State-Owned Entities: A War Zone Between Political and Economic Elites

The rapid collapse of state-owned entities continues to threaten South Africa’s political stability and intensifies the social crises created by a stagnant economy. 

On 7 August, Daily Maverick reported a story that captured the tragic realities of poverty.

Trapped in debt, unable to feed her children, a 38-year-old mother in the Eastern Cape allegedly killed her three children before committing suicide.

Beyond profound sadness and rage at the permeance of injustice, stories like this should provoke us to investigate the economic conditions and political developments that cause needless human suffering.

To solve the problems that ail our country, we must have a holistic understanding of the root causes.

The desperate poverty of this family and millions more is not coincidental or exceptional. South Africans are caught between parasitic political elites who live only for themselves and corporate elites whose interests require them to put profits over people’s lives.

The competing interests of the ruling elites are not only evident in the deterioration of state-owned enterprises (SOEs) but are the primary cause of this deterioration.

Once SOEs were seen as instruments through which the government could support economic growth. By supplying water, generating electricity, commuter transport and telecommunications, it was hoped SOEs would also advance socio-economic development.

To grasp why SOEs are plagued by mismanagement, financial precarity and corruption, one must consider recent changes in the state’s mandate. 

THE NATURE OF CORRUPTION

Corruption has become a systemic problem and central feature of how governance is conducted, especially in SOEs.

Far more than a case of a few bad apples, corruption is a symptom of the government’s inability to sustainably grow the economy and the enduring dominance of ‘old school’ corporate elites.

Former director of the Society, Work and Politics Institute at the University of the Witwatersrand Karl von Holdt argues that “settler colonialism and apartheid had worked explicitly to prevent the emergence of black middle classes and particularly entrepreneurs, whether on the land, in commerce or in manufacturing”. 

One answer to limited upward mobility and access to capital for aspirant black industrialists or entrepreneurs was the ANC’s attempt to create a “corporate black bourgeoisie” that could become a force in the private sector.

Under the presidencies of Nelson Mandela and Thabo Mbeki, this black business elite would be bolstered by black economic empowerment and penetrate the corporate landscape.

Although this new portion of the elite retains great wealth and political influence, its effect on the direction of economic production or business operations is generally weak.

For those who could not gain capital through the corporatised market, the state became a site of accumulation.

Building political networks of patronage and relationships centred on cronyism, those frustrated by the limitations of the economy – both within and outside the ANC – influenced the procurement and state tender process.

A NEW CLASS

Political economist Niall Reddy is precise on how barriers to the corporate economy, whether a lack of access to business networks or the obstacle of established monopolies, discourage innovation.

Instead, emergent black capitalists and professionals become “sympathetic to any project that widens the domain of the state or directs its resources more forcefully to enrichment” and such actors “are more likely to excuse corruption as ‘transformation’ and less likely to share large-scale capital’s concern with delimiting the authority of the state and guarding the independence of its institutions”.

That this ongoing crusade of criminality is primarily conducted by the government should not narrow our perception of the problem.

The Amandla Editorial Collective accurately highlights that a new kleptocratic elite stretches from chief executives of state-owned corporations to directors general, chiefs, headmen, councillors and even trade union officials.

The prevalence of corruption and patronage not only results from the economic legacy of apartheid and the ANC’s failure to transform the structure of the economy, it has created a new class whose interests often clash with business elites in the private sector.

KLEPTOCRACY

The rise of the the kleptocratic elite in part explains the ideological battles in the ANC when it comes to determining the function and scope of the state’s involvement in managing or stimulating the economy.

The decades-long debate about which entities should or should not be privatised and highly politicised appointments that have hurt the functionality of SOEs arises in part from a conflict over the state’s resources.

Let’s not be confused, ruling party elites are not committed to any substantial political transformation.

Rather the call for “radical economic transformation” is a mystification that uses frustration with socio-economic inequality as a justification for key players in the kleptocracy to have more access to the state’s resources.

Perhaps the greatest challenge to substantively reforming state-owned enterprises is the anti-democratic politics embraced by the emergent kleptocracy and its willingness to use coercive measures to ensure pathways of accumulation in the state remain readily available.

If we do not democratise the state’s power, South Africans will continue to be collateral damage in the wars among elites.

• Andile Zulu is with the Alternative Information and Development Centre in Cape Town. He writes in his personal capacity
• This is an extract of an article in the Mail & Guardian’s ‘The Fiscal Cliff’ series; for the full article, go to mg.co.za