SA needs EED not BEE – Sunday Independent, 26 July 2015

If Dumisani Hlophe’s preferred version of black economic empowerment (BEE) prevails, then the black majority will indeed remain “in the economic margins, in the doldrums, poor, and living from hand to mouth” (“Zuma bashing takes our eye off the ball”, The Sunday Independent, July 19).

That is exactly what will happen if BEE is not jettisoned in favour of a much more effective alternative, as I argued in an earlier article that Hlophe comprehensively misrepresents.

Hlophe falsely claims that my “main gripe is black ownership”. This is not so. Through all its long years of opposition to racial discrimination, the Institute of Race Relations (IRR) has been pushing for policies aimed at fostering entrepreneurship and making business opportunities equally available to all. As a think-tank strongly committed to the free market, we would like to see hundreds of thousands more entrepreneurs building successful businesses with the help of a fast-growing economy, plentiful electricity, and competitive labour and other input costs.

The IRR’s objection is naturally not to the black ownership of businesses, but rather to the indirect expropriation of existing firms through the 51 percent BEE deals now increasingly required under empowerment rules.

The more indirect expropriation is sanctioned and applauded, the more state powers of this kind will expand – and the more tenuous will become the property rights of all South Africans, both black and white.

Yet property rights are the foundation for individual prosperity and individual civil liberty. Their absence means increasing dependence on a government that, in the end, may have enough power to take virtually everything from virtually everyone. This is certainly the end goal of the SA Communist Party, which has a major presence in the cabinet and is using BEE in its various facets to help bring about a socialist and then communist state in which there will be little room for a middle class of any colour.

In addition, the immediate consequence of indirect expropriation under the rubric of BEE will be to deter direct investment, reduce our already meagre growth rate, and make it harder still for some 8.7 million unemployed South Africans (up from 3.7 million in 1994) to find jobs.

Moreover, the present system of BEE benefits only a small elite: roughly the top 15 percent within the black population. The remaining 85 percent have very little prospect of ever gaining BEE ownership deals, management posts, preferential tenders, or new small businesses to run.

Worse still, BEE does not simply bypass the 85 percent majority. Instead, it actively harms that 85 percent by reducing investment, growth, and jobs and making it very much harder for the poor to climb the economic ladder to success.

BEE – which Nigerian billionaire Aliko Dangote warned against in 2013 – is a key reason why economic growth in South Africa lags so far behind the 5 percent growth rates notched up in many other emerging countries. Yet if we could attain those growth rates too, our economy would soon double in size. That rising tide would strongly lift all boats. This would do far more to lift all black people from the economic doldrums than the narrow benefits of BEE.

The real challenge is to open up real opportunities for all disadvantaged black South Africans. This cannot be done while BEE puts ever heavier leg irons on the economy. So the country needs a new approach of “economic empowerment for the disadvantaged” or “EED”.

With BEE replaced by EED, a new dynamism would enter the economy.

With property rights protected and economic freedom expanding, South Africa could soon join the ranks of the most free countries.

* Anthea Jeffery is head of Policy Research, Institute of Race Relations, and author of BEE: Helping or Hurting?