Business elite will soon face hard choices

The relationship between capital and politics in SA is characterised by mutual loathing, suspicion, one-upmanship and fear. This is hardly an environment for dialogue and confidence building.

Business recently tabled a document, Post-Covid-19: A new inclusive economic future for SA delivering an accelerated economic recovery strategy”. It called on the government to tackle constraints to economic growth, especially policy certainty; corruption and crime; innovation, entrepreneurship and education outcomes; inefficient and redundant stateowned entities (SOEs); state capability and capacity; inequality, transformation and broad-based BEE.

The cabinet has barely acknowledged the business document ’ s existence.

These are challenges South Africans must solve if foreigners are to invest in our economy. At the heart of these challenges is the political marginalisation of the business elite as well as, increasingly, organised labour.

The democratisation of SA achieved many positive results. It ended racial discrimination in its many forms; it ended rule by a white oligarchy; it ended conflict between black and white and between black and black; it ended SA’s war against its neighbours; it ended SA’s pariah status; it opened the economy to continental and international trade as well as investment; it abolished the police state and replaced it with a public service open to all South Africans.

What gets lost in the accolade of positives is an important downside that was ushered in by our democracy.

Before 1994 the political elite and business elite were more or less the same. The National Party that ruled SA between 1924 and 1994, interrupted for a few years during World War 2, was a party of land and other property owners. They had the same interests as domestic and foreign investors. They used the state to advance their common interests to make their assets profitable.

Democracy separated this partnership between capital and politics. The new coalition that took political power in 1994 was made up of black professionals, leaders of organised labour as well as leaders of other civil society institutions, including faith-based organisations. This new, largely black, ruling political elite were not property owners. Moreover, they owed their position of political dominance mainly to the vote of the large and equally propertyless underclass.

In the hands of this new coalition the state was put to a different use from that which it served under the previous allwhite regime. In the hands of the new political elite the state was used to satisfy the pent-up consumption demands suppressed for nearly a century since the establishment of SA’s mining industry.

The size of the public service therefore ballooned, the size of its remuneration growing exponentially, overtaking private sector remuneration in many categories. According to the Organisation for Economic Co-operation and Development, compensation for general government employees, at more than 14% of GDP in 2015, was the highest in the world. Other countries at a similar level of development as SA paid their public employees 5%-7% of GDP.

Public service remuneration growth was coupled with rapid social services expansion, which mushroomed from R63.1bn in 1994/1995 to R778.3bn in 2015/2016. This huge consumption-driven expenditure entailed a considerable transfer of resources from the real economy through the tax system to the state, as well as by escalating public debt. Another route to growing the size and consumption of the new ruling political elite was inflated employment of highly paid functionaries in SOEs inherited from the previous regime.

The cherry on the cake in the lifestyle of the new political elite is corruption, which has become something of a pastime for this class. As was to be expected, the reckless spending through the state by the new political elite set it on a collision course with the business elite that was being squeezed through the tax system.

The business elite responded in several ways: it tried to buy off the new elite through BEE; it moved companies’ primary listings offshore, especially to London; it moved capital abroad through illicit and semilegal ways, and most importantly it held back as much as it could on new investment beyond funding depreciation.

Gross fixed capital formation in SA has been at a virtual standstill at about 19% of GDP since the late 1980s, with low GDP growth rates to match. In developing Asia investment is normally about 30% of GDP annually and can be as high 45% of GDP in China.

SA’s business elite — and to some extent organised labour too — faces a fast-approaching day of reckoning when it will have to make hard choices.

It can continue to hang on to the coattails of the government as at present, and pray that the government will one day implement the reforms business called for in its “postCovid ” document. It can sit and watch the country’s economy follow its public finances over the fiscal cliff. Or it could pluck up courage and try to cross the Rubicon in partnership with labour, and mount a political challenge to the present governing coalition.

SA’S BUSINESS ELITE … COULD TRY TO CROSS THE RUBICON WITH LABOUR AND MOUNT A POLITICAL CHALLENGE