When the state drives a nation’s ruin, private actors must step in and help stop the rot - Daily Maverick
John Endres
Former president Thabo Mbeki recently drew on the content of a speech I made at the Cato Institute in Washington earlier this year to express his misgivings about the direction South Africa is taking.
His observations – which have subsequently drawn much comment, including from Stephen Grootes and Zukiswa Pikoli in Daily Maverick – deserve a considered response.
To recap briefly: in his address at the 22nd National Conference of the South African Association of Public Administration and Management, Mbeki quoted in some detail from my Cato Institute speech, including my assessment that “South Africa’s greatest opportunity for the future is to be found … in its innovative and resilient private sector and civil society, which are solving problems in the growing absence of the state, and doing so successfully. In years to come, South Africa may well become a case study of how private initiative succeeds where states fail”.
While acknowledging the “great importance” of the “reality” I described, the former president responded that, “(in) political science, this is characterised as counter-revolution!”, adding: “And counter-revolution is no innocent and pleasant game, but, in our case, a direct threat to our democratic state and the welfare and wellbeing of millions of our people.”
Under his and his predecessor Nelson Mandela’s tenure, South Africa’s democratic transition started off well. Public services were rolled out to large sections of the population that had been deprived of them under apartheid. Development indicators ranging from growth, jobs, incomes and inequality to public finances improved during Mbeki’s administration, which deserves praise for its significant achievements – more than it often receives.
However, the origins of the now unignorable emasculation of the state traced back to the same period.
State interventionism
The initial growth phase soon stalled as the ANC government pursued the National Democratic Revolution (NDR) through growing state interventionism and ratcheting up policies such as BEE, affirmative action, race-based preferential procurement, nationalising water and mineral resources under the guise of custodianship, and cadre deployment.
These policies have done great harm to (and in some cases destroyed) public services, hamstrung the private sector and created ideal conditions for State Capture to thrive.
Instead of resolutely pursuing pro-growth reforms, the state prioritised social engineering, including a transformation agenda that elevated demographic representivity above merit.
Though they were intended to redress the consequences of apartheid injustices, these policies had the effect of obstructing economic growth and progress and making things worse.
It is these policies, many of which were conceived and launched during the Mbeki era, that have brought us to this point, with record-breaking unemployment and murder rates, rapidly collapsing infrastructure and daily power outages.
This brings to mind economist Thomas Sowell’s poignant observation: “The welfare state has always been judged by its good intentions rather than its bad results.”
Today, South Africa finds itself at a point not dissimilar to that identified in the famous Beveridge Report published in the United Kingdom in 1942. In the report, social economist Sir William Beveridge identified “Five Giants” standing in the way of post-war reconstruction in Britain.
These were: Want (poverty), Disease (poor healthcare), Ignorance (poor education), Squalor (poor housing), and Idleness (unemployment).
In South Africa, the past 15 years of intensified NDR policies have aggravated these afflictions instead of alleviating them:
Want: Poverty is widespread. In 2022, 23% of South Africans were recorded as living below the food poverty line.
Disease: Healthcare is stretched thin. Public healthcare is badly mismanaged and wasteful, with suboptimal hygiene standards and scenes of patients relegated to the floor at public clinics and hospitals. The situation is exacerbated by a high patient-to-clinic ratio, with one public clinic serving an average of 17,172 patients.
Ignorance: The education system, despite being the largest line item in the Budget (behind debt-servicing costs), yields poor outcomes, with 81% of Grade 4 pupils unable to read for meaning and South Africa coming stone last out of 57 countries in the Progress in International Reading Literacy Study.
Squalor: Housing conditions are dismal for millions of South Africans. The number of informal dwellings has surged by about 36.7% from 1996 to 2021, exacerbating issues like inadequate housing and overcrowding. Access to basic services is severely limited, with only 2.8% of these informal homes having piped water indoors.
Idleness: At an astonishing 42.4% on the expanded definition – and an eye-watering 48.3% for black South Africans – unemployment remains the number one problem in South Africa. Worse still, 78.7% of people without a job count as long-term unemployed, having been without work for a year or longer. This is a direct driver of the persistent poverty and extreme inequality that exist in South Africa.
Something needs to be done.
In his speech, Mbeki asked his audience: “What contribution can, and should, public administration and management make to pull our country out of this steep decline and place it on the opposite trajectory?”
