BEE: Helping or Hurting?

Anthea Jeffery

BEE

Helping or Hurting?

TAFELBERG

Foreword

Some thoughts on the book you hold in your hand

This is a book about an idea; an old idea, dreamed up during the Enlighten­ment and adopted as holy writ by European and North American liberals in the second half of the twentieth century. It goes like this: since all humans are born equal and ability is equally distributed across all races, outcomes would be identical if not for distortions caused by injustice and racial discrimination.

There was of course a second great theory on the causes of inequality, but it fell into infamy with the collapse of communism. By the time Nelson Mandela stepped out of prison in 1990, the Marxist-Leninist view was completely discredited, leaving the African National Congress with no choice other than to abide at least in the short term by the softer rules of non-racial liberalism, which sought equal racial representation in everything from Springbok rugby teams to medical school admissions.

Apostles of this form of redress believe that any discrepancies between races are the fruit of historic injustice. By 1990, a surprisingly large number of white South Africans had come to share this view. Under apartheid, unjust outcomes were legislated into being by a government determined to keep blacks in menial positions. As the injustice became more and more apparent, business began to defy discriminatory laws. The first affirmative action programmes were launched in the early 1990s, the first black economic empowerment ownership deals at much the same time. As Anthea Jeffery reminds us, these initiatives were voluntary; white South Africans had come to realise that redistribution was morally correct and politically inevitable and therefore opted to move before they were ordered to do so by the incoming African National Congress.

Private initiatives failed to meet the ANC’s goals, though, and after 1998 the campaign for redress moved into a more coercive phase, with Parliament passing laws requiring both business and other institutions to transform or face penalties. Most businesses accepted this, reasoning that resistance would be pointless and damage minimal provided that the new laws were equally enforced on everyone: if all shoe factories, for instance, were required to give an identical percentage of ownership to black partners, black economic empowerment or BEE would become just another overhead in the shoe sector, easily passed on to customers. Some businesses took a more risky stand, warning that the new laws would stifle growth, heighten inefficiency and encourage corruption; a line that inevitably elicited charges of racism from the ANC. It was hard for the layman to know where truth lay, and after a while, you began to feel it didn’t matter anyway, because the debate about economic justice continued interminably, without any resolution. Beyond a certain point, readers began to yawn and turn the page.

Actually, that’s unfair. It was I who grew bored and turned the page, thereby becoming one of the journalists John Kane-Berman would later accuse of ‘sleeping through the revolution’. That is why the contents of this book came as such a shock to me. Each page I turned brought dumbfounding revelations. By the time I reached the halfway mark I was trembling with outrage and bombarding friends with distressed SMSes and emails. Are you aware, I said, that the ANC government has drawn up a ‘final policy proposal’ allowing it to expropriate 50 per cent of farmland without compensation being paid to the farmers concerned? And that the Constitutional Court has already given its indirect blessing to such a move? And that the Department of Trade and Industry is in the process of abrogating our trade treaties with 13 key European countries, thereby signalling to these former friends that their South African assets are now liable to seizure at any moment?

At this point I discovered that most of my friends and journalistic colleagues had also slept through the revolution. Some twirled fingers at their temples behind my back, as if to say, nutcase. Some drew my attention to statements from the World Bank or Goldman Sachs, describing South Africa as a paragon of wise economic governance. The novelist and businessman Steven Sidley accused me of ‘hysterical’ exaggeration. ‘If what you say about Anthea Jeffery’s book is true,’ he said, ‘whites and rich blacks and all foreign investors would already be fleeing. This would be the only conversation in the media.’ But then he started checking Jeffery’s facts, and had to concede that her arguments were if anything understated.

You must understand that Jeffery is not an investigative reporter who digs up secrets. Her great skill is the ability to see hidden patterns in fields of information that lie openly in the public eye, ignored by everyone else. In 2012, she began to apply this formidable weapon to a raft of documents generated by an ANC policy conference in Midrand.

It was clear at the time that the ANC had come to a crossroads. Nearly two decades of state interventions had turned South Africa into Africa’s first welfare state, with a huge and growing black middle class plus a small band of black billionaires, catapulted into super-wealth by BEE legislation. On the other hand, there were many in the ANC alliance who felt change had not gone nearly far enough. Some were communists who wanted to rip up the 1996 Constitution and revive the dream of a Soviet-style revolution. Others were acquisitive Black Power activists who felt black individuals were entitled to own a much larger share of South Africa’s factories, businesses, land and mines.

The upshot was a slew of radical new policy proposals, many of which were endorsed at the ANC’s subsequent Mangaung Conference, where Presi­dent Zuma famously announced that the second phase of the South African revolution was about to begin. The rest of the media reported the speech and fell asleep. Jeffery, almost uniquely, kept her eye on the ball, tracking new policies as they moved into draft bills and, in most cases, into measures already adopted by Parliament, if not yet given the president’s assent.

