Keynote address by John Kane Berman, Chief Executive of the South African Institute of Race Relations, at the SwissCham Southern Africa luncheon, Johannesburg, March 10 2011:

South Africa: Finding a Way Forward

I will try to answer three questions this afternoon

1. Which way are we going?
2. Why?
3. Can we find a better way forward?

Apart from racial policy, the institute I head has been documenting almost every aspect of South Africa since our foundation in 1929. It was inevitable then that when the ANC came to power in 1994, people asked us why South Africa should not become just another African disaster.

I gave the usual list of advantages: a greater pool of skills, good infrastructure, a resilient private sector, our strong international economic linkages, a tradition of political pluralism, independent trade unions, a free press, and the vigour of our NGO sector. Since then the country has won golden opinions for macroeconomic policy management, reflected most recently in a heavily oversubscribed 30-year government bond.

Despite this, we now learn almost daily of things that prompt the question once again: are we headed for the list of African failures. Recently an outbreak of foot-and-mouth disease occurred because a vital border fence with Mozambique had been neglected.

Such problems are not isolated. We have slipped further down global tables as a destination for mining investment, police behaviour seems to be increasingly lawless, maternal and infant mortality rates are rising, millions of schoolchildren have started another year without textbooks, and the country's commercial capital is run by people who are out of their depth. We also have much higher rates of youth unemployment than countries to the north that recently chased away their rulers.

Specific problems aside, among the main reasons we are going wrong are the following:

• Affirmative action, which has denuded the State of both skills and institutional memory
• Labour laws which protect unionised workers at the expense of the jobless
• The cadre deployment policy, making loyalty to the party a key criterion for appointment to offices of state, and
• Use of a model of government which makes elected institutions more accountable to party headquarters than to voters.

Apart from policies and practices, the problems confronting us arise in part from assumptions and attitudes that affect the policy environment. These include:

• limited understanding of what entrepreneurship requires
• ideological hostility towards business
• poor appreciation of how markets work or even antipathy towards them the belief that the pockets of our small number of major taxpayers are bottomless, and
• too much faith in the efficacy of the State, leading to more and more regulation

To these harmful factors must be added others:

• corruption said by the deputy president to be "worse than anyone imagines"
• lawlessness on the part of the State
• a love of the grandiose, such as new bullet trains to Durban while we can't fix commuter rail services
• the callousness towards ordinary people found all too often in service departments, and
• no accountability even for preventable deaths of mothers and babies in public hospitals

Then there are two key problems in the way policy is made.

One is a habit of putting the cart before the horse - for example, embarking on ambitious education or health schemes without first fixing the basics such as training enough teachers and reversing the decline of public hospitals.

The second is failure to apply the lessons of admitted mistakes. To its credit, the Government has admitted the failings of outcomes-based education but the ANC nevertheless plans to forge ahead with a national health system without considering the State's capacity constraints.

These various aspects of our problems show that we are facing not just a few wrong-headed policies, but a challenge arising from the very nature of the Government and how it runs the State. Most of them have a direct impact on business.

Part of that challenge arises from the fact that the ANC is not a normal political party. When a party with a two-thirds majority in Parliament is still committed to a "national democratic revolution," we must ask what it is that they wish to stage a revolution against. The economic system? Probably. Democracy? Perhaps. The rule of law? Very likely. The Constitution? Possibly.

The Press pays little attention to the national democratic revolution, but the ANC is committed to it. This is one of the risks we face. Another is that tougher affirmative action requirements lead to a drain from the country of the most skilled segment of the population.

Yet another is that public spending gets out of control as the ANC promises more free things to more people and puts more of them on to the public payroll, including now members of Umkhonto we Sizwe. We might also see a more rigid labour market, destructive interventions in agriculture, attenuation of property rights, damage to private health care, more malfeasance with mining licences, further corruption of the criminal justice system, and more local governments collapsing.

It is ironical that we are expanding our social security commitments at the very moment when rich countries are having to cut back. It is also ironical that we are seeking to extend controls of the labour market while Europeans are trying to make their labour markets more flexible.

A further piece of irony is that we are lengthening the arm of the State at the very time when China and India are continuing to liberalise economically, when parts of Africa are liberalising, and when even Cuba is showing signs of liberalisation.

I have painted some dark clouds and the challenge now is to find the silver linings. Like a contrarian investor, we must look for signs of change that may not be obvious. One of these is the very fact that the Europeans, the Chinese, the Indians, and the Cubans have been here before and are having to reverse thrust.

