Full Report

Lessons of ‘grand apartheid’ for today

David Meades
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Almost six decades ago the American version of apartheid was buried by a Supreme Court decision and in South Africa the economic foundations for ‘grand apartheid’ was laid by a government-appointed commission of inquiry. (Read more)

The US Supreme Court found in 1954 that it was unconstitutional to discriminate in school admissions. A policy of ‘bussing’ black children to ‘white’ schools followed, to the consternation of especially the southern states.

In the same year the South African parliament adopted in the main the recommendations of the report of the “Commission for the Socio-Economic Development of Bantu-areas in the Union of South Africa” set up under the chairmanship of Prof F.R. Tomlinson in 1948.

With this the foundation was laid for a new economic policy, which in academic terminology could be classified under what international historian Paul Johnson called “ethnic socialism.” It became the blueprint for ‘separate development’ or ‘grand apartheid’.

It was a mammoth work of 51 chapters over 3 755 pages, 600 tables and a separate atlas containing 66 large-scale maps.

The aim: to create the basis for a new economic system or model in South Africa.

Ideology

Although the report in itself had no ideological or political slant, in the years to come it became the cornerstone of a new South African construct, based on so-called separate freedoms for all its peoples – an apartheid state.

In its summary the commission clearly states that its recommendations in short imply that the country’s population has to choose between two eventual poles, either full integration or separate development of the two main race groups. Having considered all factors it recommended the latter.

That is the road government chose. It is clear that the commission’s point of departure that the choice should be made by the South African population as a whole was only academic. The choice was made by the representatives of just one section of the population.

The approach of the commission was that separate development would only be possible if there was large-scale development of the “Bantu-areas”.

And as history over the next few decades has shown, especially during apartheid’s last decade, this ideology was just not economically viable, let alone enjoy the acceptance of the population as a whole.

Waste of time?

This, however, does not mean that the report was a total waste of effort. It identified the problems of poverty and how it could be addressed by economic growth.

In a single-race state it would have had the purpose of giving guidelines of how to effect large-scale development in the poorest regions, take development to the masses and thus relieve pressure on urban areas.

The non-viability of apartheid’s ethnic socialism, as defective as communism because of its socialist basis, eventually had to sink it.

Economic sanctions placed the country in a vice grip and when financial sanctions hit in the last decade of apartheid, sidestepping it became nigh impossible.

The peaceful transition that came during the late 1980s and early1990s remains a near-miracle.

But as we entered the third decade of the “new” South Africa the wheels started coming off. While the first decade was relatively easy, by the end of the second serious problems had developed.

This is where the real work starts.

The first decade was the one of reconciliation and laying the foundations for the redistribution of wealth, or put in another way, the redistribution of poverty. The end of the last decade was marked by the pointing of fingers and dishing out of blame for failures.

The first decade was something of a honeymoon:

  • suddenly international sanctions disappeared and our financial system was globalised;
  • hyperinflation and high interest rates were past tense;
  • import tariffs to protect domestic manufacturing as shields against boycotts fell by the wayside;
  • state development of industries and subsidising of others to sidestep sanctions became unnecessary; and
  • the state started privatising state assets on an unprecedented scale and revoking subsidies.

At the same time tax collection improved tremendously and made it easy for Trevor Manuel to budget for a surplus year after year.

Global scene

The start of the second decade also coincided with a wave of surplus liquidity worldwide, and asset-inflation beset the world like a plague.

Especially in the US and Europe it triggered a massive credit crisis, leading to a megacycle of even more credit and still-lingering unprecedentedly low interest rates. This in turn triggered a second wave of asset-inflation, which, especially in the developing world, boosted the value of national currencies as speculators used trillions of dollars at their disposal to chase even more trillions in the form of virtual liquidity via derivatives. This drove up prices in the financial and commodity markets of these countries.

The sham prosperity this caused, and still causes, saw the prospects of the Third World, including Africa, improve dramatically. Strong currencies made it possible for these countries to use large-scale imports to counter domestic inflation.