And so it came to pass that most journalists missed the most important story of the post-apartheid era. In the run-up to our 2014 general election, the ANC was usually portrayed as a centrist movement committed to the National Development Plan, a programme whose moderate precepts were endorsed by the Democratic Alliance and warmly applauded by the World Bank, the IMF and foreign investors. With the ANC now sprawled across the centre like a large and complacent elephant, the media sought drama in the utterances of outsiders like Julius Malema and Joseph Mathunjwa, presented as dangerous radicals whose attacks were rattling the ruling party. The resulting Punch and Judy show was amusing but totally misleading. While the nation chuckled at Malema’s antics, ANC policymakers were quietly working on a scheme that would render him totally irrelevant.

You laugh? I would caution you to wait until you’ve read Jeffery’s dissection of the Protection of Investment Bill of 2013, which strips foreign investors of the right to appeal to international arbitrators if the South African government seizes their assets. Or the Mining Amendment Bill of 2013, which allows government to take control of oil or gas fields developed by private companies and pay whatever compensation it pleases. The same law imposes massive new penalties on mine owners who fail to meet black ownership requirements. Other legislation now exposes directors to jail terms of up to ten years for ‘indirectly’ (that means unintentionally) ‘under­mining’ BEE objectives, while already onerous empowerment requirements are being ratcheted up under the new generic codes.

Also of interest is the draft 2013 Expropriation Bill, which empowers thousands of officials at all three tiers of government to expropriate property of virtually any kind. This should be read in conjunction with the aforementioned Investment Bill, which allows them to do so without compensation – provided that they are acting as ‘custodians’ for the disadvantaged masses. As Jeffery notes, this law would in theory enable the state to confiscate your business and then invite members of the previously disadvantaged caste to apply to run it without paying you anything.

Those who think the Constitutional Court would surely stand against this should think again: the relevant provision is taken directly from a recent ConCourt judgment, which is now being turned into a general principle of law.

And so on, and so on. All these rules and rulings have been reported in the press, but often in a way that omits or downplays their most important aspects. It is only when you look at what they actually say – and then put all the rules together, as Jeffery has done – that you see the big picture, which is utterly dismaying: South Africa is on the brink of falling into the hands of forces intent on dismembering its productive assets.

Some of the looters are communists looking to confiscate property on behalf of the proletariat; others are so-called compradors interested only in enriching themselves. Either way, their influence can only spell disaster – particularly for black people who are desperate for jobs. ‘Decent work’ of the sort South Africans yearn for can only be created by economic expansion, but the ANC’s new plans annihilate any hope of that. Nobody in their right mind (and this applies to foreigners as well as South Africans, irrespective of race) will open new factories or expand production in a country where property rights are so shaky. And a great many will do the opposite – cut their losses and run the instant they get a whiff of what the ANC has in store for them.

This is normally the point where whites are drowned out by howls of rage from Africans who assume we’re conspiring to protect race and class privileges conferred on us by centuries of white supremacy. They are entitled to be suspicious. White South Africans are unfairly advantaged, in the sense that at least some of our gains are the fruit of laws that deliberately crippled black people’s ability to compete with us. If we are to escape from this death trap, we must be willing to admit this, because we ask something even more difficult of our black compatriots: to acknowledge that the ideologically driven laws described in this book have the capacity to destroy our society as surely as the Xhosa nation was destroyed by the Great Cattle Killing of 1856 to 1857.

So then. Pay careful attention. This is an important book. No matter what your politics, I doubt you will enjoy what Jeffery has to say, but we should nevertheless commend her for saying it. As my friend Sidley says, the ANC’s plan for radical transformation should have been the subject of an urgent national conversation for years already. Thanks to Anthea Jeffery, the great debate might at last be poised to start.

RIAN MALAN

Johannesburg

Malan is a renowned journalist and screenwriter. He is also the author of My Traitor’s Heart – recently republished as a Vintage Modern Classic – and Resident Alien.

Explanatory Notes and Common Abbreviations

My use of the term ‘African’ to mean ‘black African’ is not intended to imply that South Africans of other races have any less claim to being Africans. Since the term ‘non-white’ is still widely regarded as offensive, the book uses ‘black’ as the collective term for African, coloured and Indian people. Other authors sometimes use ‘black’ to refer to Africans only.

References to the Survey in the end notes are to the annual yearbook of the Institute of Race Relations (IRR), a publication that has been in print since 1946.

References to Fast Facts are to the IRR’s monthly bulletin, which has been produced since 1991, while references to @Liberty are to the IRR’s policy bulletin, an occasional publication launched in February 2014.

The use of abbreviations has generally been avoided, except where the relevant acronyms are well known and the use of the full name would clutter the text.

Abbreviations and acronyms commonly used are:

At times, abbreviations have also been used for statutes that are frequently cited in the text. These abbreviations are:

Introduction

South Africa’s affirmative action and black economic empowerment (BEE) policies are probably the most wide-ranging and ambitious in the world. They can be traced back to the political transition in 1994, which brought the African National Congress (ANC) to power as part of a government of national unity committed to providing redress for more than four decades of racial discrimination under the National Party government.

