Why South Africa should adopt democratic socialism

The ruling political and economic elites in South Africa appear to be either oblivious to or unconcerned about the prospects of the country falling off a fiscal cliff in the next four to five years. One way to avoid this would be to move urgently towards a system of democratic socialism – but that would run counter to the tenets of the ANC’s outdated National Democratic Revolution. This according to Associate Professor Sean Gossel and Professor Thomas Koelble from the University of Cape Town Graduate School of Business (UCT GSB).

The ruling political and economic elites in South Africa appear to be either oblivious to or unconcerned about the prospects of the country falling off a fiscal cliff in the next four to five years. One way to avoid this would be to move urgently towards a system of democratic socialism – but that would run counter to the tenets of the ANC’s outdated National Democratic Revolution.

It was supposed to be very different. The post-apartheid period was supposed to be a time when the “rainbow nation” would forge a new path of national unity, where the horrid poverty, inequality and deprivation of the country’s ugly history would be reversed – and we would all become citizens, united under a common South African identity.

Fast-forward 25 years and the rainbow has faded, inequality has worsened, poverty and unemployment have become endemic and intractable; and national identities divide us rather than unite us. As the country fell afoul of counter-revolutionary State Capture, some political leaders opportunistically blame the country’s economic, social and political crises on the negotiated settlement that birthed the new nation.

On the one hand, Nelson Mandela and the anti-apartheid negotiators are derided for giving up too much to gain too little, to have settled for economic scraps paraded as political power. On the other hand, there is disillusionment that the referendum of 1992 has not delivered peaceful citizenship.

History is, however, seldom so simple. Before governance collapsed into state capture, many of the policy choices adopted were well-intentioned attempts to bridge the country’s great social divide. Unfortunately, the policies and structural limitations of the post-apartheid government have not provided the country with a clear map to sustainable development because they were founded on bedrocks that would make meaningful redress impossible. As the failings of the post-democratic state become ever clearer amid the Covid-19 pandemic, it is apparent that if South Africa is to reach its full potential, the country will need to redesign its political and economic architecture to a far greater extent than has been attempted thus far.

Over the past two decades, South Africa has enacted social justice policies that can broadly be classified as neo-liberal from 1994 to 2010 (RDP and GEAR) and then under the banner of a developmental state after 2010 (Asgisa, NGP and NDP). The principal policies that sought to reverse inequality, poverty, and exclusion were employment equity (EE), broad-based black economic empowerment (BBBEE) and the establishment of an expansive welfare system.

• The Employment Equity Act (No 55 of 1998) seeks to achieve equity in the workplace by promoting equal opportunity and fair treatment. This entails eliminating unfair discrimination while implementing affirmative action measures to redress the historic disadvantages experienced by designated groups. However, the implementation of employment equity has been found to have the societal side-effects of heightening racial discrimination, stereotyping, and claims that EE is simply “reverse racism”. In addition, studies find that males feel discriminated against by female employment competitors, and that born-frees do not want to partake of the implied historical racial classifications;
• The Black Economic Empowerment and Broad-Based Black Economic Empowerment Act of 2003 seek to “situate black economic empowerment within the context of a broader national empowerment strategy focused on historically disadvantaged people, and particularly black people, women, youth, the disabled, and rural communities”. Critics argue however that instead of promoting empowerment via equity redistribution, ownership, and procurement, BEE policies have instead hampered harmonious race relations and created a culture of entitlement among those who have benefited both in business and government, creating significant developmental side-effects (including “tenderpreneurship” and cadre deployment) and raising the cost of doing business in South Africa; and
• South Africa’s welfare system rests on five social security grants: the Child Support Grant, the Foster Child Grant, the Care Dependency Grant, the Old Age Pension and the Disability Grant. These grants are financed through general tax revenues, which are budgeted to be R202.9-billion in 2021/22. The fiscal problem that the country now faces is that the number of grant recipients has increased from 4.2 million beneficiaries in 2002 to over 18 million in 2020. During this time, the country has suffered from persistent low growth, rising government debt and falling tax revenues. In addition, in the wake of the Covid-19 lockdown, the government announced top-ups to existing social grants (R250 a month) and the introduction of a caregiver grant (R500 a month), a Covid-19 Social Relief of Distress grant (R350 a month) and a Temporary Employee Relief Scheme. With projected economic growth anticipated to be subdued for many years, the tax revenues needed to fund the social grant system are now in question.

Over time it has become increasingly clear that the failure of the country’s neoliberal policies have led to the blurring of political and economic boundaries, the favouring of corporatism over SMMEs and the decline of the middle class accompanied by widening inequality. In addition, the country’s failed developmental state ideology laid the foundation for state capture and a low growth debt trap where unemployment and poverty have risen, social cohesion has splintered, and the country is peering over the edge of the fiscal cliff.

