Counting cost of corruption

Former White House adviser says individual buying power and SA’S potential growth are being diminished

Underestimate the ruinous economic implications of state capture at your peril, says former Harvard professor Todd Buchholz.

Buchholz, an adviser to US president George HW Bush in the late 1980s and early 1990s, was the keynote speaker at Allan Gray’s investment summit last week. On a whistlestop tour to SA, he jetted in and out of the country in a little over 24 hours.

Speaking to the Financial Mail on the sidelines of the summit, Buchholz said it’s clear SA’S economy is facing heady challenges. Among the most ominous: an overly close relationship between politicians and private companies.

“To the extent that SA is plagued with those closer relationships, which are a form of rent-seeking, it means the buying power of

South Africans is diminished and the potential growth is diminished,” he says.

Competition suffers, innovation dries up, and ultimately, prices remain high.

Buchholz cites specific examples of technology upstarts, such as Uber and Tesla, which have been challenged by vested interests with political protection.

“For a brief time, Tesla was more or less inhibited from selling its electric vehicles in the state of New Jersey, because it had regulations that said if you don’t have autodealers (in the state), you can’t sell vehicles here. Well, autodealers have a great deal of political pull, because they tend to contribute to political campaigns,” he says.

Buchholz, of course, provides only broad brush strokes of the macroeconomic impact of rent seeking.

It’s far trickier to put a definitive number on what state capture, particularly of state-owned companies by those aligned to the Gupta family, has cost the SA economy.

Lumkile Mondi, an economics lecturer at Wits University, says that in the absence of transparency about the waste (such as the state capture inquiry), it’s difficult to ➦