The international context in which we make policy has changed. Africa is also having to pay more attention to good governance than in the past. Already, some African countries are more attractive as mining destinations than we are. If we don't look out, we may find that our lead as the most important economy in Africa is shrinking.

Despite the ANC's close historical ties with the Communist Party of the Soviet Union, it was unable in 1994 to follow a communist path because the USSR had in the meantime imploded. As welfare and dirigiste states elsewhere come under pressure, so will the ANC have to recognise that those role models are also unworkable.

Despite this country's achievements since the advent of democracy in 1994, we are pursuing an unworkable political model. This model will have to be abandoned just as communism and apartheid had to be abandoned. How long this will take I do not know. The evolution of liberal democracy can be a slow and difficult business. But we need to find ways of helping the process along, while also trying to minimise the fearful human and economic damage that may be done in the interim.

Among the reasons why apartheid disintegrated, two are relevant today. One is that its contradictions - notably the belief that you could run a modern economy without exploiting the skills of the whole population and granting them political rights - became unsustainable.

The second reason was that, as the policy crumbled under the weight of critical scrutiny and its own contradictions, the ruling elite began to lose faith in it. Disillusionment spread from the Dutch reformed churches, to the Afrikaans Press, to academia, to business, to the ruling party, to the Cabinet, and not least to the Broederbond. This made Mr FW de Klerk's bold actions on 2nd February 1990 both necessary and possible.

Parallels between the last 25 years of National Party rule and the first 15 years of ANC rule are becoming quite striking.

The most obvious is on racial policy. The NP thought it could run a successful economy without fully exploiting the skills of the black population. The ANC thinks it can run a successful state without fully exploiting the skills of the white population. The evidence that this cannot be done is apparent all the time at all levels and in all branches of government. And it is beginning to cause instability at local level and hurt the party.

Unfortunately, however, one of the parallels with our past is that failed policies are sometimes intensified rather than abandoned. This happened with the pass laws, for example, before PW Botha finally repealed them in 1986. It may also happen now with the Employment Equity Act, with its provisions for heavier fines to enforce racial quotas upon all employers - when the Government cannot even get Denel, or Eskom, or SAA, or Transnet to meet its racial targets at management or skilled levels.

But there are other parallels. Just as the National Party steadily lost support among the intelligentsia, the same is happening with the ANC. Some black newspaper editors and journalists are at least as critical of the ANC as their white counterparts. In discussions with black business leaders over the past few months, my Institute has been struck how some of them have become very critical of the government - more so than most of their white counterparts. Moeletsi Mbeki probably speaks for more people than we think.

Some of the squabbles in the ruling tripartite alliance are about spoils and patronage, but others are about policy. There are divisions over whether "decent" jobs should be placed above the need to generate more jobs. A growing minority is beginning to question the deployment policy. Others would like to have a professional civil service instead of one subject to ministerial whim. Racial policies are now also becoming a source of division, as we saw last week with Trevor Manuel's public attack on Jimmy Manyi.

This spat is causing the ANC to tie itself into knots. When my Institute pointed out that forcing employers in the Western Cape to conform to the national racial breakdown would necessitate the (illegal) dismissal of thousands of coloured workers, President Jacob Zuma said companies would have flexibility to conform to national or regional demographics.

This, however, is not what the proposed amendment to the Employment Equity Act says. Now the general secretary of the ANC, Mr Gwede Mantashe, has weighed in to the effect that national companies will have to use national demographics and provincially-based companies provincial demographics. This is the opposite of the flexibility of which Mr Zuma speaks.

In November last year the minister of finance, Mr Pravin Gordhan, told an audience in London that economic empowerment policies designed to improve the standard of living of the black majority after 1994 had not worked. After all the employment equity, labour, and land reform legislation, not to mention hundreds of billions of Rands in BEE deals, this is quite an admission. In the short term it may lead to an intensification of failed policies, but in the long term these policies will have to be abandoned.

The new constitution ushered in democracy in 1994. Ironically, however, the ANC's model of government - based on the Leninist idea of "democratic centralism" - in terms of which party headquarters dictates to local communities whom they must elect - is causing growing dissatisfaction at local level as the municipal election on 18th May approaches.