The usual accompanying negative impact on exports was neutralised by increases of primary commodity prices above currency value increases.

But everyone knows this is a temporary situation and only a matter of time before the fleet-footed money from outside starts moving out again and local currencies come under pressure.

Chances are good that it will also see the international prices of the lifeblood commodities of these Third World economies, including Africa, come down considerably.

When that will happen no one knows, but there are already signs of interest rates in the developed world edging up on the back of increasing economic growth in especially the US. Likewise the excessive increases in commodity prices are exerting pressure on inflation.

And besides the negative effect of inflation in the developed world there is the inflation of the ‘wealthy’ (the advantage delivered to the speculators of increased commodity prices) brining down dramatically the quality of life for millions in the Third World.

South African situation

South Africa will not escape the effects of what is happening, although ­– because it is in the fortunate position of a relative low national debt position – it will not be so severely destructive. But a weakening rand could fuel inflation and weaken government’s budget capacity to assist the poor.

Another South African advantage is that it is only now starting to use its substantial loan facilities to help balance the budget, leaving it with some ‘fat’ to ease things over.

But there are not many taps left to open. The ‘dowry’ left by the previous government has been depleted. The biggest challenge of the next decade will be to, year after year, find more money to cover running expenses, for some time now no longer financed from tax revenue.

The state’s spending on infrastructure has been negligent and there are creative projects in the pipeline that it will cost a lot of money.

Going forward the road will become bumpier and redistribution increasingly difficult.

The realities of 21st-century South Africa are kicking in and the euphoria of 15 years of prosperity and peace largely hid structural imbalances. It is almost daily becoming more pressing as a form of institutionalised poverty.

The new South Africa’s first decade was the one during which wealth were to be redistributed. After that it became redistribution of poverty.

At some stage the reality will hit home that South Africa is not a rich country with a few poor spots, but mainly a poor country, a very poor country, with a few wealthy enclaves.

Development of “black areas”

One of the tragedies of the past number of year is that the development of “black areas” ceased. There was nothing wrong with the idea, but the way the policy was implemented created a breeding ground for corruption because supporting “black leaders” was necessary in an effort to win international support.

What South Africa needs for the next decade or two is a new ‘Tomlinson’, appropriately focused on creating new job opportunities.

At first glance the country over the past decade was still on a relatively strong growth trajectory. Despite thousands of skilled people having left the country, we seemed to get on quite well without them. In the main, the civil service gets along with a new, mainly black, workforce.

It is to be hoped that the president’s widely imparted message over the last few months, that the country needs everyone, will be made a reality.

The country now urgently needs a blueprint to uplift its poor areas, but the luxury of having a commission spending many years on developing it does not exist.

The reports of many commissions and studies, containing surveys and data that are more than adequate to get the ball rolling, are gathering dust on shelves.

Many people involved in compiling those reports over decades are still around and can be roped in to help.

The erstwhile Industrial Development Corporation (IDC) still exists. Long before separate development it has been the vehicle for tackling big projects of which the shorter-term prospects were not attractive enough for the private sector. It gave the country giants like Sasol, Palamin, Foskor, Safmarine, Alusat and many more.

Later came the homelands development corporations that did valuable work, but unfortunately picked up the moral baggage of furthering apartheid’s aims, which saw them disappear.

But Tomlinson’s points of departure are still valid. The guiding principle should be human wellbeing. Although the wellbeing of the whole country should be the aim, Tomlinson’s commission at the time argued that the “Bantu” should be the main focus.

It calculated that if the potential of that group was not developed in the homeland areas, the “white sector” of the economy would have had to accommodate some 17 million black people by the turn of the century. And, how wrong they were!

The reality

The reality of 2015 is that the South African economy cannot nearly accommodate all its unemployed. To that must be added a few million from neighbouring countries and the challenge is becoming bigger.

The principle of taking work opportunities to the masses via the policy of decentralisation went out the back door and the state shouldered the responsibility to look after the poor directly.

