Until now, economic inequality has been dealt with at the highest level through Black Economic Empowerment equity participation and at the lowest by microlending. Neither is a sustainable model. You can’t borrow money at a 10% interest rate to buy shares with a 3% dividend yield unless you’re in a sustained bull market.
via www.bdlive.co.za
Mark Barnes suggests that
The collapse of African Bank Investments (Abil) is an overdue wake-up call. It may just herald, at last, the beginning of real economic transformation. It has arrived not a moment too soon. If we learn from it, and fix it, we may just avoid the revolution that is otherwise coming.
The seriousness of the crisis is summarised here.
ABIL has about 2.5-million credit customers at various stages of precarious indebtedness in its total advances book of about R60bn. Let’s assume these people must be employed to get a loan but that they support at least three others who aren’t. Add that to the 10-million or so unemployed and you have a whole bunch of our population who are relying on social grants and the continuation of unsecured lending. They’re relying on Abil as a continuing source of funding. If Abil stops lending, it’ll be a matter of weeks before millions cannot buy bread.
That’s not a financial crisis, that’s a revolution. So, what must be done?
I can’t think of a solution that doesn’t require a complete rewrite of the role of government. Inequality simply won’t balance itself without intervention. The rich are not about to gratuitously pass their wealth to the poor — it doesn’t even happen in the movies. It will have to happen structurally, by law.
It's likely Barnes wrote this before the news came that the Reserve Bank had put Abil under curatorship.
On the subject of legislated social intervention, Dirk de Vos wrote a comprehensive piece on the Employment Equity Act in the Daily Maverick today. It's a very good piece and must be read in its entirety. I could easily post the whole story into this blog but I won't, I'll put in the most significant pieces
Even the most aggressive proponent of affirmative action recognises that skills are important. So, while the government may promote randomly at the SABC, doctors and pilots work their way up on the basis of proven qualifications and skills. The lack of skills is generally cited as the biggest hurdle to the so called Transformation Project. To be sure, skills development or skills transfer is an important part of the EEA and all companies who employ people are subject to a skills levy. A good part of the Broad-Based Black Economic Empowerment Act is about skills development and skills transfer.
What about progress through the ranks and the question of experience and skills? Perhaps the problem with the EEA and its regulations is that the obligation to achieve targets, whatever they are, is not what stymies progress. It is the approach of those with the skills, often white employees employed on the basis of their skills or qualifications.
What happens in a firm subject to Employment Equity rules? It is not hard to work this out – one can be sure that not many white employees see their everyday work lives in the context of the greater transformation project. Their own skills, particularly if they are critical to the company’s business, become the difference between a secure salary and being pushed out in favour of an employee from a designated group. One can be confident that the white employee, notwithstanding instructions from management who are keen not to be fined, will not easily share his/her skills or even make it easy for the black employee. Seen in this way, the problem is not the firm but the existing employees within the firm – their interests are wide apart. Even if the policy is applied rationally as our courts require – the words of the Labour Court in the Naidoo case about a “spectre of perverse race and gender rivalry” producing “in consequence confrontation and alienation” gets played out in our workplaces on a daily basis. As the salary premium for experienced and skilled black management grows, the elevator to produce these individuals is not working. The resign-one’s-position-to-be-contracted-back strategy, as an independent consultant, to perform the same tasks, does little to improve the situation.
To my mind the only successful way of making this work is where business and government start trusting each other. I think government needs to repeal many of their draconian labour and empowerment related laws as a gesture. If business fails to respond to this overture, then government was right, business is racist. I don't think that this would be the case though.
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