Mistaken path
The wrong answer to that question – but one that appears to inspire many within the ruling party – is to do as the United Kingdom did in response to the Beveridge Report, and introduce a massive cradle-to-grave social programme, managed by an expansive, well-intentioned and competent state administration.
Leaving aside that even the UK experienced enormous dysfunction as a result of its post-war policy choices, which only started to be resolved by the Thatcher administration in the 1980s (even as other problems arose), South Africa is in no position to attempt anything similar.
First, the UK was a highly industrialised and advanced nation, even in the 1940s. It was characterised by a strong industrial base. South Africa, on the other hand, is still classified as an emerging market. It faces significant economic constraints and is undergoing rapid deindustrialisation. The financial burden of implementing a welfare state similar to what was proposed in the Beveridge Report is unsustainable in South Africa’s context.
Second, the Beveridge Report assumed a high level of institutional capacity to implement and manage public services. The South African state, with a few honourable exceptions, does not have a reputation for good governance, but rather corruption and inefficiency. This undermines public services, often to such an extent that they are not delivered at all. Mbeki concedes this.
Finally, the Beveridge Report assumed that government spending has a positive fiscal multiplier effect, where state spending boosts economic growth. Given South Africa’s existing debt levels, state incapacity and economic challenges, state spending has a negligible fiscal multiplier effect, or even a negative one. This means that state spending is at best ineffective and at worst destroys value. The state has to get out of the way for growth to happen.
Complementary roles
Enlarging the state’s domain will not place South Africa on a better trajectory. It is state inefficiency that stands in the way of societal progression, vividly reflected in poor service delivery, rampant crime and the rationing of electricity and water, among other things.
As the state’s capabilities recede, other actors have naturally stepped in to fill the void.
Where these actors play a positive role – as is the case with businesses large and small, civil society organisations, community associations and so on – this is a development to be welcomed, not lamented.
It is an adaptive response to existing conditions.
South Africans are increasingly turning to private solutions for essential services like safety, security and the supply of electricity through alternative power sources.
The concern that the poorest South Africans, unable to afford private services, are left behind, is valid. However, their situation would be even worse in the absence of private actors.
The reality is that the existence of better solutions does not worsen the plight of the poor – they are subjected to the inadequacies of the state, regardless.
The answer is not to fight against private solutions by compelling everyone to use monolithic, state-provided systems that are demonstrably failing, but rather to embrace private innovation.
The first step towards steering South Africa on to a different trajectory is to acknowledge that extending the state’s grasp is not the remedy. Rather, it requires aiming for an approach that allows for public and private sectors to complement each other.
By letting the private sector step in and develop solutions and permitting those with the means to opt for private services, the state can reallocate its focus to improving services for those who cannot afford them. This approach allows social safety nets and subsidised services to be provided for those who cannot access private options, without stifling the innovation and efficiency that the private sector can offer.
NDR dead end
Mbeki correctly observes that South Africa finds itself on a counterrevolutionary path. But properly understood, that is to be welcomed: it is precisely the National Democratic Revolution that has created the present deplorable state.
South Africa must move away from the destructive NDR to solve its problems, and it is quietly doing so, through the actions and choices of millions of ordinary South Africans.
Improving South Africa’s condition requires clear-eyed acknowledgement of the areas where the state has stumbled, and an acceptance that private initiatives are needed to solve the problem.
In this context, labelling as counterrevolutionary those who seek refuge in private initiatives amid the state’s inadequacies is unhelpful. South Africans seeking to insulate themselves from the effects of the detrimental state are driven by necessity and pragmatism, not ideology.
Recognising this as a positive development requires a fundamental ideological shift within the ANC, away from state-centric policies such as proliferating social grants, endless bailouts for collapsing state-owned enterprises, and anti-growth policies such as expropriation without compensation and BEE.
The NDR framework – designed to transition South Africa from what was perceived as a capitalist state to a socialist one through nationalisation and government control – is a dead end.
Fundamentally, the public administration can help in reversing South Africa’s decline by recognising its limitations.
The state must focus on its core competencies – ensuring the rule of law and providing a level playing field being foremost among them – and actively create space for private actors to operate efficiently and deliver the necessary services.
Private actors of all stripes, including businesses and civil society organisations, must play their part by correctly identifying South Africa’s present condition and helping to fill the gaps left by the receding state – before malevolent actors do so.
John Endres is the CEO of the Institute of Race Relations