6 March 2013

South Africa: The Way Forward in South Africa


East London — Presentation to the SA Institute of International Affairs East London Branch held at the Premier Hotel, Regent, Beach Front, East London

There is only one way to answer the question where is South Africa going; it is by answering where South Africa comes firstly and secondly by answering where it stands today.

Where South Africa comes from

South Africa is one of a number of modern countries that were founded outside Europe by European powers during the 16th and 17th centuries.

These countries had a number of common features:

  • They were founded on the export of population and technology of the time from Western Europe.
  • They were founded on genocide against the indigenous peoples.
  • They imported slaves from Africa and or Asia.
  • They exploited the natural resources and labour of the new territories.
  • Their politico-economic systems were designed by the European colonising powers for their own benefit.
  • They were established through destruction of the technical skills of the indigenous peoples where the latter survived.

The countries that met the above description were mostly in the Americas. Most of South America became a colony of Spain and Portugal while North America and some of the Caribbean Islands became British colonies.

In Africa there were only two countries that fell under this classification - these were South Africa and Mauritius. Although the latter did not have an indigenous population it met all the other attributes.

South Africa therefore had a great deal in common with the former slave owning countries of the Caribbean but especially with the United States of America. Both South Africa and the United States were British colonies; their economies provided the backbone to the growth of Britain, in the case of the United States it provided cotton which formed the backbone of the English Industrial Revolution.

Since the discovery of diamonds and gold 150 years ago, South Africa has been a source of enormous profits flowing into the British economy via the City of London.  In the United States there was an almost complete destruction of the indigenous population. Those that survived were herded into reservations where they became completely marginalised politically and economically.

South Africa is different from the United States in that a large part of the indigenous population survived. However they lost all assets that they had previously possessed especially land and livestock and most importantly they lost their traditional technical skills. Defeated military, they were forced through various taxes to became labourers.

Two things are therefore very important to understand about South Africa. The first point is that for the last 150 years the indigenous population was effectively prohibited from acquiring Western technical and managerial skills to replace their traditional technical skills that they had lost. They were also denied the ability to acquire modern business and industrial assets.

The second point was that the population that was brought from Europe by the Dutch East Indian Company in the 17th and 18th centuries gradually became more and more isolated from the emergence of modern Europe and therefore did not have the skills that European populations developed during those critical two centuries which culminated in the development of the Industrial Revolution in England and in other parts of Europe. In the slave owning Cape most manual work was in any case done by the slaves which further contributed to the loss of skills amongst Whites.

The de-skilling of South Africa's population, Black and White, from the end of the 17th century had hugely adverse consequences on the country's future economic development. When minerals where discovered during the last quarter of the 19th century South Africa's population did not have the scientific, technical, financial, and managerial wherewithal to start and develop the all-important mining industry. The development of mining in South Africa was thus undertaken by foreign immigrants who flooded into South Africa from the 1860s onwards. Leaders of the companies that eventually controlled the mining industry were representatives of the City Of London investors. This explains how strategic parts of the South African economy - mining and finance - came to be controlled by the British. This combination of mining and finance has come to be known as South Africa's Minerals Energy Complex.

Lessons from the United States

We have seen that modern South Africa started off on the same foundations as the United States of America. How come the United States became one of the richest and most productive countries of the World while South Africa became mired at the bottom of the middle income trap with half of its adult population locked outside a productive role in the formal economy according to the National Planning Commission?

A large part of the United States, the Northern region spent most of its 80 years after the end of the American War of Independence from Britain in 1783 in a new struggle with Britain, a struggle to achieve economic independence for the United States.  The central objective of America's economic independence was to enable American entrepreneurs to gain access to British industrial and scientific knowledge so they could establish new enterprises especially modern cotton textile factories that constituted the foundation of the English Industrial Revolution.

The British government would have none of that; in the British view the role of the United States was to be a supplier of raw cotton lint to British textile factories in the first instance and secondly America was to remain a protected market for British manufactured goods. The British therefore went to great lengths to frustrate American entrepreneurs from acquiring British technology expertise.

The British government went so far as prohibiting the emigration to the United States of artisans and technicians who had been trained in the textile industries.  In its effort to frustrate the industrialisation of the United States, the British had the backing of the slave owners of the Southern States of the United States who grew cotton for export. The slave owners did not want to jeopardise their main export market for raw cotton by upsetting the British through stealing their textile manufacturing technology.

The tussle between Northern States, Southern States, and Britain culminated in the American Civil War of 1860-65. The defeat of the cotton growing Southern States in 1865 eventually destroyed the political and economic hold Britain had over the economic development of the US. Not surprisingly the industrialisation of America took off after the American Civil War with US entrepreneurs building their country's iron and steel, engineering, oil and gas, finance, electric, textile and eventually motor vehicle industries.

This hugely abbreviated story of American economic development helps us to answer the question posed earlier, that is, why did the United States, coming from the same roots as South Africa, become the richest country on earth while South Africa floundered with most of its people unemployed and living in poverty? The short answer is that the Americans overcame the obstacles put in their way by their history especially their history as a former British colony. They succeeded in creating a genuine capitalist society. South Africa on the other hand has so far only partially met its challenges of creating a capitalist society.  Today South Africa is a stunted capitalist society.

We have seen that the manufacture of cotton textiles was the key driver of both the English and later the American Industrial Revolutions. In the case of South Africa it should be clear that the key driver of our Industrial Revolution should be the mining industry and the metals that it produces. What has happened instead is that South Africa's political elites whether Afrikaner nationalists between 1910 and 1994 or African nationalists since 1994 have connived to do what the slave owners in the Southern United States tried to do ie perpetuate the export of raw cotton to Britain. In our case nationalist elites for the past 100 years have collaborated with British financiers to perpetuate South Africa's role as an exporter of raw minerals and metals.

The lesson from the United States experience is that South Africa must use its mining industry to drive our Industrial Revolution rather than a Consumption Revolution that it has been doing for the last 100 years.

For the mining industry to drive South Africa's Industrial Revolution, plant and equipment that is used in mining must be made in South Africa. As a first step the South African government must freeze the issuing of new mining licenses until the mining industry can demonstrate that at least 75% of the plant and equipment it is using is made in South Africa. This is the only way that South Africa will be able to develop a serious capitalist economy that is able to absorb all its labour force.

The mining industry will need to be relieved of some of the costs that it is carrying now in order to be able to contribute to the Industrial Revolution. One of the costs that must be removed from the mining industry is the cost of housing its labour force. The housing of mine workers must become the responsibility of the municipalities where the mines are located in in partnership with private formal sector property developers. Provincial governments must however stipulate the minimum standards and quality of town planning which hopefully will be an improvement on the ANC governments RDP housing standards. This model should also be extended to housing for farm workers.

Finally there are several other costs that will need to be reviewed.  These are transport, electricity costs and taxation. The hare brain notion that the mining industry through royalty taxes etc. must fund the bloated and already fattened state bureaucracy belongs to the museum.

To be able to achieve the levels of domestic production of mining equipment South Africa will have to revolutionise its education system and its finance sector. The shortcomings of South Africa's education system are all too well known to be repeated here.

What is not so well known are the shortcomings of South Africa's finance sector? There are many myths about how wonderfully South Africa's British created banking system operates.

The reality is that our banking system is one of the major obstacles to the development of entrepreneurship in this country.

Moeletsi Mbeki is deputy chairman of the South African Institute of International Affairs an independent think tank based at Wits University. He is author of Architects of Poverty: Why African Capitalism Needs Changing.

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