BEE fails the Grootes test, but there is a viable, non-racial empowerment alternative - Daily Maverick

Anthea Jeffery

Race-based empowerment has enriched a connected few while deepening poverty and inequality. A non-racial alternative, Economic Empowerment for the Disadvantaged (EED), offers real impact, fairness and legitimacy.

Having seemingly accepted that “BEE has too many problems to work properly”, Stephen Grootes has suggested that South Africa embark on “a proper national debate” on empowerment alternatives that pass his three tests of “impact”, “fairness” and “legitimacy” (If BEE goes, how do we address racialised inequality?, Daily Maverick, 20 August 2025).

These tests are sound. Their application to race-based BEE should also suffice to bring this fake transformation system to a swift end.

Grootes nevertheless assumes there is a strong “demand for race-based redress” and that any alternative policies must also be race-based. Yet a non-racial alternative that would achieve true transformation is readily to hand — while the inherent flaws in the race-based approach are readily apparent.

To cut to the heart of the matter, it is only because BEE relies on race that a politically connected black elite is able to keep enriching itself under the rubric of redress. This would no longer be possible under a non-racial alternative that targets the poor directly, instead of using race as a proxy for disadvantage.

Take BEE ownership rules, for example. It is only because those rules target people who are black rather than people who are poor that roughly 100 black South Africans have been able to hoover up BEE deals valued at aboug R1-trillion, as Professor William Gumede has said.

The same applies to BEE preferential procurement. That these rules are race-based is crucial in allowing black cadres in all spheres of government to use their insider knowledge and political influence to secure contracts at inflated prices for companies linked to themselves, their families or their friends.

Race-based BEE is thus the main reason for widening inequality. As the South African Communist Party (SACP) said in 2017: “Enriching a select BEE few via share deals… or (worse still) looting public property… in the name of broad-based black empowerment is resulting in… increasing poverty for the majority, increasing racial inequality, and persisting mass unemployment.”

Race-based rules also require race discrimination, which Deputy President Paul Mashatile has denied but Grootes acknowledges as true. This puts race-based BEE in breach of the Constitution’s founding value of “non-racialism”, along with its prohibitions of unfair race discrimination by both the state and private persons.

Grootes, like many other commentators, may believe that BEE is authorised by Section 9(2) of the Constitution. This sub-section allows the taking of “legislative… measures designed to… advance [those] disadvantaged by unfair discrimination” and “promote the achievement of equality”.

Validity of race-based remedial measures
However, as the Constitutional Court ruled in the Van Heerden case in 2004, race-based remedial measures are valid only if they satisfy three tests: they must (1) target the disadvantaged; (2) help advance them; and (3) promote equality.

The Constitutional Court has never properly applied these tests. Were it to do so, BEE rules would fail on all three grounds.

First, BEE targets a small black elite and not the great majority of poor black people.

Second, BEE has failed to “advance” the black majority, which has instead been greatly harmed by it, as the SACP points out.

Third, BEE has failed to “achieve equality” — as rising intra-black inequality has pushed South Africa’s Gini coefficient up from 59 in 1994 to at least 63 today.

In 2019 Professor Gumede urged that race-based BEE should “immediately be abolished”. The focus, he said, should instead be placed on the poor, while “rich blacks should be treated the same way as rich whites: as advantaged”.

The Institute of Race Relations (IRR) agrees with Professor Gumede’s assessment. For many years, it has been developing a non-racial alternative to BEE which it calls “Economic Empowerment for the Disadvantaged” or “EED”.

EED has three core features. First, it is non-racial: it targets the poor via a means test and avoids using race as a proxy for disadvantage.

Second, it scraps the current BEE scorecard and gives businesses voluntary “EED” points for adding to economic growth and upward mobility through investments made, jobs provided and taxes paid, among other value-adding contributions.

Third, it reaches down to the grassroots by providing poor households with tax-funded vouchers for three core needs: schooling, housing and healthcare.

The government spends large amounts in these spheres (R740-billion in total in 2025/26), but top-down and BEE-beleaguered state delivery is so dysfunctional that outcomes are generally abysmal.

Moreover, with public debt approaching 80% of gross domestic product (GDP), present budgets cannot be increased. This makes it vital to get much more bang for every tax buck. This can be done by redirecting much of the revenue being badly spent by bureaucrats into tax-funded school, housing, and healthcare vouchers for the poor.

Low-income households empowered in this way would have real choices available to them. Schools and other entities would have to start competing for their custom, which would keep prices down and push quality up.