Racial discrimination in the apartheid era permeated every nook and cranny of society, stunting the lives and betraying the hopes of millions of black people. The system was aptly summarised by John Kane-Berman, then a journalist on the Financial Mail, who wrote in 1974: ‘Discrimination … governs every facet of our lives from the cradle to the grave – and even beyond, since even our cemeteries are racially segregated. It is enforced where we live, where we work, where we play, where we learn, where we go when sick, and on the transport we use. Not only does the government condone it; it systematically pursues it, preaches it, practises it, and enforces it.’¹

When negotiations for a ‘new’ South Africa began in 1993, all parties to the talks thus agreed that the country’s constitution must strictly prohibit racial discrimination and rigorously uphold the principle of equality before the law. However, it was also recognised by the National Party government, the ANC, and other parties to the talks that simply to repeal all remaining discriminatory laws would not suffice. Remedial measures would also be required to help overcome the legacy of past discrimination and open up opportunities for black citizens.

As in the United States (US), the analogy of the ‘shackled runner’ made sense to many South Africans. In his 1965 commencement address at Howard University, US President Lyndon B Johnson said:

Freedom is not enough. You do not wipe away the scars of centuries by saying: Now you are free to go where you want, and do as you desire, and choose the leaders you please. You do not take a person who, for years, has been hobbled by chains and liberate him, bring him up to the starting line of a race and then say, ‘you are free to compete with the others’, and still justly believe that you have been completely fair. Thus it is not enough just to open the gates of opportunity. All our citizens must have the ability to walk through those gates … We seek not just freedom but opportunity. We seek not just legal equity but human ability, not just equality as a right and a theory but equality as a fact and equality as a result.²

To help provide such opportunity, Johnson called for ‘an equal chance to learn’, for ‘decent homes in decent surroundings’, for ‘better care for the sick’, and for many more jobs to ‘bring the income which permits a man to provide for his family’. He also identified, as perhaps the ‘most important’ of the complex barriers to upward mobility, ‘the breakdown of the family structure’, which at the time saw ‘less than half’ of all African-Americans growing up ‘with both of their parents’. Added Johnson: ‘The family is the cornerstone of our society. More than any other force, it shapes the attitude, the hopes, the ambitions, and the values of the child. And when the family collapses it is the children that are usually damaged. When it happens on a massive scale, the community itself is crippled. So, unless we work to strengthen the family, to create conditions under which most parents will stay together, all the rest: schools, and playgrounds and public assistance, and private concern, will never be enough to cut completely the circle of despair and deprivation.’³

Though Johnson’s words of some 30 years earlier may not have been expressly cited in the debate on affirmative action in South Africa in the early 1990s, his view that freedom had to be supplemented by opportunity resonated deeply with many people in the country. To buttress this perspective still further, the ANC in 1994 put forward a compelling case for affirmative action in employment, business, and land ownership.

Affirmative action, said the ANC, would ‘mainly’ take the form of correcting past injustice through the application of ‘normal and non-controversial principles of good government’. However, there would also have to be special measures to bar racial discrimination, bring about ‘balance in the armed forces, the police, and the civil service’ and ensure that the workforce as a whole became ‘representative of the talents and skills of the whole population’.⁴

At the same time, said the ANC, black economic empowerment (BEE) would be needed to help remove ‘all the obstacles to the development of black entrepreneurial capacity’ and unleash ‘the full potential of all South Africans to contribute to wealth creation’. Affirmative action would also be required to rectify land ownership, strengthen the property rights of all, and make land available for housing as well as to those who wished to farm.⁵

While recommending these interventions, the ANC acknowledged that affirmative action could harm as well as help, depending on the way that it was implemented. Said the organisation: ‘If well handled, affirmative action will help bind the nation together and produce benefits for everyone. If badly managed, we will simply redistribute resentment, damage the economy, and destroy social peace.’⁶

In an additional passage that is generally overlooked, the ANC signalled that it saw affirmative action as an alternative to simply ‘confiscating the spoils of apartheid and sharing them out amongst … the dispossessed’. This latter option would have ‘the immediate attraction of correcting historical injustice’, the party said, but it ‘could not realistically be advanced’ against the background of the negotiated political transition. In addition, in the current circumstances, it would lead to ‘capital flight, the destruction of the economy, and international isolation’.⁷

In retrospect, these words provide an insight into the ANC’s ultimate objectives. At the time, however, they attracted little public coverage or comment. Instead, the parties to the constitutional talks pressed on with the immediate need – the drafting of provisions to bar racial discrimination while also authorising measures aimed at creating opportunity for the disadvantaged. Three important clauses, in particular, were drawn up and included in the 1996 Constitution in order to promote these goals.

