Johan Fourie's blog

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Remaphobia and post-apartheid economics

with 4 comments

Why Nations Fail authors, Daron Acemoglu and James Robinson, have recently written a series of blog posts on South Africa. One of these, The Fear of Oligarchy, argues that the “African National Congress (ANC) were so concerned that alienating the white elite would be very costly, they ended up with a society even more unequal than the one they inherited”. They argue – using a mind map that link prominent black politicians to private sector firms – that “white capital” gave the ANC political elite a stake in the private enterprise economy. “Perhaps the major driver of the lack of effective reform in the extractive economic institutions of Apartheid is not just that the ANC elite were fearful of collapse but also because they started seeing their personal interests in the continuation of the same economic institutions.”

This is reminiscent of professor Sampie Terreblanche’s views of the “secret meetings” that took place at the CODESA negotiations to end Apartheid, in which white capital absorbed the black political elite to protect their own interests. The high inequality today, Terreblanche argue, is a result of the black elite selling out to the greed and selfishness of “neo-liberal democratic capitalism”.

These explanations for South Africa’s high current inequality omits three important facts. Firstly, South Africa’s post-1994 economy has grown surprisingly well. While we’ve not reached the stellar growth rates of China and India, South Africa maintained growth rates between 2 and 6% for 14 years after what is universally considered a remarkable political transition. Why is this important? Because this growth has not only benefited the rich, as many pundits tend to suggest. In fact, several research papers over the last few years show explicitly that poverty in South Africa has declined, especially after 2000. Had the political transition been less smooth – and ANC leaders been less accommodating of “white capital” or, more broadly, of “the market” – this remarkable achievement of persistent, positive growth in the face of some pretty severe economic and social challenges (high debt levels, unequal social spending, high political expectations) would certainly not have been possible. We don’t know the counterfactual, of course, but Zimbabwe post-2000 does point to one possibility. Few of the thousands of immigrants that entered South Africa over the last few years would be positive about President Mugabe’s enthusiasm to fight the forces of white capitalism.

Secondly, the mind map of connections between politicians and the private sector should not be all that surprising. Most former politicians, in any democracy, often take up private sector positions, either as business leaders within the organisations or as advisers on the Board of Directors. While there are several (recent) examples of blatantly corrupt deals within the South African political system, the media have so far done a good job of exposing these, and these officials were axed (often only after severe media pressure, but still). Perhaps Acemoglu and Robinson should rather compare the level of political-private sector connections between South Africa and the United States, say, or Japan, or India. Not to mention China, or Russia. The results might be surprising.

Thirdly, what is “white capitalism” anyway? Most of the companies Acemoglu and Robinson include in their mind map are not wholly white-owned. They are publicly listed companies on the stock exchange, their shares owned not only by white South Africans, but predominantly by large pension funds (who control the money of all South Africa’s pensioners, including blacks) and also by foreign investors. To blame “white capital” is to blame an non-existent foe, to attack a straw man.

The ANC leaders after the 1994 transition had few better alternatives. Trevor Manuel, Thabo Mbeki and Tito Mboweni’s macroeconomic policies were spot on – not only to benefit “white capitalism” but for the benefit of all South Africans, especially the poor. What was lacking was effective microeconomic policies and, especially, the implementation and execution of these policies.

Those that dwell on whether the ANC peacemakers sold their soul in 1994 have remaphobia, a fear of facts. The reason South Africans still face severe problems today are not due to the greediness of the ANC officials who negotiated peace in 1994, but because these leaders (and their successors) struggled to create or sustain the institutions required of a successful democracy: most notably, a public office that deliver the services their citizens require. (In a sense, these services were there before 1994, but only catered toward a select few.) The challenge was – and still is – to extend these services to all South Africans.

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Written by Johan Fourie

July 26, 2012 at 21:04

4 Responses

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  1. […] what does it all mean? First I should note that not everyone agrees with Acemoglu and Robinson. Johan Fourie makes an excellent case for the progress made since 1994. He writes: The reason South Africans […]

  2. […] everyone agrees with their analysis. Have a look at Johan Fourie’s views. There are quite a few things to discuss and I am going to book us a political economy guest […]

  3. There was a radical alternative but the issue is would it had made inequality less. I doubt it. South Africa now suffers from the labor wags repression of the apartheid years and the ANC does not have a clue how to get out of the structural trap of under-utilized labor. A&R are imposing a questionable ideology on a ountry they only know superficially. As Yogi Berra would say, they convinced me not to be persuaded!

    Dwayne Woods

    July 30, 2012 at 12:49

  4. This is well argued Johan. Perhaps I would make a fourth out of the following question you posed: what was the ANC’s alternative? The ANC led government could not afford to expropriate existing firms with compensation after 1994 so any radical change in ownership structure would have required expropriation. This would unquestionably have lowered the productive potential of the economy. It remains a puzzle why some see a conspiracy where there were few if any alternatives.

    Stan du Plessis

    July 27, 2012 at 06:42


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