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State-owned entities: A war zone between political and economic elites

Public Enterprises Minister Pravin Gordhan. (Gulshan Khan/AFP)

By Andile Zulu

The rapid collapse of state-owned entities continues to threaten South Africa’s political stability and intensifies the social crises created by a stagnant economy.  On 7 August, the Daily Maverick reported a story that captured the tragic realities of poverty. Trapped in debt, unable to feed her children, a 38-year-old mother in the Eastern Cape allegedly killed her three children before committing suicide.  

Beyond profound sadness and rage at the permeance of injustice, stories like this should provoke us to investigate the economic conditions and political developments that cause needless human suffering. To solve the problems that ail our country, we must have a holistic understanding of their root causes. The desperate poverty of this family and millions more is not coincidental or exceptional. South Africans are caught between parasitic political elites who live only for themselves and corporate elites whose interests require them to put profits over the lives of people. The competing interests of the ruling elites are not only evident in the deterioration of state-owned enterprises (SOEs) but are the primary cause of this deterioration. 

Once SOEs were seen as instruments through which the government could support economic growth. By supplying water, generating electricity, commuter transport, telecommunications and freight logistics, it was hoped that state-owned enterprises would also advance socio-economic development. To grasp why SOEs such as the Passenger Rail Agency of South Africa, Eskom, the SABC and Transnet are plagued by mismanagement, financial precarity and corruption, one must consider recent changes in the state’s mandate.  

The nature of corruption 

Corruption has become a systemic problem and central feature of how governance is conducted, especially in state-owned enterprises. Far more than a case of a few bad apples, corruption is a symptom of the government’s inability to sustainably grow the economy and the enduring dominance of “old school” corporate elites. Former director of the Society, Work and Politics Institute at the University of the Witwatersrand Karl von Holdt correctly argues that “settler colonialism and apartheid had worked explicitly to prevent the emergence of black middle classes and particularly entrepreneurs, whether on the land, in commerce or in manufacturing”.  

One answer to limited upward mobility and little access to capital for aspirant black industrialists or entrepreneurs was the ANC’s attempt to create a “corporate black bourgeoisie” that could become a significant force in the private sector. Under the presidencies of Nelson Mandela and Thabo Mbeki, this black business elite would be bolstered by black economic empowerment and penetrate South Africa’s corporate landscape. Although this new portion of the corporate elite retains great wealth and political influence relative to the vast majority of the black population, its effect on the direction of economic production or business operations is generally weak

For those who could not gain capital through the corporatised market, the state became a site of accumulation. Building political networks of patronage and relationships centred on cronyism, those frustrated by the limitations of the economy — both within and outside the ANC — influenced the procurement and state tender process. A process that has become pivotal to the functioning of state-owned enterprises. According to Cathrine Matidza, director of fleet procurement at the department of trade, industry and competition, “Government spends over R500 billion [a year] on procurement of goods, services.” 

Political economist Niall Reddy is precise in noting how the barriers to the corporate economy, whether it be a lack of access to business networks or the obstacle of established monopolies, discourage innovation. Instead, emergent black capitalists and professionals become “sympathetic to any project that widens the domain of the state or directs its resources more forcefully to enrichment” and such actors “are more likely to excuse corruption as ‘transformation’ and less likely to share large-scale capital’s concern with delimiting the authority of the state and guarding the independence of its institutions”. 

This ongoing crusade of criminality is primarily conducted by the government, we should not allow this to narrow our perception of the problem. The Amandla Editorial Collective accurately highlights that a new kleptocratic elite stretches from chief executives of state-owned corporations to director generals, chiefs, headmen, ward councillors and even trade union officials”. The prevalence of corruption and patronage not only results from the economic legacy of apartheid and the ANC’s failure to transform the structure of the economy, it has created a new class whose interests often clash with business elites in the private sector. 

The rise of the patronage class or the kleptocratic elite in part explains the ideological battles in the ANC when it comes to determining the function and scope of the state’s involvement in managing or stimulating the economy. The decades-long debate about what entities should or should not be privatised and the highly politicised appointments that have hurt the functionality of SOEs arise in part from a conflict over the state’s resources. Let us not be confused, ruling party elites are not committed to any substantial political transformation. Rather the call for “radical economic transformation” is a mystification that uses frustration with socio-economic inequality as a justification for key players in the kleptocracy to have more access to the state’s resources. 