Though many officials are hostile to white farmers, others recognise that no one else has the expertise to reverse the failures of land reform. Despite antipathy to the private sector, some of the ruling elite see a growing role for it in getting our ports working more efficiently, in electricity generation, in the rescue of local government, in AIDS testing, and in sorting out the problems of further education and training colleges.

Indeed, as the failings of the State become more and more apparent, thanks in part to a critical media, more and more people in government will turn to the private sector for help. Even Cosatu wants private sector involvement to be mobilised when Postbank gets a banking licence.

These inconsistencies will multiply as the ANC continues to pursue mutually contradictory policies. Promises of creating millions of new jobs are incompatible with key components of official policy, among them affirmative action, the deployment strategy, restrictions on immigration, tightening up the labour market, and adding to the regulatory burden on business. Eventually the contradictions will become unsustainable. Either some of these key policies will have to be jettisoned, or the quest for millions more jobs will fall by the wayside.

In the meantime, what do we do? The first thing is to keep exposing the contradictions, so providing arguments for those in the ruling alliance who wish to see more realistic policies. Arguments for the liberalisation of our damaging labour laws need to be refined and intensified. The climate to do this is now more favourable than at any time since 1994.

I suspect that affirmative action and cadre deployment policies have also done more damage to this country than most people care to admit. Can you really run a modern industrial state if you would rather leave posts in the public sector vacant than appoint whites to them? The major victims of this folly have been blacks rather than whites.

The connection between these policies and lost growth and investment, high unemployment, shoddy RDP houses, inability to obtain social grants or medicines, preventable maternal and infant deaths, high crime rates, perilous roads, poisonous rivers, mismanagement of flooded dams, fraudulent passports and IDs, and a great many other problems needs to be repeatedly pointed out.

The ANC's economic objectives simply cannot be achieved while everything is subordinate to racial ideology and the imperatives of the "national democratic revolution". This message needs to be hammered home without reservation or apology until a critical mass of opinion within the ruling alliance comes to recognise it.

Secondly, it is necessary to stand firm in the defence of vital practices and institutions as they come under increasing threat, not only the rule of law but also academic freedom, independent civil society, a free Press, an independent legal profession and prosecution service, and independent courts. It is also necessary that organisations other than business come to the public defence of the free market system, private enterprise, and entrepreneurship.

Not for a second should anyone in the ruling alliance be allowed to forget that the money the Government spends on education, health, housing, child support grants, and everything else - including its lengthening list of promises to its constituents - arises from taxes extracted from the private sector and private individuals.

This is a point that needs much more emphasis than it gets. Business might wish to think of ways of getting the point across more strongly in public as well as to parliamentarians, civil servants, and other members of the ruling alliance.

Thirdly, keep proposing alternatives to present policies. Business may not necessarily see a direct role for itself here, but it is nevertheless essential that alternatives be put forward. Here is my list of a dozen:

1. Cut back on the size of the State
2. Put inspectors back into schools
3. Systematically extend private education
4. Radically redesign land reform
5. Democratise Parliament
6. Liberalise the labour market
7. Make economic growth rather than redistribution the topmost priority
8. Change our welfare state into one that promotes entrepreneurship
9. Direct all state interventions at helping the poorest of the poor regardless of race
10. Replace the deployment system with a professional civil service
11. Increase our global competitiveness as a destination for foreign direct investment
12. Repeal all racially discriminatory laws

Some of these may seem fanciful right now. However, given growing contradictions, policy failures, and paralysis in government, the climate is in fact auspicious. Detailed policy work on alternatives will of course be necessary. But the main point at this stage is to undertake a tenacious campaign to change ideas, preparing the soil, as it were, for new policies to be planted. This will be a long haul and a hard slog, so the sooner it is stepped up the better. The ruling party must be a prime target, both direct and indirect.

Don't forget that ideas predate policies and that their power, for good or ill, should never be underestimated. It was after all, that great incendiary journalist and armchair revolutionary, Karl Marx, who produced some of the most powerful ideas in history. Despite their murderous consequences some of these ideas still have an iron grip in South Africa.

They need constantly to be countered by the ideas that underpin liberal democracy. In particular, we need to keep on propagating the idea that the real alternative to apartheid is not another form of social engineering designed to promote an impossible equality of outcomes but an open society committed to equality before the law, political and economic freedom, corruption-free and proper democratic government, and rising living standards for all.

Social and racial engineers failed in South Africa last time around, and they will fail this time too. That is cause not for despair but for eager anticipation.

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