Business needs to change, and stop blaming others for South Africa's ills

Many South African business leaders blame economic exclusion on the government and unionists. Reuters/Rogan Ward

Business decision makers in South Africa may be surprised to learn that the economy will continue to exclude millions of people until they have a greater sense of crisis.

Since news reports and social media are filled with stories of impending doom, it might seem that businesses are dealing with more crises than they can manage. But a crisis is not a panic – it does not mean simply that people feel that things are going badly wrong. The Greek word “crisis” means “turning point” and so a sense of crisis means not only a realisation that the country has a problem, but an acknowledgement that solving it requires change.

It is this which is lacking among most South African business leaders today. Because there is little recognition of a need to change, there is little enthusiasm for measures which would open up the economy‘s benefits to more people by giving the government a greater role.

Most business leaders are painfully aware that the economy is not meeting the needs of most South Africans. Many would no doubt agree with the International Monetary Fund’s David Lipton who warned recently that many South Africans are excluded from the formal economy. But most lack a sense of crisis. They are unwilling to accept that the way in which the market economy operates is part of the problem.

The blame game

While some business leadership does see the need for government to fight poverty, the dominant view sees government and labour as the problem. This view sees the market as the only solution.

In their eyes economic exclusion is the fault of a government and unionists who are ideologically blind, greedy and incompetent. And it will end when government and labour get out of the way and allow the efficient and inclusive market to take over.

One consequence is to decry all government attempts to play a role in the economy, whatever their intent. Measures which seek to address poverty and exclusion are treated no differently from those which allow politicians to get their hands on public resources at the expense of everyone else. There is no distinction between social grants, a national minimum wage and health care reform on the one hand, raids on the Treasury or attempts to spend public money on patronage projects on the other.

As long as this view prevails, business leaders are unlikely to support the changes which will widen the benefits of the formal economy or public policies which would have the same effect.

Business needs to make adjustments

The resistance of many business leaders to change is not simply, as left critics like to argue, an expression of self-interest. Some of the changes which are needed might force businesses to pay a price they would prefer to avoid. But many would require only small adjustments and produce great benefits.

Business leaders seem to see no need for the required adjustments. This is less because they don’t want to make sacrifices and more because of their attitudes. Their outlook assumes that the solution to any problem is to let business do as it pleases.

The frequent claim that protections for workers in labour law are obstacles to growth has been contradicted by IMF research. This has not stopped business from continuing to blame them.

When mainstream economic opinion blames business attitudes and practices, it is ignored. Lipton’s view that

the private sector has been supported in ways that create privileged markets working against the interests of consumers

was brushed aside while his criticism of government was highlighted.

When Reserve Bank governor Lesetja Kganyago blamed both labour and product markets for unemployment, his comments on product markets were swept under the carpet.

This climate may help explain why many business leaders deny the need to change to open the economy to more people. It also explains the lack of support for measures which would cause businesses minimum pain but would make a huge difference.

The government, of course, does need to change. The local elections may have given it some of the sense of crisis which it needs. It could be argued that government waste is one reason why business leadership is reluctant to support a greater public sector role in fighting poverty. But it is equally true that poverty, inequality and exclusion are responsible for most of our economic ills and that the solutions do not lie in simply allowing the markets to do their job.

The story of the past decade is not one in which the market has included while government policy has excluded. The last census showed that government provision of services had increased and later research shows that this has reduced poverty. But income inequality in the marketplace remained largely unchanged and for this business must share responsibility with government and labour.

Recognising the need to change

If business leaders did have a sense of crisis, they might consider asking what can be done in the marketplace to lower the barriers to entry which keep so many at the edges of the formal economy. But, before then, they would support government measures which would cost little and make a huge difference. They would reject the market fundamentalism of those who decry any government role and support pragmatic measures to reduce poverty and inequality.

Despite the blare of market fundamentalism, the evidence suggests that South Africa’s already high levels of poverty would be much higher without two lifelines which save many from destitution. These are wage bargaining, which enables workers to share resources with unemployed dependants, and social grants. Yet both are routinely blamed for causing the problems they are helping to solve because they limit the power of the market.

These are by no means the only examples of ways in which leavening the market with a government role can extend economic opportunities to many more people. Recognising their importance may be a first signal that more business leaders are seeing the need to change current patterns rather than blaming them on others.

The Conversation

Steven Friedman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.