School vouchers go back to 1917 in the Netherlands and even earlier in Denmark. They are also now found in Bangladesh, Chile, Czechia, Colombia, Estonia, Guatemala, India, Pakistan and the United States.

The underlying idea is a simple one. Though state schooling in many countries is “free”, public schools often perform so badly that many parents prefer to send their children to low-cost private schools that generally achieve better results. Tax-funded vouchers make this choice available to many more poor families.

Little incentive to improve
In top-down state systems, tax revenues keep flowing directly to public schools, regardless of how badly they perform. They thus have little incentive to improve. Under a voucher system, by contrast, the government works out the per capita sums going to children in low-income families and allocates the relevant amount to each child’s parents.

Professor James Tooley, Vice-Chancellor of the University of Buckingham in the UK and an expert on low-cost private schooling in 22 countries across four continents, says: “Parents choose a school for their child, and the funding goes with the child to the school of their choice.” Schools use this funding to pay their operating costs, including teacher salaries.

Since well-functioning schools attract more children, the introduction of vouchers “spurs competition and innovation in schooling, leading to great improvements”. New private schools spring up to meet demand, while existing state schools must improve to retain their pupils.

Tax-funded housing vouchers were largely pioneered in Chile in the early 1970s, when it became apparent that top-down state delivery was often defective and marred by corruption. By contrast, the housing vouchers provided to low-income families improved quality and efficiency by giving poor people real choices and suppliers incentives to compete for their custom. Similar vouchers are now found in Brazil, Colombia, Costa Rica, Ecuador, India, Mexico, Panama and the US.

Health vouchers were introduced in various developing countries after policy makers saw that low-income families often bypassed “free” but defective public healthcare, preferring to pay out of their own pockets for better-quality health services from private providers. Tax-funded vouchers — since introduced for specified health services in Armenia, Cambodia, Kenya, Nicaragua, Tanzania, Uganda and Vietnam, for example — have improved access to better quality health services and helped achieve universal health coverage.

Would EED fulfil the three tests that Grootes identifies? Clearly, it would pass the “impact” one. Instead of hobbling the economy and exacerbating intra-black inequality, EED would remove the BEE leg iron. This would fuel investment, stimulate growth and expand jobs.

At the same time, EED’s tax-funded vouchers would greatly improve the quality of schooling, housing and healthcare. This would not only help the poor climb the economic ladder, but also boost national productivity and unlock faster growth.

EED would be “fair” as well, for its benefits would flow primarily to the disadvantaged. It would also pass the “legitimacy” test — partly for its fairness and positive impact, but also because so many South Africans already support it.  

Strong support
Successive Institute of Race Relations opinion polls have shown the strength of this support. In 2016 about 85% of black respondents supported school vouchers, while 83% endorsed both healthcare and housing vouchers. In addition, 74% of black respondents said these vouchers would be more effective than BEE in helping them to get ahead.

Subsequent Institute of Race Relations polling has shown the same pattern, with at least 80% of black respondents supporting school, healthcare and housing vouchers. In the Institute of Race Relations’s 2024 opinion poll, 92% of South Africans favoured school vouchers, 83% supported healthcare ones and 80% endorsed housing vouchers. Asked if vouchers would be more effective in helping them than BEE, 81% answered “Yes” and 12% “No”. 

As Grootes writes, “a window is now opening for a proper debate on what might be more effective” than BEE, and “it’s vital that we grab it”. Yet Grootes seems to favour a Basic Income Grant (BIG) even though this would cost taxpayers at least R280-billion a year, leave schooling, housing and health services dysfunctional, and deepen dependency on an ever more powerful state.

EED is by far the most cost-effective alternative. It also promotes competition, fosters innovation, stimulates growth and encourages self-reliance. Unlike BEE, EED complies with the Constitution’s founding value of non-racialism, even as it provides an effective leg-up for the poor.

The time has come to recognise its merits — and to start pushing back against the vested interests determined to retain the BEE policies that help only the few while greatly harming the many.

Dr Anthea Jeffery holds law degrees from Wits, Cambridge, and London universities. Since 1990, she has worked for the South African Institute of Race Relations, where she is Head of Policy Research. She is the author of ten books, including Business and Affirmative Action; The Truth about the Truth Commission; Peoples War: New Light on the Struggle for South Africa; and Chasing the Rainbow: South Africas Move from Mandela to Zuma.

https://www.dailymaverick.co.za/opinionista/2025-08-27-bee-fails-the-grootes-test-but-there-is-a-viable-non-racial-empowerment-alternative/