Relevant constitutional provisions

The first of these clauses is a founding provision of the new order, which explicitly identifies ‘non-racialism’ as a core value of post-apartheid South Africa. So strong is the country’s commitment to this principle that this clause may not be amended except by a 75% parliamentary majority.

The second key provision is the equality clause (Section 9), which expressly requires equality before the law; bars discrimination on racial (and other) grounds; and requires those who nevertheless discriminate on racial grounds to prove the fairness of their conduct. As an exception to these general rules, the equality clause incorporates a sub-section authorising the taking of ‘legislative and other measures designed to protect or advance persons … disadvantaged by unfair discrimination’.⁸

The third key clause (Section 195 of the Constitution) calls for a ‘public administration that is broadly representative of the South African people’. However, it also makes it clear that the pursuit of broad representivity must not be allowed to trump other needs. The clause thus stresses the importance of employment practices ‘based on ability, objectivity, and fairness’. It also requires the public service to ensure the ‘efficient, economic and effective use of resources’.⁹

Another founding clause – which also needs a 75% majority to change – reinforces the binding force of these provisions by guaranteeing the ‘supremacy of the Constitution’ and adding: ‘The Constitution is the supreme law of the Republic; law or conduct inconsistent with it is invalid, and the obligations imposed by it must be fulfilled.’

By contrast, the Constitution makes no mention of racial targets, or the ANC’s goal of demographic representivity. This last is a shorthand term for the idea that every group should fan out into the workforce, and every other sphere of society, in strict accordance with its share of the national population. But this supposed demographic ‘norm’ does not in fact exist in any heterogeneous society – as research by US expert in affirmative action Professor Thomas Sowell and other international scholars has repeatedly shown. Moreover, as these scholars note, in assessing what degree of representation is appropriate for any group, relevant criteria such as age, education, and experience must be factored in, not overlooked.

The Constitution is thus firm in its endorsement of non-racialism, equality before the law, and the importance of an efficient and effective public service. Where it authorises affirmative action, it does so for the specific purposes of ‘protecting or advancing’ the unfairly disadvantaged, or making the public service more ‘broadly representative’ (provided, in this instance, that this is not at the expense of ability, fairness, effectiveness, and efficiency). The Constitution also makes it clear that these affirmative action provisions are exceptions to its general principles of non-racialism and equality before the law. Hence, like all derogations from general rule, these exceptions must be interpreted narrowly, so as to limit the extent to which they detract from the wider principles in issue.

In addition, in discussions on how affirmative action should in practice be implemented, it was generally agreed by all parties to the talks that the most effective steps would lie in:

■ providing excellent education,

■ making major improvements to living conditions,

■ quickening the pace of economic growth,

■ encouraging direct investment, and

■ creating conditions conducive to the generation of very many more jobs.

On this basis, millions of black South Africans currently mired in poverty would gain the opportunity to reach and scale the ladder to economic success.

The ANC’s other objectives

Behind the scenes, however, the ANC had other objectives in mind. In particular, it had long been committed to a national democratic revolution (NDR) aimed at eliminating existing property relations and ensuring demographic representivity in every sphere of society. In addition, its allies in the Congress of South African Trade Unions and the South African Communist Party – joint rulers with the ANC in the governing tripartite alliance – had long identified the NDR as providing the shortest and most direct path to a socialist and then communist society.

The ANC also believes that the national democratic revolution exempts it from having to comply in full with either the negotiated settlement or the Constitution thereby adopted. In the ANC’s perspective, ordinary political parties may commit themselves to binding outcomes that cannot be altered save by mutual consent, but a national democratic movement with a historic mission cannot be deflected from its long-term objectives by the tactical concessions it might be compelled to make along the way. Such an organisation may find it expedient at various times to enter into compromise agreements that will help to strengthen its position. However, once the balance of forces has shifted in its favour, it will not hesitate to disregard or circumvent the compromises earlier made.¹⁰

Since coming to power in 1994, the ANC has regularly recommitted itself to the national democratic revolution. This has been particularly evident at its five-yearly national conferences in Mafikeng (North West) in 1997, Stellenbosch (Western Cape) in 2002, and Polokwane (Limpopo) in 2007. Its most recent reaffirmation of this commitment was at its national conference at Mangaung (Free State) in December 2012.

However, the media has shown singularly little interest in exploring the national democratic revolution and its significance. This means that most South Africans have little information or understanding about the ANC’s commitment to continuing revolution. This helps explain how a supposedly limited form of affirmative action has quietly morphed into a complex set of employment equity, BEE, and land reform rules that are cumulatively eroding business autonomy, undermining property rights, crippling public service efficiency, choking off direct investment, retarding economic growth, and adding to a crisis of unemployment within the country.

These outcomes fly in the face of what BEE is intended to achieve. Empowerment policies are supposed to be key levers for putting millions of black South Africans on the path to prosperity, but instead their benefits have gone mainly to a relatively small black elite – many of them well paid but often ineffective public servants. Though BEE has thus helped to expand the black middle class, it has also fostered a toxic mix of inefficiency, waste and corruption that frequently causes great harm to 19 million poor South Africans heavily dependent on the state for schools, hospitals, houses, water, and other services.

