Inequality, Unemployability and BEE

 Inequality, Unemployability and BEE

Philasande Shongwe

The philosophical arguments against Black Economic Empowerment (BEE) have seemingly fallen on deaf ears. So long as BEE undoes the racial and structural inequalities bequeathed to us by the apartheid government, we are told, however philosophically repugnant BEE may seem is wholly irrelevant. Yet, 18 years after the enactment of BEE, South Africa is viewed, by the World Bank and other organisations as, “the world’s most unequal society”.

The Gini Coefficient

The Gini Coefficient refers to a statistical measure, between 0 and 1, of the degree of variation represented in a set of values, used especially in analysing income inequality. 0 represents a perfectly even distribution of income, while 1 represents a perfectly uneven distribution of income. According to the latest World Bank statistics, South Africa’s 2015 Gini coefficient stood at a staggering 0.65. This was the highest figure recorded by any country in 2015. It was correspondingly on this basis that myriad organisations around the world dubbed South Africa “the world’s most unequal society”. While this epithet is highly disputed by, among other organisations, the Helen Suzman Foundation, which claimed that only 149 of the 218 countries listed by the World Bank in 2015 reported their Gini coefficients, it nonetheless provides useful comparative information.

If indeed the income inequality that we see in South Africa today is entirely the fault of apartheid, as many politicians will have us believe, we would expect the Gini coefficient figures to be worse as we look retrospectively towards the years of apartheid. Furthermore, we would expect, if indeed BEE is fulfilling its intended purpose, that the figures would reflect this. According to Stats SA, however, the Gini coefficients for the years 1993, 2005 and 2015 stood at 0.59, 0.65 and 0.65, respectively. When broken down by race, over the same period, inequality among the coloured communities remained constant at 0.56, dropped among the Indian/Asian communities from 0.52 to 0.45, dropped among the white communities from 0.43 to 0.41, but rose among the black communities from 0.54 to 0.57. Moreover, further comparisons done by Stats SA reported that the top 10% (income earners) in the black communities earn 7 times more than the bottom 40%. The equivalent comparative figures for other racial groups stand at 4.7 in the coloured communities, 4 in the Indian/Asian communities and 2.4 in the white communities.

Evidently, not only has the general trend of income inequality in South Africa risen since the end of apartheid, but inequality among black communities is also greater than in other racial groups. In addition, while the inequality in other racial groups has either remained constant or declined, the income inequality among black South Africans is still rising even faster than it is falling in other racial groups. Something has clearly gone wrong. While labour market discrepancies explain away some of the complications, they do not take away from the extremity of the issue. We may have to come to terms with the fact that the explanation for the worsening conditions of our country may be the result of blunders from our side and that the pursuit of our most treasured ideals has produced outcomes wholly different from those which we expected.

While apartheid undoubtedly accounts for most of the disparities, it is apparent that post-apartheid policies have, at worst, exacerbated apartheid trends, or, at best, done nothing to reverse them.

While the cited statistics may come as a surprise to some, they make perfect sense to those who have been vocal about the elitist nature of BEE. A minority of well-connected and/or privileged people have benefitted greatly and have grown incredibly wealthy at the direct expense of those truly in need of assistance.

Wherever race-based policies have been implemented – so far as I can see – they have created an elite crony class within the historically disadvantaged racial group. I do not think that South Africa is set to be any different. It is not that the ANC has failed to implement race-based policies, it is that race-based policies are a failure.

Gwen Ngwenya

Unemployability and BEE

While poverty is not exclusive to any one racial group in South Africa, it is clearly concentrated more in the black African communities. According to Stats SA, 61% of black South Africans are living in poverty, in comparison to 38% of coloured South Africans, 5% of Indian South Africans and 1% of white South Africans. Compounding this iniquity is the fact that 74% of schools do not have libraries, 80% lack science labs and 63% do not have computer centres (according to the latest National Education Infrastructure Management System report). As a result, there are still some 18 schools in South Africa that have 0% pass rates, and an average of 30 schools each year, between 2017 and 2019, that averaged pass rates of less than 20%. Unsurprisingly, these schools are located in the Eastern Cape, KwaZulu-Natal and Limpopo: the provinces with the highest concentration of poor people. Commensurately, one of the biggest challenges in South Africa is not so much unemployment as it is unemployability – worsened by mandated wage floors unearnable by poor South Africans.

The hornets’ nest that is our education system, as well as the misalignment and mismanagement of resources intended to improve the poorest schools and upskill the poorest people, must be tackled as a matter of urgency. After hundreds of billions of Rands of public-school expenditure, we do not have much to show for it. Tax-funded school vouchers are a way out of the mess in which we find ourselves. In fact, the Institute for Race Relations’ opinion surveys show that 91% of all respondents (and 93% of all black respondents) favour a move of this nature, so that they can “send their children to schools of their choice”.

This would give agency – which is currently limited to upper- and middle-class parents – to poor parents as well. It would ensure that poor parents are no longer forced to send their children to defective schools simply because they are in close proximity. This process of “natural selection” would eliminate the most dysfunctional schools and create a void to be filled by better, more well-equipped schools, that will suddenly have to compete with other schools. A better education will stand millions of South Africans in better stead to uproot structural poverty.

Of course, an economy that is struggling to create jobs will make the move out of poverty very difficult. So, coupling the changes in the education system, should be economic reforms that induce local productivity and entrepreneurship, while concurrently soliciting foreign direct investment.

Real black economic empowerment is about fostering a fertile environment in which black South Africans are both free and able to display their potential with little need to worry about structural obstacles. The education system as it currently stands is one such obstacle. Paradoxically, another structural obstacle to black economic empowerment is Black Economic Empowerment (BEE). Allotting capital, opportunity, and other resources to the higher rungs of society comes at the direct expense to the lower rungs of society, which – as already shown – are populated predominantly by black South Africans. As anybody who has lived in a rural community can attest, BEE is non-existent in rural South Africa. It is applicable only in the cities where it “promotes inclusivity in the financial, legal and STEM sectors”, “fosters diversity in the workplace” and “creates role models for young black children”. It might be added that creating role models for people shackled by the manacles of poor education is quite frivolous.

BEE needs to be repealed. In its place should emerge a non-elitist empowerment policy focused mainly on assisting poor people get out of poverty. This would include a nation-wide initiative to address the education crisis as well as the entrepreneurial deficit that is evidenced by the scarcity and staggering failure of small businesses in our country. Between 70% and 80% of small businesses fail within the first five years in South Africa according to research done by MoneyWeb spanning over 15 years. It is simply not prudent, nor is it judicious, for South Africans to wish to start a business after watching, for all these years, an overwhelming majority of small enterprises degenerate and dissolve before their eyes.

Tackling poverty (and inequality) is a long process. Taking shortcuts will simply not do. Unless we can tackle the dire issues of education, economic growth, and creating a more inclusive economy, we will keep resorting to taxing an ever-decreasing quantity of affluent individuals and corporations until such time they either cease to generate taxable wealth, or leave our country.

Philasande Shongwe

Philasande Shongwe is financial manager and Nocturnal Unwrap Podcast host at Nova Mentis.