Perhaps the greatest challenge to substantively reforming state-owned enterprises is the anti-democratic politics embraced by the emergent kleptocracy and its willingness to use coercive measures — whether it be intimidation, surveillance or lethal violence — to ensure pathways of accumulation in the state remain readily available. Now more than ever we must ask ourselves, what social force or political movement is equipped and determined to challenge elites both in the corporate world and in the new kleptocracy? 

From white supremacy to market-led democracy 

The state is not and has never been a politically neutral structure. South Africa’s history demonstrates this clearly. Rather the state is an instrument for those who govern to implement their political interests and fulfil their obligations towards citizens through policy and legislation. How state power is wielded will depend on the political ambitions of those who have the authority or capability to access its resources or guide its mechanisms. And of course, political power is never absolute. Whether it is power used by a country’s president or a billionaire chief executive, economic conditions and political relations will have an influence on how power is used and the reach of its effect. 

The majority of state-owned entities were established during the apartheid regime to bolster South Africa’s industrial and economic capacity under the pressures of international sanctions. With the transition to democracy, SOEs would adopt a new mandate. Under pressure from international finance institutions such as the World Bank and tempted by the interests of the domestic private sector, the ANC would ascend to power in 1994 enforcing neoliberal economic principles. Described by David A Mcdonald and John Pape, this meant practising “fiscal restraint; export orientation; privatisation and corporatisation; financial and trade liberalisation, and cost recovery”. Policy and legislation was moulded to cement “the power of corporate capital at the expense of workers and poor citizens in the country”. 

Understanding the neoliberal ideology which lay at the foundation of the ANC’s macroeconomic and industrial policy, especially in the Mandela and Mbeki presidencies, helps us grasp why the post-apartheid economy has remained inaccessible for the new black business class. Moreover, we must remember that under neoliberalism the state must work to create and preserve the institutional framework appropriate to neoliberal practices. It is this mandate that has led to the corporatisation of state-owned entities, the rapid spread of public-private partnerships and the deep commodification of services that millions rely on. 

Eskom stands as a tragic testimony of what happens when the dictates of neoliberalism clash with the interests of kleptocracy and a disastrously stagnant economy. On the one hand, Eskom’s corporatisation has not only narrowed streams of revenue because of the utility being mandated to a financing through the full-cost recovery model in a population where 18 million people are extremely poor and more than 10 million unemployed. Moreover, it was the commitment to eventually unbundling Eskom and creating a competitive energy market that resulted in the government putting a moratorium on investing in the SOEs’ generative capacity, resulting in the first strike of load-shedding in 2007. 

The commitment to fiscal restraint has also resulted in Eskom being denied the public funding it needs to boost capacity and conduct maintenance. Consequently, Eskom has relied on borrowing finance, domestically and internationally, to ease its financial woes. This has only produced a terrible balance sheet for the utility, aggravating its debt, increasing tariffs (remember under neoliberalism, even public provision must be commodified) and, in the process, critical maintenance is neglected and energy poverty is deepened. On top of having an unsustainable corporate mandate, Eskom is then also burdened by those who seek to use it as a vehicle for accumulation, diverting vital resources away from securing the public good. 

It cannot be denied that state-owned entities are in a frail and deteriorating condition. But this reality should not compel us to be cynical and indifferent. And importantly, the failure of SOEs does not mean state utilities’ privatisation will be our salvation. Global evidence gathered over the past 50 years demonstrates that expansive privatisation fattens the wallets of business consultants and corporations, while drastically diluting the capacity of states to fulfil their social mandates, resulting in the poor and working class losing their economic agency. 

If the state can be captured by corporate or kleptocratic power, then is it not time the state be captured and democratised by the South African people? If we do not democratise the state’s power, South Africans will continue to be collateral damage in the wars among elites. 

Andile Zulu is with the Alternative Information and Development Centre in Cape Town. He writes in his personal capacity.

*This Opinion Piece was first published by the Mail & Guardian

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