The role of the middle class is to act as a buffer between the poor, who favour redistributive policies, and the elite, who favour repression. In South Africa, as a result of apartheid, building a sustainable middle class was always going to be difficult because a relatively small segment of the population has access to historic wealth and assets, and would thus be able to reap the rewards of compound growth; while the majority of the emerging middle class have very little historic wealth and assets, and would therefore be exposed to compound debt as they entered the middle class fueled by willing credit markets.

To make matters worse, as the country’s economy stagnated, the debt-funded middle class began to shrink under financial distress and the historically asset funded moved their capital offshore.

Consequently, the buffer between the burgeoning poor and the political and capitalist elite began to weaken. This has had significant political implications as voters increasingly choose parties on the left that can offer them false promises of redistribution (EFF, etc.), or on the right with promises of greater protection (FF+, etc). In the messy middle, political parties (including the DA, ANC, etc.) squabble over political definitions and fight over a shrinking tax base by either ignoring history or promising ever more redistributive slices of a shrinking cake.

In the wake of the Covid-19 lockdown, South Africa’s number of unemployed has reached 12 million people, compared with 14 million employed. To put this in perspective, the number of unemployed now outnumbers the number of citizens who voted for the governing ANC in the 2019 election by nearly 2 million. Tragically, it is likely that most of the unemployed will never gain meaningful employment in their lifetimes and thus South Africa will need to find a system that will be able to provide social support for generations to come. As can be seen, the country’s history suggests that policy determinations by themselves cannot provide a sustainable welfare support system, so what system can?

The world economy is in the midst of a fundamental change in terms of its structure of production and consumption. Fifty years ago, Google, Amazon, Facebook or Apple did not exist; today they have a greater market capitalisation than all the “old industries” combined. And while there are ongoing debates about the potentially dire political, social and economic implications as a result of the rise of big data or AI, the fact remains that these ICT industries will determine the fortunes of the globe’s population.

For far too long, South Africa focused on being a commodity producer while simultaneously enacting policies that ensured that the country missed out on the previous commodity booms. Centering the economy on the old shrinking industries has served the ANC, the political elite, unions and associated private-public companies well, but has stunted any possibility of economic development towards the new global industries.

It is, therefore, of the utmost urgency that the country begins to reorient its economic base to adapt to new global realities. Anything less will lead to further economic shrinkage, decline and terrible social crises as the country winds its way to the bottom of the production chain.

The same applies to a commitment to a Green New Deal. Even China is making tremendous strides into green technologies as it attempts to address its many ecological problems. South Africa is a country full of opportunities for wind farms, solar power generation and thermal energy sources yet the potential is not being tapped in any serious manner.

Too great are the outdated connections to the 19th-century ideology of coal and fossil fuel economics. Eskom is only one aspect of the disaster unfolding before our eyes – there is absolutely no need for “load shedding” in a country as blessed with alternative energy sources as South Africa.

Load shedding is the actualisation of the government’s lack of foresight and imagination. A Green Economy will unlock a range of new opportunities to create small enterprises, lifting people out of poverty and strengthening the middle class through SMME income rather than domestic debt. In addition, the lack of innovative land redistribution and agricultural policies that support sustainable small-scale farming, instead of promoting a few large agribusinesses that turn landscapes into monoculture deserts, is yet another indictment of the government’s lack of imagination.

Amidst the Covid-19 pandemic it is abundantly clear that South Africa will need to take a very different approach to democratisation, equality and patriarchy if it is to meaningfully tackle unemployment, inequality, gender-based violence, and deprivation. The adoption of what some have called democratic socialism is key to such a transformation and rests on the following tenets:

1.  Democracy expanded beyond politics into the workplace, the family and home, neighbourhood associations and cooperatives;
2.  Capitalism in the private sector (to protect property rights and foster free markets) overseen by a democratised society;
3.  Quality basic primary and secondary schooling;
4.  Expansive public insurance programmes;
5.  Employment-orientated public services; and
6.  Modest regulation of product and labour markets.

The goals of democratic socialism are to achieve equality of opportunity but not via a command economy. Democratic socialism therefore does not promote government control over all levers of power but rather that the state should provide for citizen’s basic needs and assistance such as quality health care, education, and social assistance on the basis of equality.

The main difference between democratic socialism and the redistributive systems that South Africa has attempted since 1994 is that these societal benefits are paid for by the revenues that are generated from the private sector and therefore, the private sector is considered to be a democratic partner to the public sector. However, a key difference to neoliberal free market capitalism is that the wealth that companies accumulate is deemed to be for the benefit of society, not just the shareholders.

In practical terms, the adoption of Democratic Socialism in South Africa would entail the following structural changes:

1. A shift in the structure of ownership in firms and companies to encourage worker participation, ownership and control. This, by itself, may be helpful in creating a broader middle class as workers gain access to the profits that go to a very small proportion of the population;
2. Legislative amendments to the existing company, family and general law to democratise all aspects of private and commercial life; and
3. Politically, democratic socialism would require a shift in political practices from the ward level upwards to encourage democratic, transparent and open decision-making across all levels of government.

