Business and the state represent two critical pillars of a society. One represents the creation of wealth and the other, the management of power. Together, they can be more than the sum of their parts, and a cooperative relationship between business and the state can be an enormous advantage for a country’s economic prospects – and still more, for its developmental prospects.
A productive business-state relationship is one in which each party is able to understand the other and to find points of mutual interest and vulnerability. This allows them to recognise the inevitable tensions in their relationship, but to act in a manner that is of benefit to both – and if the state has a suitably developmental orientation, the action can be structured to serve the interests of society as a whole.
This is critically important when it comes to investment: choosing to sink wealth into an economy in the expectation that the environment will be conducive to its growth.
These relations have been a fraught issue in South Africa. For the most part, the country’s business community has been accustomed to operating under political dispensations that have neither understood its needs nor evinced particular sympathy for it. For the incumbent government, there remains a well of ideological hostility to business. (“White monopoly capital” was not a Zuma-era or Bell Pottinger invention, but was a concept developed by the South African Communist Party in the 1960s, and one senses government’s view that business must at least be a visibly subordinate party to any relationship.)
Different worldviews
In a 2016 contribution, the late Michael Spicer described relations between the State and business as having been inherently strained by their completely different worldviews, by strong anti-business sentiment by some within the ANC, and then by the collapse into patronage that attended the Zuma years. The State was happy to play divide-and-rule with business (by effectively extending patronage to a racially exclusive breakaway organisation, many of whose members were actually public servants and not businesspeople), and was increasingly uninterested in policy. Business, for its part, was generally prepared to play along without conviction.
As one prominent economist and investment analyst put it to the Institute during the research for our recent paper, “Open(ing) for business”: South Africa’s investment malaise and how to escape it: “The simple fact is that the relationship from the ANC’s side was driven by ideology. A market economy versus a control economy, and they couldn’t get beyond the idea that the market was all about profits and that there was a need for the government to take care of society. If government and business had been able to find each other, the potential for a different path would have been massive. Massive. I wouldn’t know how to quantify it. A productive relationship would have meant more rational regulations and a better investment environment, more private investment and the resources for more public investment. It’s a tantalising case of what could have been. But the reality is that relationship became extremely polemical and government has been extremely suspicious of anything to do with the private sector.”
The upshot was that in some spheres, business lacked a meaningful voice, while in others, a combination of official ineptitude and policy capture by certain business interests produced collusive relationships chiefly benefiting the politically connected as a well as a coterie of rent-seekers.
The intersection between politics and money has been central to many of the scandals that have rocked the country and undermined the state. Programmes designed to promote economic inclusion, such as Broad-Based Black Economic Empowerment, have been commandeered, inevitably, to enable corruption.
In the case of steel, the mix of political influence, special pleading and state commitments to industrial development have been closely studied. Donald MacKay of ZXA Global Trade Advisors, a vocal critic of what has taken place in this sector, argues that in attempting to push agendas in trade and business promotion, South African industrial policy has undermined the entire basis of efficient market operations.
It is no longer merely a case that certain firms or sectors are preferred beneficiaries , but that the incentives have been skewed, so that a focus on competitiveness is giving way to one of rent-seeking. It is increasingly difficult in some areas to determine what an accurate price should be. South Africa, Mackay says, is becoming a “subsidy economy”.
Not isolated
Unfortunately, this is not an isolated instance, and political overreach has done great damage to South Africa’s prospects. Initiatives such as Expropriation Without Compensation, suggestions for prescribed assets to fund mismanaged state-owned enterprises, and the pending introduction of the National Health Insurance – the latter an uncosted mega-project with profound implications for every South African and for the economy, and in respect of which input from business has largely been disregarded – all point to this.
When confronted with concerns from European investors about empowerment and localisation demands (the latter are addressed above) former Minister of Trade and Industry Dr Rob Davies replied: “Localisation is not something we will be able to renounce. Nor are we going to be able to renounce BEE.”
So not only is the environment tough, but in a very real sense, disregard for the concerns of business is close to intentional. As another interviewee – an industrialist – said: “You can do something about individual problems. Security, infrastructure, all of that. You just can’t do much when policy is deliberately arranged to act as a truncheon against you.”
