Terence Corrigan: The high price of cheap ideology - News24

22 October 2022 - When a memo from Dis-Chem CEO Ivan Saltzman became public earlier this month, the uproar it created was both predictable and understandable.

Terence Corrigan

When a memo from Dis-Chem CEO Ivan Saltzman became public earlier this month, the uproar it created was both predictable and understandable. 

What Saltzman's moratorium demanded was discrimination solely on the grounds of race, absolute and without any apparent exceptions. This bespoke a rejection of non-racism in practice, even if it might be argued that this was not his explicit intention. 

This probably couldn't have struck at sensitivities in South Africa's culture and public discourse if it had been so intended.  

And while this aspect of the controversy has been well-canvassed, the latter part of the memo has received relatively little attention. It reads: 

These are harsh measures [the instructions it issues] and necessary if we are to remain profitable and to avoid a potential fine of 10% of turnover which would cripple the business. This is a real threat at this stage.
The background to this is the escalating demands of the Employment Equity Act. An amendment passed by Parliament and awaiting the Presidential signature would allow the minister to set quotas – for that is what they would be – and increase fines for non-compliance. Hence the reference to 10% of turnover. 

Saltzman is correct. Fines of the magnitude permitted by the amendment would be fatal for companies that incur them. That much should be clear to anyone with even the most rudimentary understanding of business economics (more on that below). That this law is nevertheless likely to be put on the Statute books tells us a great deal – everything, in fact, of relevance – about the nature of official priorities.

In blunt terms, the government has set out to penalise the failure of businesses to achieve its ideological demands with bankruptcy.

Ideology above pragmatism 

South Africa's contemporary reality is not encouraging. Over the past three decades, real GDP growth has simply never reached the levels that would set the country off on an accelerated trajectory. In only three years since 1994, growth exceeded 5%. Since the global financial crisis, it has only exceeded 3.2% once, and that was last year's 4.9%, representing a partial recovery from the dislocation of the pandemic. 

From this flows an unemployment rate of 33.9%, representing some eight million souls. Around half the country's people live below the official poverty line. And with this comes all manner of social dislocation, frustration and despondency about the future.

Behind this is an investment rate equivalent to only 13% of GDP; the National Development Plan sought a rate of 30% to drive the necessary growth. Shortages of power – now a phenomenon 15 years old – place a hard cap on the ability of the economy to grow. The long-feared arrival of water-shedding in Gauteng has now come. Our logistics network is shuddering and creaking. Lawlessness is a pervasive threat, so much so that in July last year, the very inability of the state to maintain even basic control of parts of its territory was on display. (Businesses had previously been subjected to consequence-free violence by political entrepreneurs aggrieved by thoughtless adverts.)

This is hardly an environment that makes for an environment attractive to business. Not to any business, and certainly not to high-value-adding, expansion-oriented operations that would be expected to sink large amounts of capital for the long haul.

The demands to be made in respect of Employment Equity legislation compound this, although one might say, with an extraordinary damaging recklessness. It is merely another expression of a state, government and governing party that has consciously chosen ideology above pragmatism. 

Skills shortage 

Labour minister Thulas Nxesi pledged a while ago to be 'very harsh' on employers that did not bend the knee to its demands. The 'harsh measures' that Saltzman proposed merely acquiesced. But the outcome will predictably be to have an ever smaller pool of businesses surviving to provide the sustenance that South Africa's people need.

Perhaps the most charitable interpretation of all of this is that the government actually lacks even that rudimentary understanding of business economics mentioned earlier. Its stewardship of enterprises such as Eskom and Transnet, not to mention large parts of the state, certainly suggests this. 

Incidentally, some businesses have ventured criticisms of employment equity requirements on the grounds that South Africa has a severe and long-standing skills shortage. This has often been dismissed out of hand if, indeed, the issue is acknowledged.

Yet, skills shortages are rolled out by the government itself to justify its own lacklustre performance. A quick look at recent coverage on News24 shows Minister Ebrahim Patel saying that this explains the lack of a full board and CEO at the South African Bureau of Standards, Minister Nkosazana Dlamini-Zuma blaming a dearth of skills for the state of municipal governance, and Eskom pointing to the issue as a partial explanation for its failures.

Minister Dlamini-Zuma even emphasised that skills shortages at local government level are 'a reflection of skills shortages elsewhere'. 

The real threat 

Yet if the state – with its incredible resources, attractive conditions of service and near immunity from the consequences of failure struggles in this respect – it's not apparent why private business should do any better. Nor what rational sense it would make to threaten firms with bankruptcy for failing to do so.

This is what it is doing. This is 'a real threat' to South Africa's economic future; something that will be 'very harsh' not just on employers but on those who depend on them and those who depend on the taxes they provide for their livelihoods. 

Even though Dis-Chem's board has reportedly retracted the memo, the dangers it foreshadows remain very much alive. The possibilities of a turnaround will hinge on whether South Africa's people and institutions resist the policies Dis-Chem was caught imposing under duress. To this end, the IRR has an ongoing campaign for the President to decline to sign the amendment.   

Otherwise, the country is likely to pay a high price in lost opportunities and foregone development to satisfy an ideological preoccupation.

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

-This article was edited after stating Thulas Nxesi was the former labour minister. It has been updated to indicate he is the current labour minister. 

https://www.news24.com/news24/opinions/columnists/guestcolumn/opinion-terence-corrigan-the-high-price-of-cheap-ideology-20221022

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