Friday, October 25, 2019 4:37:39 PM
South Africa's Race-Based Socialism
Twenty-five years since the election of Nelson Mandela as president of South Africa, the country remains home to some of the most market-invasive, race-based economic policies in the world.
At the heart of this system are provisions for Affirmative Action (AA) and unique statutory measures for Black Economic Empowerment (BEE). These laws are suffocating the South African economy.
AA and BEE developed in the context of post-apartheid South Africa. Affirmative Action is mandated by the Employment Equity Act of 1998, which mandates companies to alter their workforces until they reflect the racial composition of the local economically active population.
BEE was introduced formally in 2003 as the Broad-Based Black Economic Empowerment Act (BBBEE Act). It goes much further than AA, requiring companies in South Africa to structure their corporate ownership, boards, management, staff, procurement, and charity based on racial classification.
The "whiter" a company’s shareholders, board, management, employees and suppliers, the lower its BEE score (yes, there is an actual scorecard). The "blacker" a company, the higher its BEE score. In the mining industry, the BEE Charter (an industry regulation in terms of the B-BBEE Act) requires a 30% BEE shareholding in companies applying for a new mining right.
South Africans are still racially classified for BEE and AA purposes. The most favoured group is those classified as "black/African," regarded as the most disadvantaged during Apartheid, the unjust system of racially-applied laws that the government began dismantling nearly 30 years ago. The next most favoured groups are "coloureds" (a group descending from Europeans, indigenous Africans, and Indo-Malayans) and "indians" (descendants of Indian settlers). These groups are deemed to have been disadvantaged by Apartheid, but not as much as blacks were. The least favoured group for AA and BEE purposes is "whites," both Afrikaans- and English-speaking, who descend mainly from European settlers (or are recent European settlers themselves) who arrived in the region predominantly from the mid-17 th Century until the latter half of the 20th Century.
A Pernicious Form of Socialism
BEE is a system that erects new incentives and costs for certain economic transactions. It is intended to achieve a different allocation of labour and resources compared to what would arise in a purely free market, with more emphasis on peoples’ classified race and their political connections and less on the value of their product or service.
By reducing overall returns on capital while raising regime uncertainty, BEE increases investment risk and lowers levels of investment.1 Since productivity is a function of the depth and breadth of the capital structure, lower levels of quality capital investment (higher levels of consumption) under a BEE regime lead to further reductions in productivity.
Weak Economic Growth
Essentially, BEE results in capital misallocation and capital consumption and redistributes wealth from voluntarily-determined to politically-determined wealth-possessors. This process reduces the productive capacity of the economy and slows the rate of creation of valued goods and services.
South Africa has been one of the globe’s growth underperformers since it implemented BEE policies in 2004. In the chart below, we compare nominal GDP per capita denominated in dollars (based to 100 in 2005) across various emerging market and commodity-producing countries. South Africa’s GDP per capita grew by 15% in nominal dollar terms since 2005, while the mean of the sample (excluding South Africa) increased by 115% (i.e. more than doubled).
The net effect is wealth destruction and perpetuation of chronic, widespread poverty. South Africa’s per capita GDP, at around $6,000 in 2019, has not increased in inflation-adjusted terms in a quarter-century and is down about 10% since the introduction of BEE. Meanwhile, the mean increase in real per capita dollar GDP in our sample since 2004 has been around 70%3. If South Africa had grown in line with the sample mean since 2004, per capita GDP would be nearly double what it is today.
https://www.zerohedge.com/geopolitical/south-africas-race-based-socialism
Twenty-five years since the election of Nelson Mandela as president of South Africa, the country remains home to some of the most market-invasive, race-based economic policies in the world.
At the heart of this system are provisions for Affirmative Action (AA) and unique statutory measures for Black Economic Empowerment (BEE). These laws are suffocating the South African economy.
AA and BEE developed in the context of post-apartheid South Africa. Affirmative Action is mandated by the Employment Equity Act of 1998, which mandates companies to alter their workforces until they reflect the racial composition of the local economically active population.
BEE was introduced formally in 2003 as the Broad-Based Black Economic Empowerment Act (BBBEE Act). It goes much further than AA, requiring companies in South Africa to structure their corporate ownership, boards, management, staff, procurement, and charity based on racial classification.
The "whiter" a company’s shareholders, board, management, employees and suppliers, the lower its BEE score (yes, there is an actual scorecard). The "blacker" a company, the higher its BEE score. In the mining industry, the BEE Charter (an industry regulation in terms of the B-BBEE Act) requires a 30% BEE shareholding in companies applying for a new mining right.
South Africans are still racially classified for BEE and AA purposes. The most favoured group is those classified as "black/African," regarded as the most disadvantaged during Apartheid, the unjust system of racially-applied laws that the government began dismantling nearly 30 years ago. The next most favoured groups are "coloureds" (a group descending from Europeans, indigenous Africans, and Indo-Malayans) and "indians" (descendants of Indian settlers). These groups are deemed to have been disadvantaged by Apartheid, but not as much as blacks were. The least favoured group for AA and BEE purposes is "whites," both Afrikaans- and English-speaking, who descend mainly from European settlers (or are recent European settlers themselves) who arrived in the region predominantly from the mid-17 th Century until the latter half of the 20th Century.
A Pernicious Form of Socialism
BEE is a system that erects new incentives and costs for certain economic transactions. It is intended to achieve a different allocation of labour and resources compared to what would arise in a purely free market, with more emphasis on peoples’ classified race and their political connections and less on the value of their product or service.
By reducing overall returns on capital while raising regime uncertainty, BEE increases investment risk and lowers levels of investment.1 Since productivity is a function of the depth and breadth of the capital structure, lower levels of quality capital investment (higher levels of consumption) under a BEE regime lead to further reductions in productivity.
Weak Economic Growth
Essentially, BEE results in capital misallocation and capital consumption and redistributes wealth from voluntarily-determined to politically-determined wealth-possessors. This process reduces the productive capacity of the economy and slows the rate of creation of valued goods and services.
South Africa has been one of the globe’s growth underperformers since it implemented BEE policies in 2004. In the chart below, we compare nominal GDP per capita denominated in dollars (based to 100 in 2005) across various emerging market and commodity-producing countries. South Africa’s GDP per capita grew by 15% in nominal dollar terms since 2005, while the mean of the sample (excluding South Africa) increased by 115% (i.e. more than doubled).
The net effect is wealth destruction and perpetuation of chronic, widespread poverty. South Africa’s per capita GDP, at around $6,000 in 2019, has not increased in inflation-adjusted terms in a quarter-century and is down about 10% since the introduction of BEE. Meanwhile, the mean increase in real per capita dollar GDP in our sample since 2004 has been around 70%3. If South Africa had grown in line with the sample mean since 2004, per capita GDP would be nearly double what it is today.
https://www.zerohedge.com/geopolitical/south-africas-race-based-socialism
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