Aligning Companies and Government for Sustainable Growth

Published on 15th March 2017

“The imperative role business plays in reaching South Africa’s economic and developmental goals."

In late January of this year, a particularly interesting article appeared in the The New Yorker magazine. It was entitled, ‘Doomsday Prep for the Super-Rich.’

In it, the author details how high net worth individuals in the United States – people whose net worth is tens, hundreds of millions, or even billions of dollars – are preparing for the breakdown of civilization. These wealthy individuals are preparing for doomsday in the form of, not just a catastrophic weather event or natural disaster, but an economic or political crisis in which society unravels into anarchy.

This wealthy elite are setting up safe refuge, fortress-style residences, on decommissioned nuclear missile silos in Kansas, on islands of the Pacific Coast and buying land in New Zealand. New Zealand is particularly sought after because of how distant and isolated it is. The 1% then are literally preparing themselves to escape, evade and hold off the 99%. The haves fear the have nots.

Obviously this phenomenon is interesting for a number of reasons. What is most striking to me, is that some of the wealthiest, most privileged, most powerful people, in the wealthiest, most powerful country in the history of the world, are investing in contingency plans for the collapse of society, rather than improving its sustainability.

It betrays an underlying awareness of the fragility and unsustainability of a world in which increasingly, wealth accrues only to a small sliver of the population at the very top. The story also illustrates the possible futures in front of us.

As managers of the leading companies in the country, you are among the most privileged people in society. You wield enormous economic power, influencing what will be produced, how it will be produced, and how the revenue created will be shared and deployed. You can choose short term gain, and long term dystopia, by focusing only on your own interests. You can claim an ever bigger share of wealth through increasing salaries, bonuses and capital growth. You can use your ability to influence legislation and regulation to shape the rules in your favour.

Or you can make a different choice. You can work with government, labour and civil society in forging a new, more equitable, more sustainable future. From the perspective of our continuing effort to build a developmental state, it is important that we enlist you as partners in any economic project.

No country has developed quickly without alignment and productive partnership between government and business. The developmental state cannot be successful unless it develops and spearheads a vision and narrative for economic development which is shared and embraced by the business class and which goes beyond the currently-wealthy and rent-seeking.

Despite two decades of macro-economic stability, fiscal prudence and – until recently – consistent growth, the South African economy continues to be bedevilled by unsustainable levels of poverty, unemployment and inequality. These ills, as we know, are not randomly distributed, but are concentrated primarily on black people, women and the youth.

We contend, that these negative outcomes, flow from the structure of our economy inherited from apartheid-colonialism, which is fundamentally problematic. Our economy is extractive, deindustrializing, and characterized by an unsustainable bifurcation between a limited proportion of high-wage, high-skill jobs in financial services, professional services and corporate management, and many more low-skill, low-wage jobs in the real sectors.

We have seen low domestic savings, and lower corporate investment than what might be expected, and growth driven by the retail spending of overindebted consumers, rather than the growth of value-added, labour absorbing industries.

So the first task of a developmental state, is to forge a partnership with business around inclusive growth. We need to grow sectors where we have comparative advantages and which are labour-absorbing. These include, but are not limited to: mining, capital equipment manufacturing, agriculture and agri-processing, tourism, energy generation and others.

Government and business need to find each other on regulatory issues so that companies can thrive and grow. That growth needs to be inclusive, with businesses hiring workers and paying them higher wages, and allowing workers to participate in the value they create.

Secondly, we must condition business to see development imperatives as being in their enlightened self-interest. I’ve said already that no rapidly developing country did so without alignment between government and business. In practical terms, what this means is that we cannot develop South Africa quickly with government pulling in one direction, and business pulling in the other.

Three examples where we can see that happening are competition policy, transformation issues and immigration. Fair competition in the market gives new entrants space to compete, and ensures fair, economically optimal prices for goods and services. Yet we have seen repeated scandals of collusion by powerful companies in our economy. These practices are grave acts of fraud and theft, and they undermine the vital trust on which successful economies depend.

Transformation is a fact of life, and should ultimately be in the interest of all South African companies. A society in which black people, women and youth thrive and prosper will have more consumers, making this a bigger, more dynamic market.

Also disappointingly, companies in some labour-intensive sectors seem to see immigrants as a replacement for South Africans, rather than a complement to them. This creates social tensions around the role of immigrants in some of our communities.

Resources and attention that government devotes to policing business on issues of competition, transformation and immigration – to use but three examples – detracts from what we would prefer to be doing, which is partnering with business to grow our economy inclusively.

Therefore we need you, as leading companies, to play a leadership role in maintaining fair practices and good corporate citizenship. We need you to see certain development imperatives as being in your enlightened self-interest, and lead by example in your sectors of operation.

Thirdly, we must create a class of black industrialists; that is, black-owned, medium and large companies which produce value-added goods and services in the real economy. As the ANC-led government, through our various economic policies and programmes over the past 22 years, we have been successful in creating a semblance of black ownership in the economy and a significant black middle class.

This is no small achievement by any means. What we have yet to do, is to catalyse the creation of black wealth and economic power at a large scale, in the form of black entrepreneurs and industrialists.

You will be aware of the criticism of BEE which created only shareholders without management control, or even indebted shareholders, and which did not encourage the creation of black industrialists. You will also be aware of the criticism around so-called “tender-preneurship”, and its association with rent-seeking and patronage.

These negative features, however exaggerated, point to the difficulties faced in creating real black economic power, the power to decide what will be produced, what it will cost, how many people will be employed and what their wages will be, what profits will be made and how these profits will be distributed.

It is only by creating black wealth and economic power that we can truly normalize our society to the benefit of all South Africans and make a credible effort to creating a non-racial society. This is the only path to widely shared prosperity and social harmony.

Finally, we must forge a new social compact between the state, business and workers. This requires doing the hard work of political and social dialogue to build consensus. It requires all of the social partners to make concessions and confront trade-offs. Holders of capital must accept some taxation on wealth, to fund worthy investments such as affordable, quality education for all. Government must demonstrate productivity, value for money and limit corruption to justify taxation. The management class must moderate salaries and pay workers a decent wage. Workers must increase productivity to justify significantly higher wages, and pursue representation on boards and profit-sharing to further incentivize high productivity.

In conclusion, we must transition from a heavily concentrated, extractive, exploitative economy, to an industrial and knowledge economy which is inclusive, in which benefits are widely shared, with black people able to create wealth and develop economic power.

It requires passive black shareholders to make way for dynamic black shareholders, entrepreneurs and industrialists. It requires us to reignite inclusive growth in a variety of sectors, while we transform our economy. This future requires a developmental state, a capitalist class with a sense of enlightened self-interest, and workers, to be in conversation with one another, in partnership with one another, and with a sense of responsibility towards building a South Africa which works for everyone.

By Minister Gigaba

Minister of Home Affairs, Republic of South Africa

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