At the same time the vast majority of these truly disadvantaged individuals have little or no prospect of ever gaining the management posts, ownership deals, preferential contracts, or new small businesses that BEE provides to the privileged few. Most of the poor are unskilled, while more than 8 million of them are also unemployed. Moreover, within the low-growth economic environment that empowerment policies have helped to bring about, few have realistic prospects of finding regular work or otherwise climbing the ladder to success. Hence, far from making it easier for them to get ahead, BEE is harming rather than helping the great majority of black South Africans.

The evolution of BEE

This book sets out to explain the evolution of empowerment policies in all their different aspects. Relevant laws include the Employment Equity Act of 1998, the Preferential Procurement Policy Framework Act of 2000, the Mineral and Petroleum Resources Development Act of 2002, the Broad-Based Black Economic Empowerment Act of 2003 and its generic codes of good practice, and a series of land reform measures already implemented or in the policy pipeline.

This account breaks new ground in pulling all these laws together and describing the relevant legislation in accessible layman’s terms. In doing so, it helps provide a broad overview of what the rules say and how they have been implemented. In this respect, it is a simple but essential ‘everyman’s guide’ to BEE.

However, the book also canvasses the difficult issues that most commentators downplay or avoid. Instead of ignoring the ruling party’s commitment to a national democratic revolution, it shows how BEE in all its aspects is helping the ANC realise its revolutionary goals. It also points to the many negative consequences of these increasingly dirigiste interventions – especially for the 19 million truly disadvantaged South Africans unlikely ever to benefit from racial targets and set-asides.

In addition, the book shows how empowerment goalposts are steadily being changed. This is not happenstance, but what the national democratic revolution requires. For example, most firms subject to the BEE generic codes have put huge efforts into compliance – so much so that their BEE ratings average around 70%. But the BEE generic codes are nevertheless now being ratcheted up to make compliance far more difficult. In addition, executives will soon face jail terms of up to ten years for ‘undermining’ BEE objectives. These changes are likely to provide a further barrier to direct investment and worsen unemployment, thereby adding to ‘revolutionary potential’.

Many other empowerment laws are also being tightened up – particularly those dealing with employment equity in the private sector and BEE in the mining and oil industries. In addition, despite the failure of some 90% of land reform projects, the supposed need to speed up land transfers is being used to justify a comprehensive assault on property rights which, in the end, will by no means be limited to agricultural land.

Even in the education sphere, the stated need for faster ‘transformation’ is being used to serve NDR goals. This justification has already been used to give the minister of higher education (also the general secretary of the South African Communist Party) extraordinary powers to fire university councils and bring the country’s autonomous universities under an unprecedented degree of state control.

In very many spheres, the pattern is the same. The need for remedial measures to help overcome apartheid injustices is being used by the ruling tripartite alliance to implement the national democratic revolution. Yet the media largely persists in turning a blind eye to this process and what it portends. As John Kane-Berman, consultant to the Institute of Race Relations, has recently written, ‘the commentariat is sleeping through the revolution’.

A lack of critical scrutiny

The silence from most commentators points to another problem – a lack of critical scrutiny of BEE in all its aspects. This is partly because of its supposedly remedial aims, which tend to be taken at face value, so limiting proper evaluation. In addition, the fact that BEE is based on racial identity makes the system still more difficult to criticise for fear of being labelled a racist or apartheid apologist.

The playing of the race card to discourage and deflect criticism has been present from the start. It first emerged in 1997 when the Employment Equity Bill was unveiled – and those who spoke up against its likely damaging impact were castigated as racists and ‘sirens of self interest’. Yet these critics included the Institute of Race Relations and its then vice president, Helen Suzman, both renowned around the country and the world for their fight against racial discrimination.

The racial foundation of BEE has had other consequences too. In particular, it has breathed new life into the Population Registration Act of 1950, under which all South Africans were previously officially classified as African, coloured, Indian, or white. The National Party government repealed the statute in 1991 as part of the political transition. But in 2014, almost a quarter of a century later, university students (most of them born after the statute was abolished) are still being asked to classify themselves into the very same apartheid-era categories. So too are public servants, private sector employees, applicants for jobs, and business people seeking procurement contracts from the state or other firms. Without BEE in its present form, racial classification might by now have become a distant memory: something that older generations had been obliged to endure but which ‘born-free’ South Africans could escape. Instead, current BEE rules keep racial tagging alive.

Though racial goodwill has greatly improved since 1994 and remains yet strong, BEE’s emphasis on racial identity reinforces racial stereotypes and fosters polarisation around race. It also undermines the core values of non-racialism and equality before the law, and opens the way to racial scapegoating. South Africa, of all countries, should know the risks here. The ANC is also well aware of them, as it made clear in 1994 when it warned that affirmative action, if poorly implemented, could ‘redistribute resentment … and destroy social peace’.