There is no other option but again to tackle the development of poor areas – now as a strategy for alleviating poverty. It should be government’s top priority over the next ten years, and will be no easy task.

For starters the private sector needs to be utilised for this development under imaginative and attractive conditions. The model to do this is already available and only needs to be taken off the shelf and dusted down a bit.

Unfortunately our present labour laws make it impossible and trade unions need to be brought on board to accept different rules in development areas.

If we are going to compete with Thailand and Taiwan, our legislation needs to become more investor friendly.

It would probably not be possible to sell the concept of different types or classes of development areas with varying levels of minimum pay and working conditions, development and building regulations and rental periods for land, to everybody in the country.

On the other hand, can we just hope that the Receiver of Revenue will over the next decade be able to scrape together more money year after year and be able to create redistribution via the budget?

We also cannot just continue to hope that agriculture and mining will fuel enough economic growth.

Manufacturing

The service sector has over the past 15 years done much to compensate for the decline in the manufacturing sector, but over the next decade we will again have to rely strongly on new factories – thousands of them.

Factories are built by capitalists taking on big risks and once they have used the construction material and installed the expensive machines, they cannot just up and go within a year or five if things do not go according to plan.

That is the sort of investments needed, but then the country will need to become considerably more investment friendly.

History will show that one of the biggest mistakes of the first decade was that so-called black economic empowerment turned out to be mainly to the benefit of black shareholders in big corporations.

Only a handful of blacks benefitted and the empowering business entities mostly indulged in the process only because of a proverbial pistol to the head, regarding it as another way of buying time while hoping to make enough money in the meantime.

To dish out shares to people who cannot pay for them translates to only one thing: it is costing other shareholders money. The same effect applies to shares dished out from time to time to directors and managers under the guise of ‘incentives’. The principle of such practices is pure, but is unfortunately currently exploited by greedy managers worldwide.

Once you have made peace with the idea of dishing out shares for free to yourself and other senior employees it becomes easy to also dish out shares to black shareholders on the so-called never-never book.

These handouts eventually cost ordinary shareholders in South African companies billions of rands without creating any jobs. Why not rather use this money to finance institutions like development corporations?

The downside might be that these ‘new assets’ are created by the upwards valuation of existing assets with asset inflation, which has spread like a plague across the world over the past two decades.

Domestically this spiral of never-ending asset inflation has pushed up the market value of the Johannesburg Stock Exchange to around R14 trillion, more than three times the GDP. The norm is one on one.

Inequity

Those who had the most money before the arrival of the new South Africa now have even more and the newly empowered also have considerably more. But most of the poor are actually, relatively speaking, poorer than before.

Small wonder that many of the poor whisper that materially they were better off under apartheid and that the right to vote means little if you go hungry.

At real ground level many farmers are already doing more to alleviate poverty than big corporations spending billions on ‘buying time’ – time also for the already empowered to accumulate more money before the real ‘pay day’ arrives.

The farmer only has his land that he cannot sell like option shares on the stock exchange and then take out of the country. He is rather willing to assist a new black farmer in learning the ‘trade’ of farming and lend him equipment to work his farm.

It is therefore heartening to see President Zuma exhibiting a new attitude towards white farmers and results are starting to come to the fore.

The country’s future is in the hands of those willing to help others to help themselves, in the spirit of the late Dr Anton Rupert who said that if your neighbour cannot eat, you will not be able to sleep.

We need a second ‘Tomlinson’ and hopefully there was something of it on the agenda of Trevor Manuel, the minister previously charged with the implementation of the National Development Plan (NDP) in the Zuma cabinet. But he quietly disappeared from the job. Now the only ‘Mr Fixit’ is Deputy President Cyril Ramaphosa with little time to think about the future while he is looking for the wheels that came off along the way.

Maybe someone should look for a copy of the Tomlinson report for him to read.

                                                                                                by David Meades

(David Meades is an economic historian, veteran financial journalist and successful portfolio manager on the JSE.)



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