Poverty’s roots

2013-06-19 10:00

Is a ‘can-do’ attitude all that really stands between a South African and success?

Gareth Cliff explained to us last week in City Press: “If we are poor, we are poor because we can’t create value. It has nothing to do with how much or how little we actually have.”

This must have been comforting to the 4.6?million unemployed South Africans, who are among the 14.6?million who in 2008 lived on less than $2 a day.

Cliff’s real message for these people is they only have themselves to blame.

They need to become part of “the industry of hard-working people in private enterprise”. Presumably, since there are no jobs, they must take to entrepreneurship.

This resonates with a recent article by Frans Cronje (City Press, May 19), deputy CEO at the SA Institute of Race Relations.

Cronje’s thesis was entrepreneurship by whites “explains” their continued relative economic prosperity post-apartheid.

Cronje’s piece, which showed how prosperous democratic South Africa has been for whites, was actually a welcome corrective to that familiar post-apartheid white persecution complex that fuels misinformation, like the BBC report that claimed 400?000 whites live in squatter camps.

But claims about where entrepreneurship is occurring and what its effects are need to be interrogated.

Cronje cites historian Hermann Giliomee as saying: “In 1994, 75% of the white population earning more than R500?000 per year were formally employed, receiving salaries and bonuses.

By 2009, this figure had been completely reversed and 75% of whites in this income category were self-employed, either as owners of a business or as consultants or agents.”

This supposedly supports the thesis that whites are peculiarly entrepreneurial. But Giliomee refers to people earning more than R500?000 a year.

It is impossible to draw conclusions for whites as a whole from this group, which Cronje says was only 10% of the white population in 2009.

Cronje also gives us no comparison for black individuals earning more than R500?000 a year during this time period.

We therefore have no idea if white people have in fact become more entrepreneurial than black people.

Cronje’s white entrepreneurs are praised for creating businesses. But Giliomee refers also to “consultants or agents”.

These are quite prolific. Many white civil servants now perform similar work to what they did in the past, advising government while employed by private companies.

This speaks to the perverse effects of driving skills out of the public sector, but tells us little about what we usually understand as “entrepreneurship”, where capital is invested and employment is created.

Cronje also refers to unreferenced “data” showing “white graduates are four times more likely to start and operate businesses”.

He states that “as the focus of government policy turned to drive black economic advancement, so whites were driven into entrepreneurship, which today explains their continued relative economic prosperity”.

It is the claim that entrepreneurship “explains” continued white prosperity that is problematic and false.

Economist Haroon Bhorat has shown simply that “economic growth has managed to disproportionately create employment for more educated individuals”.

Some whites have turned to entrepreneurship, but this is not the major reason for their continued disproportionate economic prosperity.

One fact, more than any, is clear from across the scholarly literature on prosperity: wealth is sticky.

Once you have it, it’s likely you will keep it and your children will get it.

That this would also be the case in South Africa is easy to grasp.

A 2012 report by the World Bank notes that South Africa has entrenched “inequality of opportunity”.

Moreover, capital income – interest – is playing a growing role for the top 10% in our economy.

This is wealth compounding. For them, it now amounts to 11% of income as opposed to 4.4% in 1993.

Of the white population, 61% fall within this top income decile.

In addition to this, the post-apartheid labour market is increasingly paying a premium for skilled and educated labour.

And those without skills and education are increasingly at a disadvantage.

This accounts for the continued predominance of the white population in the top two income deciles despite redistributive taxes and black economic empowerment enriching a narrow elite.

What about entrepreneurship?

As a proportion, self-employment remains higher among whites than Africans.

But economist Murray Leibbrandt has found that while white self-employment has doubled since 1993, self-employment among Africans has risen almost tenfold.

Research by the Finmark Trust shows SMME ownership is 83% black, 8% white, 4% Indian and 5% coloured.

The trouble is there are real barriers for many black entrepreneurs to self-employment and successful enterprise development.

The biggest is weak education.

Economists Kingdon and Knight have also suggested entrepreneurship among Africans is stifled by the special legacy of apartheid.

Geographically, Africans still find themselves located relatively far from business centres, mainly in rural areas and townships.

There is no special inherent talent for “entrepreneurship” in any particular group of people.

A group may become more entrepreneurial owing to circumstances.

It is probably true many white people took packages in 1994, and set up small businesses.

Entrepreneurship is a function of capital, talent, education and skills.

The latter is greatly affected by protracted unemployment, which we have had in South Africa since the 1970s. One becomes less employable over time.

What “explains” the benefits whites have accrued from “entrepreneurship” post-apartheid, relative to blacks, is more white people are self-employed in jobs that pay well.

These jobs pay well not because they are self-employed ones, but because they harness skills and education.

White people still have these.

Owing to the post-apartheid education system, many Africans still do not.

Cronje showed white poverty has declined to 1% and whites should not decry their lot.

But his article could be read as suggesting the future growth and development of the South African economy depends mainly on the majority following the good example of white entrepreneurship in order to pull themselves up by their bootstraps.

But the lessons to be learnt from these entrepreneurs are that skills, education and capital allow some to reap large returns for their ingenuity and labour.

Until these are more fairly available, too few will become the entrepreneurs Cronje and Cliff rightly hope for.

» Strauss is contracted to the UN African Economic Commission. Isaacs is deputy general secretary of Equal Education

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