The World’s Most Extreme Affirmative Action Program

In South Africa, virtually all the poor people are black. It does not follow that all black South Africans are poor, but the South African government has for the past 10 years acted as if the two words were interchangeable. Any program whose stated aim is to uplift those who were crushed by apartheid is assumed, ipso facto, to be a good thing. This has culminated in something called “Black Economic Empowerment,” a process whereby white-owned firms are encouraged to surrender large dollops of equity to black businessmen. This is “voluntary,” but firms that stay white cannot win government contracts, and many assume that if they do not yield now, they will end up being nationalized, Mugabe-style, in a decade or two.

The government wants about 25% of most industries to be in black hands by 2010. The new black capitalists are supposed to pay a “market” price for their acquisitions, but they don’t have the money, so they don’t.

Fretting about the color of one’s shareholders is a distraction from the humdrum task of making things that people might want to buy. But at least it’s giving a leg-up to poor blacks, right? Wrong. Since the aim, as far as business is concerned, is to placate the government, the blacks who have been “empowered” have largely been senior members of the ruling African National Congress. The bulk of the “empowerment” seems to involve just four very rich men, three of them contenders for the presidency in 2009, when Thabo Mbeki stands down.

“Black empowerment” has become such a naked carve-up that several of the ANC’s traditional allies have started to complain. Labor unions are threatening to obstruct the most egregious deals, and Archbishop Desmond Tutu has lamented that black empowerment was benefiting only “a small elite.” Mr. Mbeki responded with a furious rebuttal, in which he accused the archbishop of being ignorant and untruthful.

South Africa matters, because if it fails, the rest of Africa hasn’t a prayer. Yet if it booms, it could do for the poorest continent what Japan did for East Asia. It has Africa’s most sophisticated economy, by far. The roads are smooth, ATMs work and, most importantly, it is the only sizeable country south of the Sahara where the rule of law prevails. Its relatively peaceful transition from apartheid to multiracial democracy was rightly hailed as a miracle. The white minority gave up power without a civil war. The ex-guerrillas who took over in 1994 have governed quite well ever since. Rather than seek revenge for the old regime’s atrocities, they have sought to reconcile black and white. Most impressively, the new ruling party has ditched the Marxism it used to espouse and pursued the soundest macroeconomic policies in living memory.

But still, there has been no take-off. Economic growth sputters along at a whisker above population growth. The poor have grown poorer since ‘94, partly because of AIDS, but also because about half of all blacks are jobless. Only rapid economic growth can solve that problem, but the government has not made this a priority. I once asked Mr. Mbeki if he thought South Africa could achieve double-digit growth like East Asia; he appeared not to have considered the possibility.

Instead, the focus is on redistribution. And not the conventional sort, from rich to poor, but from white to black, which is not the same. South Africa has embarked on probably the most extreme affirmative action program anywhere. Private companies above a certain size are obliged to try to make their workforces “demographically representative” (i.e. 75% black, 50% female, etc.) from factory floor to boardroom. This is not a minor irritant, like affirmative action in the U.S. The group which must be given preference constitutes a large majority. But because, under apartheid, blacks were deliberately deprived of education, there is a gaping shortage of blacks with commercially useful skills. Less than 2% of chartered accountants, for example, are black.

This can only be fixed by improving schools. But the ANC’s first impulse, when it came to power, was to try to raise the proportion of teachers who were black, by paying a large number of the most experienced white teachers to retire. Scandalously, black pupils’ exam results got worse in the early years after apartheid ended. They have since recovered, but still, barely 1% of black high school students pass higher grade math, and very few opt for tough subjects at university, such as science or engineering.

Unlike private companies, the government finds it easy to hire by race rather than merit, because it has no competitors and cannot go bust. This is nice for the blacks it employs, but less good for the much larger number who depend on the state for health care, water, roads and pensions. The state does not even try to deliver these services cost-effectively. Black-owned contractors can charge more and still win public-works contracts, so poor blacks get fewer clinics than they otherwise would have. Legions of white managers have been pushed out to make way for inexperienced blacks, and then hired back as expensive consultants to tell their replacements how to do their jobs.

The most insidious effect of the new racial laws has been to provide a cloak for the sort of cronyism that has wrecked the rest of Africa. The black tycoons who made fortunes by parlaying political connections into a share of someone else’s business actually believe they are helping to “de-racialize” the economy. They regard themselves as role models for black youth, and magazine covers reinforce this delusion. The idea that wealth needs to be created is little aired.

The new backlash against “black enrichment” may curb the four biggest black tycoons, but there is no serious talk of a South Africa where all are equal before the law. It is perhaps worth noting a parallel with Malaysia, another place where affirmative action is aimed at a large majority. Malays are now richer in Singapore, where they do not receive preferences, than in Malaysia, where they do.