Overall, BEE in all its diverse aspects has become very different from the limited measures advocated by the ANC back in 1994. Yet critical assessment of this shift in policy and practice has largely been lacking. This book aims to fill that gap. By bringing all the relevant material together, it seeks to make it easier to grasp all the BEE rules, assess the impact they have had, and understand the bigger NDR picture of which they form so vital a part.

Anthea Jeffery

Head of Policy Research and Dick Gawith Fellow, IRR

1. The Rationale for Racial Laws

South Africa has arguably the most comprehensive and challenging affirmative action policies of any country in the world. The relevant rules cover not only affirmative action in employment and procurement but also land reform and various other components of black economic empowerment (BEE). Such policies have steadily expanded in the 20 years since April 1994, when the country’s first all-race general election brought the African National Congress (ANC) to power as part of a government of national unity committed to providing redress for decades of statutory racial discrimination.

Racial discrimination under the National Party government was profoundly damaging to black South Africans. It pervaded every aspect of their lives, confining them to overcrowded rural ‘homelands’ and segregated urban ‘townships’ where housing was cramped and electricity and modern sanitation were rare luxuries. It condemned them to schools where teachers were under-qualified and classes overcrowded, and where textbooks, stationery, and other facilities were limited and sometimes non-existent. It precluded them from buying houses or land in most parts of the country. It prevented them from running businesses in city centres designated as ‘white’ areas, while restricting the business activities open to them in townships. For many years, it also barred them from the skilled jobs that were ‘reserved’ for whites.

Statutory racial discrimination thus made upward social mobility infinitely more difficult for black South Africans, since the normal foundations for this – adequate housing, good schooling, skilled employment, property ownership, and business opportunities – were barred to them in whole or in part. Black people were thus dealt major economic blows, while suffering the daily humiliations flowing both from these restrictions and from the pervasive sense of being ‘second-class’ citizens.

At the same time, and even under National Party rule, a great deal of redistribution from white to black South Africans took place via the budget. In addition, from the early 1970s onwards, the pervasive edifice of racial laws constructed by the National Party began to crumble under the weight of its own contradictions. More and more racial laws became unenforceable, while from the early 1970s the government made major efforts to improve black education and housing. From 1979 to 1986, important reforms were introduced as regards African trade union rights, freehold ownership of township houses, influx control, group areas, and the goals of ‘separate development’.

By the late 1980s, ‘petty’ apartheid had largely disappeared, while black people (Africans, Indians, and so-called ‘coloured people’) were increasingly moving into supervisory and management positions in the private sector. In the early 1990s, both government departments and larger private sector employers began appointing more black managers and putting significant efforts into a ‘soft’ form of affirmative action based primarily on training and mentoring and the fast-tracking of black people into more senior positions.¹

By the 1980s many National Party (NP) supporters had acknowledged the practical failures and deep injustices of apartheid policies. Hence, though the NP might have been able to cling to power for another 20 years (albeit at enormous cost), the fall of the Berlin Wall in November 1989 instead prompted the state president, FW de Klerk, to unban the ANC and other organisations in February 1990. In 1991 De Klerk followed up by repealing all key remaining apartheid laws, including the Population Registration Act of 1950, under which everyone had earlier been classified as white, African, coloured, or Indian.

In 1992 whites voted in a referendum for the continuation of a reform process certain to result in majority rule and the loss of their political power. In 1994 the political transition took place against the backdrop of 25 years of incremental reform and a dramatic softening in white racial attitudes.²

Enormous backlogs in the living standards of black South Africans nevertheless remained, generating widespread agreement on the need for effective measures to help provide redress and increase opportunity. When President Nelson Mandela came to power in May 1994, it seemed the time had finally come when the country could marry its extensive resources to sound policies, thereby stimulating growth and jobs, improving education and living conditions, and providing a realistic prospect of a better life for all.

In his inaugural address as South Africa’s first black president, Mandela emphasised the importance of racial reconciliation. He paid tribute to De Klerk, saying he had turned out to be ‘one of the greatest sons of our soil’. He said he planned to work together with him to build the country and promote racial harmony. ‘Let us forget the past,’ Mandela said, speaking in Afrikaans. ‘What is past is past … Let us work together to make a great country.’ It was not a time for recrimination but a time for joy, as the dreams of all the millions of South Africans who had suffered so greatly under apart­heid could now be made real.³

The same spirit was evident two years later, on 8 May 1996, when the Constitution was adopted in Parliament with the support of almost all political parties. The Constitution identified ‘non-racialism’ as one of its founding values, while the equality clause in the Bill of Rights proclaimed the right of all South Africans to ‘equality before the law and … the equal protection and benefit of the law’. Addressing Parliament in his ‘I am an African’ speech, the then deputy president, Thabo Mbeki, famously said: ‘The Constitution whose adoption we celebrate constitutes an unequivocal statement that we refuse to accept that our Africanness shall be defined by our race, colour, gender, or historical origins. It is a firm assertion made by ourselves that South Africa belongs to all who live in it, black and white … It rejoices in the diversity of our people and creates the space for all of us voluntarily to define ourselves as one people.’⁴

