White monopoly capital today, foreign monopoly capital tomorrow

2017-04-29 09:48

The way the ANC carries on about RET (radical economic transformation) and WMC (white monopoly capital) you’d think they were capable of recasting the laws of economics.

All economies grow in the same way, by investing surplus capital in infrastructure and education. Investing in your economy by pumping money into long-term growth items is the only way to boost employment and pull people out of poverty. No government can afford to pay their poor to be inefficient. So, they have to invest in helping them become more efficient. For example, a better transport system allows people to find, and commute to, work easier. Meaning they have more time and energy to work harder, earn more and improve their lives.

Workers in first world countries are more efficient than those in third world countries not only because they’re more skilled, but because they work in efficient organisations, within efficient economies. A simple thought experiment proves this. Imagine a hard-working, bright Kenyan – Michael – hustling on the streets of Nairobi eking out a dollar an hour selling vegetables.  We airlift him to New York City and give him a job as a McDonald’s cashier. By all metrics his efficiency has improved. He earns $15 an hour, fair reward for the value he brings to the economy there. He wasn’t adding much efficiency to the Kenyan economy, and when he left there were plenty others selling vegetables to fill the gap. Michael from Nairobi is fifteen times more productive, and all he needed was a few days’ training. He’s the same man, made fifteen times more efficient, and fifteen times richer thanks to a more efficient economic context.

This is why poor Africans are so eager to immigrate to rich countries. They know they can become fifteen, fifty, or one hundred times the earner they are back home. Not because they become different people in the first world, but the efficiencies of these economies, and the efficiencies of the organisations that make up these economies, are that much greater.

African governments, including South Africa, have only one way to lift their people out of poverty and create jobs. They must invest in long-term growth and help their organisations (be they state owned or privately owned) become ever more efficient. Regardless of the ideological hue of the government they will face the same challenge. And as for Africa’s fabled resources, while it’s true that natural resources are a form of wealth, they are essentially dead wealth waiting to be animated by institutional capacity. The DRC has enormous natural resources, but poor institutional capacity. Its resources will only become relevant when it grows institutional capacity. Resource wealth without strong organisational capacity creates rapaciously rich elites and masses of resentful poor. Equatorial Guinea is a good example of this so-called ‘resource curse’. As the Financial Times neatly puts up: “The government is spending lavishly, but not in ways that would foster long-term development.” Resources, like oil and gas, are only good for growth if revenue is channelled towards enhancing productive capacity and not squandered on consumption.

Real wealth lies in a nation’s ability to build and sustain machines that enhance efficiency. The modern corporation, be it a state corporation or a privately owned one, is such a machine. This is what China’s Deng Xiao Ping meant when he said, “It doesn’t matter if the cat is black or white as long as it catches mice.” I.e. those running the economy don’t have to be revolutionaries, but they must be competent and efficient.

So what is the problem with WMC? Can white-run organisations be immediately replaced with more efficient ones? It’s unlikely. If it were possible then foreign companies would see the opportunity and move in to grab market share from inefficient white locals. But so what if whites own organisations? If they’re viable companies, then by definition they’re providing a decent service to consumers and employing people. If the owners are hogging too much profit government can, and does, through taxes, empowerment laws and competition laws force them to spread jobs and wealth to the previously dispossessed.

Perhaps when Zuma talks of WMC he means white billionaires who are sitting on their money and not investing in the local economy, or worse – taking it offshore. Even still there’s no point in attacking these unpatriotic South Africans. For every dollar held by a rich white South African there are thousands more floating around the globe looking for a return. Every country is beholden to this ideologically agnostic sea of capital. Why pick on white South African capital when most of it, through investment funds, is mixed in with that vast sea of capital that knows no colour, and only the creed of constant returns.

South Africa cannot afford to do away with WMC. It needs more capital, of whatever colour, historical background or ideological bent. It’s not going to grow its capital by fighting with the capital it already has. What investor in her right mind will throw capital at a country that distrusts capital? They’ll keep their cash and quietly mutter, “WMC today; FMC (foreign monopoly capital) tomorrow.”

The ANC should be championing local enterprises, helping them to fly the flag for South Africa on the global stage, which in turn will grow the fiscus and create employment. If government feels they’re too rich, then they can increase taxes, ratchet up empowerment laws, or further incentivise domestic investment. These are the only levers it has to build a more just economy. All else is populist ranting. If you don’t believe me ask a Zimbabwean or Venezuelan.

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