Both emancipation and democratisation are compatible with a green, non-fossil fuel based economy in which both production and consumption are tempered by the limitations of our ecology. To paraphrase George Monbiot, South Africa finds itself in a wreck from which only a bold vision of the future that addresses the twin towers of sustainable and ecological production will bring relief. Despite these immense opportunities, it is unlikely that the political and economic elites will adopt democratic socialism, for four important reasons.

The first obstacle is that there is a fundamental commitment within the ANC and its partners to the old industries of mining, fossil fuels, an enormous public sector and large-scale agribusiness. This focus aligns with the outdated ideology of the National Democratic Revolution which seeks to ensure that the government maintains hegemonic control of all the levers of power in society.

Therefore, the government’s ideological blinkers tie the country’s development to outdated technologies and sectors, while politicising the bloated public sector via cadre deployment, and granting South Africa’s trade union movements – which are similarly anchored in the other old industries and the public sector – more power than their shrinking membership numbers warrant.

As has become apparent over the past two decades, it is not possible for the country to build a vibrant multiparty democracy while the governing party adheres to the National Democratic Revolution. Consequently, like in many other SADC countries, South Africa’s governing party increasingly puts the constitutional democracy, and thus the country, second and the party first.

The second obstacle is that a shift of ownership in firms and corporations would change the country’s corporatist structure.

In the US there are significant moves towards democratisation of capitalism with numerous cooperatives and worker-owned companies (the largest of these, Publix Supermarkets, employs over 200,000 individuals). Similarly, the number of worker-owned firms is growing rapidly in Europe.

Democratising companies is real stakeholder capitalism where individuals develop the company’s activities, thus expanding horizontal rather than vertical human capital structures, and collectively making decisions on all matters pertinent to the business. These firms are largely small- to medium-sized enterprises but increasingly they are becoming a dynamic force in their political economies as they tie into supply, production and customer bases. For politicians, however, it is still easier to strike a deal with Wall Street than it is with Main Street.

The third obstacle is that BEE/BBBEE has been widely misused as a convenient instrument to channel money, power and influence to a small elite. While the policies have extended equity holding to a portion of the formerly disadvantaged members of society, the higher cost of capital coupled with the BEE/BBBEE funding structures significantly raises the cost of doing business in South Africa and has proven to be a deterrent to further investment. A further unintended by-product of the policies is that it cements in place an apartheid-era industrial structure where a few large companies dominate the business landscape. In addition, the policies create a natural blurring of the lines between the business and political elite; and this then hobbles the development of small to medium-sized firms, which are the lifeblood of most economies.

The fourth obstacle to a truly progressive agenda is that the system of social grants is used by the ANC as an electoral bargaining chip whereby fears that any change in ANC power will mean a reduction in grants. As argued by Moeletsi Mbeki, the current system of BEE/BBBEE and social grants are the two sides of the bargain struck by the ANC where in return for wealth accumulation among the political elite, the poor could be paid off with just enough to pacify them. In South Africa’s system, poverty serves the political purpose of keeping the alliance in power, and therefore any reforms that democratise social welfare will entail a decline in political power and will therefore be resisted.

In conclusion, it is apparent that the current structure on which South Africa has been built was unsustainable even before the arrival of the Covid-19 pandemic and its global repercussions. With the country teetering on the edge of the fiscal cliff, it is time that the country adopts a new paradigm of development. One possibility that is becoming more common globally is democratic socialism, which seeks to extend democratic principles into both the social and economic spheres.

However, the adoption of democratic socialism in South Africa would fundamentally undermine the entrenched mineral-industrial complex, challenge the National Democratic Revolution ideology, threaten the existing patronage networks, unentangle the ability of politicians to benefit from corporatism, and end the use of social support for easy political gain. It is, therefore, likely that the country’s politicians and policymakers will continue to tinker around the edges even as disaster looms.

Unfortunately, many of the beneficiaries of the country’s ruling kleptocracy do not appear to be worried about what will happen when the country falls off the “fiscal cliff”. According to Minister Tito Mboweni, this will probably happen in about 2024. However, the ruling elite do not appear to be worried about this, either because they have already stashed their loot in Dubai and other safe havens – they do not fully understand the risks – or because they have already insulated their wealth against the dire effects. In contrast, the poor and middle classes are not so fortunate.

As evidenced by fiscal crises in Latin America, unless South Africa drastically changes tack, it will tip, and then there will be a drastic downward adjustment of living standards, a violent upswing in poverty, deprivation, starvation and desperation – the annihilation of savings and pensions, and the incapacity of the state to provide all but the most basic of services.

At that stage, the country will have to turn to the IMF and the ideals of democratic socialism will be crushed under the designer shoes of neoliberalism and structural adjustment directives. 

Sean Gossel is Associate Professor in Financial Economics at the Graduate School of Business (GSB), University of Cape Town and Thomas Koelble is Professor of Business Administration in Political Science at the GSB.