Don’t throw baby out with bath water
In ending state capture, we must not destroy vital link with private sector
THERE is a serious risk that the debate about the Guptas, specifically the accusation that they have captured the administration of President Jacob Zuma, will destroy the already troubled relationship between the government and the private sector.
This debate culminated in the denial last week by Deputy President Cyril Ramaphosa that he had discussed the appointment of finance ministers with Johann Rupert, the multibillionaire whose family runs and controls the luxury goods multinational Richemont.
It had been alleged that Ramaphosa met Rupert, Barclays Africa CEO Maria Ramos and former finance minister Trevor Manuel after Zuma’s catastrophic replacement of Nhlanhla Nene with David van Rooyen as finance minister.
The implication was that if Zuma took his orders from the Guptas, the deputy president was taking his from the private sector.
The danger with this narrative is that it confuses state capture with a dialogue between the government and business — and thereby tarnishes any politician or government official who engages with the private sector as part of the policymaking process.
State capture is not just corruption, as in a motorist bribing a traffic cop. State capture involves an entire structure in which corrupt members of the network cluster around certain state organs and functions, according to a definition by Mihály Fazekas, a postdoctoral research associate at the University of Cambridge and head of research at the Corruption Research Center Budapest, in Hungary, and István János Tóth, the centre’s director.
In their paper “From Corruption to State Capture”, they quote Professor Anna Grzymala-Busse of the University of Michigan as saying: “At the heart of these is a group phenomenon whereby some members of the business and/or political elite appropriates some parts or functions of the state and uses its resources to the benefit of the group and to the detriment of the public good.”
In contrast, dialogue between the government and business is about creating an environment conducive to investment, a position ANC del- egates have endorsed at successive conferences of the governing party.
Such dialogue is needed if we are to get our economy going, because the people who run businesses often have better information about the economy than policymakers.
After all, more than 70% of South Africa’s economic activity is driven by the private sector, whether owned by locals or foreign investors. Without the private sector, the government wouldn’t get far in its attempt to increase economic growth.
But any government dialogue with business can only be effective and beneficial to all if it is structured properly and based on mutual trust.
According to Professor Ernest Aryeetey, the vice-chancellor of the University of Ghana, and Nkechi Owoo, an economics lecturer at the same university, trust implies that business “should have significant confidence in the government and its policy directives, especially when these are directed at addressing market failures in the economy and enhancing private sector performance. The presence of mutual trust also implies that there are positive reactions from the private sector in response to policies set up by the government to assist the former,” the pair wrote.
Over the years, the ANC has understood the necessity for the government to work with the private sector, as well the state’s need to have the “strategic capacity and the instruments” to discipline the private sector — in other words, a regulatory capacity.
But the ANC has faltered by failing to create or strengthen such capacity, partly because it has confused the government and the state.
Governments make policy which must be fairly and consistently enforced by independent regulators — POWERHOUSE: Businessman Johann Rupert is in the centre of a storm for allegedly meeting with Cyril Ramaphosa after former finance minister Nhlanhla Nene was fired regulators that are appropriately resourced, whose relationship with ministers is well-defined, and that are protected from undue political interference.
Because the ANC has conflated government and state, we are left with weak regulatory institutions, making it difficult to discipline the private sector.
The Independent Communications Authority of South Africa is a good example: its de-fanging has left the public at the mercy of the cellphone companies.
Bimal Jalan, the former governor of the Reserve Bank of India, explains the conceptual distinction between the government and the state rather nicely.
Drawing on the work of economist Ian Little, Jalan says the state in- cludes all the legislative, executive and judicial institutions, and the laws governing the inhabitants of a territory to which it lays claim.
Governments, on the other hand, are tenants of the state. They come and go as per the dictates of the constitution.
In his book The Future of India: Politics, Economics and Governance, Jalan wrote: “This conceptual distinction between state and government, in my view, is vital as it explains why a government — even if freely and duly elected — has to be directly accountable to the people for its actions. Public institutions are expected to be permanent (for example, the railways . . .), and they should not be allowed to be governed by the whims and fancies of the ministers ‘temporarily’ in power.”
But, in reversing the capture of the state, we should be careful not to destroy the relationship between government and the private sector.
Any government dialogue with business can only be effective if it is based on trust
Sikhakhane is deputy editor of The Conversation Africa Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.sundaytimes.co.za