A new empowerment paradigm: EED beats B-BBEE - Newsi

10 May 2022 - In my last column, I discussed the government’s commitment to its race-based model of empowerment: Broad-based Black Economic Empowerment. Government leaders and ruling party Mandarins have decreed this (or at a minimum, its guiding principles) to be non-negotiable. Those who oppose it, they warn, are destroying the country’s future, for B-BBEE represents not just a strategy for economic growth, but for socio-economic and political inclusion.

Terence Corrigan

In my last column, I discussed the government’s commitment to its race-based model of empowerment: Broad-based Black Economic Empowerment. Government leaders and ruling party Mandarins have decreed this (or at a minimum, its guiding principles) to be non-negotiable. Those who oppose it, they warn, are destroying the country’s future, for B-BBEE represents not just a strategy for economic growth, but for socio-economic and political inclusion.

As I argued, there are serious grounds for concern about the outcomes of this policy – a matter entirely distinct from whatever intentions may motivate it. Ultimately, it is on its outcomes that a policy must be judged, and in respect of B-BBEE these have been disappointing if not damaging.

But to reject B-BBEE on the grounds that it failing to produce its nominal objectives – growth, inclusion, opportunities – is at some level to recognise that these are worthy objectives. This is hardly controversial, given South Africa’s history and its current economic failings. The issue that naturally arises is what would suitable alternative be?

The Institute of Race Relations has argued for a fresh approach to empowerment, which we have called Economic Empowerment for the Disadvantaged (EED). Much has been made of the attempt by B-BBEE to invoke race as a ‘proxy’ for disadvantage. EED takes direct aim at specific vectors of disadvantage.

EED also recognises the importance of incentives to any economic activity. If we want more of anything – wealth, entrepreneurship, employment – things should be arranged so as to make creating or fostering them attractive. Currently, the incentives created by policy are poorly aligned to their putative goals. Achieving increased black ownership in an existing firm, or a greater presence by black people in management positions in hopes of being in a position to tender for contracts, is a fundamentally different matter from encouraging firm expansion, GDP growth, entrepreneurship and new employment. These things may be in conflict with one another, and in an ideologically constipated and governmentally dysfunctional environment, they are almost certain to be so.

EED would instead incentivise firms to act in a manner that contributes to the upliftment of society, particularly its most vulnerable, and to addressing the key chokeholds on socio-economic mobility.

It adopts a four-point focus to achieve this. These are the four ‘es’: economic growth; excellence in education; increased employment; and the promotion of entrepreneurship.

Replacing the B-BBEE scorecard, firms would earn points based on their performance across a range of indicators. Call this an EED scorecard. This would recognise such things as contributions to housing for their employees, or to the surrounding community; support for education and healthcare; assistance to entrepreneurs.

The system would also recognise the centrality of some of the hard economic decisions that firms make, and would try to encourage them. For example, points would be given for making investments, something without which neither GDP nor company-level growth can take place. (It is also something that government policy at present is doing much to discourage.) Points could also be earned for contribution to exports, contribution to tax revenues and R&D spending.

Then of course, points would be earned for increasing employment, for increased remuneration, for improved benefits and so on.

The goal would be to inject momentum into the economy, to provide businesses with an incentive to do the things that we as a country need them to do, and to go the extra mile to do the things that we as a society want them to do. The outcome – allowing, of course, for the correction of the other economic hindrances, such as dealing with the power supply (a challenge in itself, although not one entirely divorced from empowerment policy, as the Zondo Commission has shown) – would be a growing economy, one more attractive to investors and entrepreneurs and one with more room for redistributive endeavours.

This is only one part of the proposed system. While a growing economy and strong business sector is indispensable to South Africa’s future, we cannot ignore or be indifferent to the hardships millions of ordinary households live under. Measures need to be put in place to extend assistance here and now, with a view to enhancing opportunities, and not only palliative relief.

One element of the EED proposal is to initiate a system of taxpayer-funded vouchers to qualifying – in other words, poorer – households. These could cover a range of benefits and would enable households to access services appropriate to their own needs. An obvious example is the education sector. Failing schools and the inadequate education they provide places a dreadful barrier before the prospects of South Africa’s poorest people. While there is an urgent need to rehabilitate the state system, there has been rapid growth in low-fee private schools in South Africa. This is an important educational resource and vouchers would provide poor households with access to it.

Likewise, housing vouchers would offer an alternative to the RDP-style units, giving poorer households a wider range of options. These could work with models co-financed by municipalities or savings societies or non-governmental organisations; they could be applied to build housing from scratch, or to extend structures.

The key is that access to these benefits would be available to all based on socio-economic status with no regard to race. This can expect considerable pushback, as many thought leaders and politicians have a considerable investment in racialised politics and policies. But in truth it would not be as radical a departure from current practices as might initially be assumed.

South Africa’s system of social grants already operates on a socio-economic basis. While there are legitimate criticisms to be made of the country’s current welfare net, it is incontrovertible that it has kept at bay some of the direst consequences of poverty. The overwhelming majority of recipients (though by no means all) have been black – not because of skin colour, but because of their objective material circumstances.

Contrast that to the rent seeking and consequent damage that racial empowerment has inflicted on the country.

More than this, there has been a growing recognition of the limitations of current policy. B-BBEE is not a means for widespread empowerment. South Africa’s people are ready for something different.

We advocate taking the non-racial route and reorienting policy as a whole towards growth, dynamism and the inclusion that this can bring. It’s past time to abandon the B-BBEE model. Whatever arguments may have been made in its favour have progressively lost their credibility. If we as a country are serious about making an inclusive future a reality, a new direction is in order.

Terence Corrigan is a project manager at the Institute of Race Relations.

https://www.newsi.co.za/opinion/a-new-empowerment-paradigm-eed-beats-b-bbee

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