However, this address was followed on 29 May 1998, a scant two years later, by Mbeki’s ‘two nations’ speech, in which he instead emphasised the racial divide. Said Mbeki: ‘We therefore make bold to say that South Africa is a country of two nations. One of these nations is white [and] relatively prosperous … The second and larger nation of South Africa is black and poor … We are not one nation, but two nations. And neither are we becoming one nation.’⁵ This speech set the scene for a number of transformation laws requiring a return to racial classification and racial preferences – but this time in the apparent interests of social justice and redress.

The ANC’s case for affirmative action

In mid-April 1994 – shortly before the general election that brought it to power – the ANC summarised the case for affirmative action in employment, enterprise, and land ownership in a policy document entitled ‘Affirmative Action and the New Constitution’.

After the political transition, said the ANC, it could simply ‘confiscate the spoils of apartheid and share them out amongst those who had been dispossessed’, which would have ‘the immediate attraction of correcting historical injustice’. However, this option ‘could not realistically be advanced’ against the background of the negotiated political transition. In addition, it would lead to ‘capital flight, the destruction of the economy, and international isolation’.⁶

By contrast, affirmative action offered a constructive way of providing ‘real chances’ for apartheid’s victims and new opportunities for millions of people to show their true mettle. In this way, it would in time be possible to achieve a non-racial democracy in which inequality would no longer be linked to race and people could truly regard themselves ‘simply as South Africans … on a colour-blind basis’.⁷

Affirmative action, the ANC went on, would ‘mainly’ take the form of correcting past injustice through the application of ‘normal and non-­controversial principles of good government’. However, there would also have to be special measures to bar racial discrimination; bring about ‘balance in the armed forces, the police, and the civil service’; and ensure that the workforce as a whole became ‘representative of the talents and skills of the whole population’.⁸

Black economic empowerment would also be needed, as black people had been barred from ‘the ownership of capital and the decision-making power that goes with it’. Hence, ‘when racist economic laws were repealed, black people had neither land to serve as collateral, nor capital for investment, nor meaningful sources of credit. Nothing was less free in South Africa than enterprise’. BEE was thus required to remove ‘all the obstacles to the development of black entrepreneurial capacity’ and unleash ‘the full potential of all South Africans to contribute to wealth creation’. At the same time, the ANC would ensure that the state did not become ‘an instrument of racially-based extortion and patronage in which friends were favoured, opponents disadvantaged, and bribes accepted’.⁹

Affirmative action would also be needed to rectify land ownership. ‘Property rights will never be secure as long as the majority believes that existing title has been achieved through wrong rather than right.’ Hence, unless there was rapid land reform, ‘any future economic development would be precarious’. This meant that ‘an active policy of restoring usurped land rights’ would have to be followed, in which land would be made available for housing, as well as to those who wished to farm. Affirmative action in this area would seek to balance the need for appropriate compensation against the importance of affordability.¹⁰

Overall, said the ANC, affirmative action offered ‘millions of South Afri­cans … the long overdue chance to come into their own and start enjoying the good things the country has to offer’. However, ‘direct and vocal criticism’ of the policy was now being voiced by those who had ‘benefited from privilege in the past’ and who ‘claimed that affirmative action denied the merit principle … and involved undue state interference in the economy’. These criticisms were unfounded, it said. However, as earlier noted, the ANC also acknowledged that much would depend on how affirmative action was implemented in practice, saying: ‘If well handled, affirmative action will help bind the nation together and produce benefits for everyone. If badly managed, we will simply redistribute resentment, damage the economy, and destroy social peace.’¹¹

This analysis seemed fair and reasonable, helping to generate widespread support for affirmative action of this kind in employment, enterprise, and land ownership. The ANC’s own warning that affirmative action could ‘damage the economy’ and ‘destroy social peace’ was largely disregarded. In subsequent years, the ruling party’s further reasons for racial transformation laws were also accepted as essential to redress and thus endorsed with little critical scrutiny.

Assumptions underpinning transformation laws

The rationale for racial laws was further articulated in 1997 and 1998, when legislation requiring affirmative action in the workplace (the Employment Equity Act of 1998) was unveiled and then adopted. Much the same reasoning underpins other transformation laws, including BEE requirements. This rationale is thus worth examining in some depth – especially as it rests on a number of assumptions that tend to be accepted at face value, but are in fact flawed or unfounded.