In recent years, there have been indications that the possibilities for change may exist. This comes on the back of the near-existential challenge that South Africa confronts as long-enduring daunting problems turned into systemic crisis. The willingness of the State to allow, say, for private power generation at scale – after it had bitterly resisted this even as the lights went off (and the economy went under) – testifies to the sobering power of reality. Such developments do not herald a sea-change yet, but they point to something positive that might be harnessed.
Potential
If South Africa is to realise its potential, a new approach to State-business relations must be charted. The adversarial approach towards business that dominates much thinking within the state has played a central role in degrading thinking and debate around the role that business can and should play in South Africa’s development.
This, unfortunately, follows from the ANC’s ideological worldview, and has been consolidated by the extent to which patronage, rent-seeking and corruption have grown.
Here, a mindset shift is critical. For the ANC, it will mean stepping away from some of what has made it the organisation that it is. Many of its leading lights will not be able to do this. But it is a necessary part of the modernisation process that is essential to South Africa’s progress.
For business, too, some reorientation is in order. Large firms have tended to dominate organised business and to participate in setting up an economic management system that has worked against smaller operators. There has also been a degree of timidity when confronted with destructive policy and governance choices. This has meant that business has been complicit in allowing environments which it does not regard as optimal for investment.
It has also deprived reformers in the State of critical support. Former finance minister and head of the National Planning Commission Trevor Manuel once memorably described business as “cowards” for failing adequately to contest union demands. “If we’re going to have cowards in business, we’re not going to get very far either. You must have that counterweight if you want that progress,” he said in a debate in 2009. The same logic applies to the relationship between business and the State.
One area where business might fruitfully invest some effort is in resuscitating the local-level business chamber movement. Since much of South Africa’s failures are most acutely visible in its municipalities, a strong voice for business is critical. Given the dysfunctionality of much of the municipal sphere, though, business would need to go beyond attempting to interact with the municipal leadership. Rather, business would need to explore creative options for partnerships with interlocutors in civil society and at other levels of government.
Not without influence
Business is hardly without influence, and nor would the positions it might take with regard to policy necessarily be unpopular. This was suggested by the evident blowback that followed President Cyril Ramaphosa’s signing of the NHI Bill into law. If a productive relationship is not possible, business should be frankly transactional in its approach: business support in picking up the slack for a failing state in exchange for real regulatory and policy reform.
The benefits for the country of a reset relationship – even on based on hard-nosed bargaining – would be large.
Fortunately, there are signs that this may be happening, though quietly and on a limited scale. There has recently been a large turnover of managers at Eskom, in the pursuit of better performance. Eskom was at one point an easy target for racial preferencing, but the realities of the power crisis and the need to keep up the supply of electricity has compelled a rethink.
The economist quoted above remarked: “If we get this right, and create a meritocratic environment, the skills can be found, and things can be turned around. There are a lot of retired engineers who would be happy to come back and contribute.”
Wave of investment
He added that that this could be the basis for igniting a wave of investment: “Essentially, just get a move on with the investments that the government claims to have in the pipeline, and which the country needs. What we are seeing is a lot of intention, but that things don’t come to fruition. Upgrading the electricity grid would put around R400 billion into the economy over time. Recapitalise the rail and road networks. The water supply system needs to be fixed. The knock-on effects of all this could be huge.”
This would, of course, need to be paired with the reorientation of South Africa’s administrative apparatus to govern effectively, as well as its education and health departments to provide the services they are mandated to perform – and which are critical to fostering a competitive workforce.
There are islands of excellence that can be encouraged and nurtured, but the grandiose visions that so exercise the official mind are beyond current capacities and must be abandoned. Not only will this foster competence within the state, but in doing so, state officials will come to accept the reality of their own limitations and adjust their expectations and conduct accordingly.
It is worth noting in that context that the South African state has prided itself being a “developmental” one. This was absurd, given its actual performance. The American sociologist Peter Evans in his seminal study of developmental states, Embedded Autonomy, discussed at length how properly capacitated states, whose officials are linked to the economic interests but independent of them, have been able to drive high-end developmental endeavours. If the South African state is to move to a more developmental posture, fostering the ability skilfully to relate to business is indispensable.
And that will be a valuable means of getting South Africa onto the investment-rich path that the country’s future depends on.
- This article draws on a recent paper on investment, “Open(ing) for business”: South Africa’s investment malaise and how to escape it.
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