remained fully monopolised because the state kept it uncontestable. Real privatisation (obviously – it need not really be said) requires deregulation. There was, in other words, no privatisation whatsoever, simply contracting in private entities to act as and for the state in a different form.One must also remember that the reason why privatisation is a good thing, is that it enables failure. To say that a formerly nationalised entity, once private, failed, is a vindication of privatisation, not a criticism. So when the new owners of Thames Water decided to run the company into the ground (or river, as it were), the market responded precisely how the advocates of privatisation said it would: punishingly.Almost without exception, the cases of “failed privatisations” involved residual state interference: continued price caps, restrictions on competition, or the political option to renationalise when the politically-connected interests prefer to exit. Look at South African Airways’ partial “privatisation” in the early 2000s – when Swissair went belly-up, the South African government simply restored the airline’s fully-nationalised status.Real privatisation means the state safety net is removed and competitive entry is permitted. Under those conditions the Coase theorem becomes relevant.Ronald Coase showed that, when transaction costs are sufficiently low and property rights are clearly defined, resources tend to move toward their highest-valued uses regardless of the initial allocation. Corruption or inefficiency in the initial transfer does not permanently strand assets in the wrong hands. Instead, markets reallocate them, usually much faster than political processes can correct themselves.Sometimes, that eventuates into liquidation and an unviable asset simply coming to an end. That is akin to a dream coming to an end – a fantasy book reaching the point of “fin”. Forcing the state to sustain such a dream or fantasy when the underlying society and economy cannot in fact sustain it, is not sensible politics.Evidence all aroundEvery South African already lives the evidence of this claim.Private rooftop solar contributed more to the recent easing of loadshedding than any state recovery plan.Private courier companies have effectively replaced the Post Office.Private entertainment has rendered the South African Broadcasting Corporation commercially marginal.Private airlines have long since superseded South African Airways.Private security, private healthcare, and private education outperform their state counterparts in reliability and, frequently, in value when measured against lives and economic activity lost to state failure.This is the daily, observable consequence of incentive structures that match South Africa’s social realities, rather than deny them: in low-trust, highly diverse, democratic societies, the free market is the most reliable pathway to prosperity. The developmental state is a fantasy that only exists in textbooks and countries where factors aligned that are not present in South Africa.DA’s modest proposalsThe DA is by no means the privatisationist-in-chief in South Africa’s public policy discourse. They, too, believe in the dreamland of a “capable” developmental state in South Africa. Thankfully, they have some residual confidence in the market mechanism..Read more:.Richard Wilkinson: What it would actually take to fix City Power and Joburg Water.As a result, the party’s municipal proposals remain cautious and modest. They emphasise “partnerships” with retained public oversight (read: veto) rather than the full divestiture that they should be pushing for. The caution is politically understandable, though.Their underlying diagnosis is sound. In a low-trust, high-diversity democracy, the continued concentration of economic decision-making power in state institutions is not a “progressive” choice. It is an invitation for the very dysfunction that has already hollowed out Eskom and so many municipalities.Those who still insist that privatisation is the greater danger have not yet confronted what South Africa’s socio-politics actually is..*Dr Martin van Staden is the Head of Policy at the Free Market Foundation and Editor of the Race Law Project at the South African Institute of Race Relations. He earned a Doctor of Laws (LL.D.) from the University of Pretoria and is widely published and featured on popular and academic platforms. Van Staden additionally serves as a director of both the Hayek Council for a Free World and the Free Speech Union SA, and as a fellow at both the Consumer Choice Center and Initiative for African Trade and Prosperity. Visit www.martinvanstaden.com for more..This article was first published by Daily Friend and is republished with permission..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 every morning on 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.

Van Staden: If you still oppose privatisation, you don’t really understand South Africa

Related Stories

Ivo Vegter: State funding won't save journalism, it will finish it off

Rate hold, Rand fall: The SARB's costly miscalculation

Tim Flack: The little gun-free lobby that couldn't

Eskom's monopoly crumbles, “death spiral” looms as SA business flocks to private power