Demographic representivity is the norm

The Employment Equity Act is premised on the assumption that demographic representivity would be evident in every aspect of society if this ‘norm’ were not being undermined and thwarted by racial discrimination. This argument was put forward in 1998 by Firoz Cachalia, an ANC office-­bearer in Gauteng, who said: ‘Since ability is randomly distributed among the entire population, black and white South Africans should be represented in the workforce according to their share of the overall population. If whites instead consistently outnumber blacks in management, skilled jobs, and the professions, then for those who reject the idea of superior and inferior races, the only explanation is that white dominance is the result of racial discrimination.’¹²

Though Cachalia’s view seems superficially convincing, it overlooks relevant differences in human capital as well as variations in other important factors, such as median age. This last factor is also relevant in the United States where, according to US expert in affirmative action, Professor Thomas Sowell, half of all Mexican-Americans are either infants, children or teenagers. By contrast, most high-level occupations require tertiary education and long years of experience and are typically filled by people aged 40 or more. Comparing the number of Mexican-Americans in high-level occupations with the overall size of the Mexican-American population suggests a high degree of ‘under-representation’ of this group at these levels. However, once age is taken into account, the picture changes to the point where such under-representation is no longer evident.¹³

In South Africa there are also salient differences in age and education levels, which are generally overlooked by proponents of demographic proportionality. In 1999, the year the Employment Equity Act came into operation, Africans accounted for 70% of the economically active population (EAP) at national level – the EAP being defined as all those between the ages of 15 and 64 who work, or wish to work. According to the Act, since Africans made up 70% of the EAP, this meant that they should also constitute 70% of managers in both the public and the private sectors. However, in 1999 only 25% of Africans fell within the 35-64 age bracket generally considered eligible for high-level occupations. In addition, though degrees are often required or advisable for management posts, only 1.5% of the African population then held a tertiary qualification. This meant that the pool of African people from which managers could realistically be drawn was far smaller than the Act assumed.¹⁴

Such differences in age and education are sufficient in themselves to preclude white and black South Africans from fanning out into management posts in proportion to each group’s share of the total population. They also help explain why the presumed ‘norm’ of demographic representivity is a myth, rather than a reality, in heterogeneous societies around the world. Writes Sowell: ‘A global perspective makes it clear that the even distribution or proportional representation of groups in occupations and institutions remains an intellectual construct defied in society after society.’

Donald L Horowitz, a professor at Duke University in the United States, adds that ‘few, if any societies, have ever approximated demographic proportionality’. According to Myron Weiner of the Massachusetts Institute of Technology, ‘it is ethnic inequality – rather than the obverse – that is universal’ (emphasis as in the original). Adds Professor Weiner: ‘All multi-­ethnic societies exhibit a tendency for ethnic groups to engage in different occupations, have different levels (and, often, types) of education, receive different incomes, and occupy a different place in the social hierarchy.’¹⁵

White racism continues to bar black advancement

The Employment Equity Act also rests on the assumption that pervasive white prejudice continues to restrict demand for black managers, especially in the private sector. However, this overlooks the fact that, even in the apartheid era, the National Party government was often unable to prevent white employers from giving skilled jobs to black people in defiance of the laws reserving such jobs for whites. So impractical did it become to enforce job reservation rules that the former government had little choice but to repeal most of them by the end of the 1970s. Even white farmers, who were generally supporters of the apartheid system, used their clout with the government not to strengthen the implementation of job reservation but rather to avoid state intervention in their use of skilled black labour. As a result, notes Steven Farron, formerly a professor at the University of the Witwatersrand, agricultural employees, even in skilled and foremen’s jobs, came to be nearly all black, despite high Afrikaner rural unemployment.¹⁶

Moreover, as demand for skilled labour grew in the 1960s, business repeatedly urged the government to ease restrictions on African employment. In 1973 the prime minister, John Vorster, finally yielded to this pressure, saying his government would no longer stand in the way of blacks moving into higher jobs. This resulted in considerable advances for Africans and a subsequent narrowing of racial inequality. Hence, whereas in 1970 some 71% of personal income had been in the hands of whites and 20% in the hands of Africans, by 1990 the white share had dropped to 54% and the African share had grown to 33%. This signalled a decrease of 24% for whites and an increase of 67% for Africans.¹⁷

After the transition to majority rule in 1994, the private sector had still more reason to embrace black advancement in the workplace. By September 1997, shortly before the Employment Equity Bill was published, 90% of the 150 large employers surveyed by a human resources consultancy, FSA-Contact, had affirmative action programmes in place, even though this was not required by law. The proportion of black people in senior management posts at these firms thus increased from 5% in 1995 to 12% in 1998 – and was projected to rise further to 21% in 2001, an overall increase of some 325%. In addition, the proportion of black people in middle management increased from 10% to 21% between 1994 and 1998, and was projected to increase to 29% by 2001.¹⁸

Given the shortage of skilled black South Africans of an appropriate age for management posts, this increase in black representation was a notable achievement. It was made all the more remarkable by a simultaneous increase in the proportion of black managers in the public service. Between 1994 and 1997, this grew from 6% to 38% at national level and, from the same baseline, to 66% in provincial administrations.¹⁹ This rapid rise in black management in the public sector significantly reduced the pool