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10 JULY 2017
'White monopoly capital’ is not about race
by Dr Sean Gossel
The term ‘White monopoly capital’ and the related ‘radical economic transformation’ have come to dominate the political discourse in the past few months as political and economic uncertainty in South Africa intensify. At its core, both terms are based on misinformation and a misunderstanding of the nature of capital and ownership in our economy. While it is certain that financial and economic inclusion for all South Africans is a key priority for South Africa, attacking the JSE is unlikely to achieve it.

The current capitalisation of the JSE stock exchange is estimated at just over R14 trillion, but almost 50% of that is owned by foreigners. This is not too surprising as South Africa’s post-apartheid economy has not sufficiently diversified its trade mix, and as a result is reliant on international capital to fund its current account. Because South Africa does not attract sufficient FDI, this capital consists mainly of shares and bonds.

It’s not about race

Targeting the JSE with calls for radical economic transformation is based on a misunderstanding of what it means to list a company. For example, Jimmy Manyi, in a recent interview with the SABC claimed that only 3% of the JSE is owned by black people. However, it’s impossible to tell who actually owns the JSE in terms of racial classification because nobody declares their race when they buy and sell shares. It is also illogical to base the ownership of the JSE on the control of companies whose shares are traded on the JSE. The directors don’t own those companies, the shareholders own those companies; and those shareholders are diversified and globalised. The directors merely act in the interest of the shareholders so companies are not ‘white’ simply because they have white directors.

Listing a company on the JSE is essentially a contract between people who owned or started the company and the future owners. It is a transfer of ownership, typically from entrepreneurs to shareholders. The exchange that occurs means that the owners give up control of the company in exchange for capital, through the sale of shares. Thus, if black (or white) owners wanted to retain control of their companies, they would be wiser not to list them on the stock exchange. Possibly, a better indication of black ownership would be the percentage of unlisted companies that are black owned.

More globalisation is anti-monopolistic

Listed companies are beholden to their shareholders, and directors are essentially hired by shareholders to provide a return on the investment that the shareholders have given them. Directors have to make decisions that are going to achieve that aim, whether it means investing internationally, or maintaining retained earnings to fight against increasing political uncertainty and socio-economic instability. It’s not ‘unpatriotic’, it’s rational decision-making.

Furthermore, to assume that companies in South Africa are colluding to benefit what is referred to as ‘white monopoly capital’ is simply an erroneous understanding of globalisation. The last time South Africa actually had white monopoly capital was during the dark days of apartheid when 80% of the JSE was owned and controlled by just four companies. However, today the JSE is diversified and increasingly globalised so the capital can no longer be referred to as white or monopolistic.

Since South Africa has recently been downgraded to junk status, there will probably be heightened off-shoring and disinvestment. Consequently, the JSE is going to be even less ‘white’ or monopolistic. Nevertheless, ‘white monopoly capital’ is a very convenient anti-globalisation slogan, which is really what the battle is about. It’s not about the control of the economy; it’s not about white versus black, but rather it’s about moving the economy away from international globalisation so as to wrest control for a politically-connected elite. Optimum Coal and the state of our SOEs are a foretaste.

SOEs are the true monopolies

According to Jimmy Manyi, South Africa’s State-Owned Enterprises (SOEs) offer services at pricing that is affordable to the poor. However, in reality the opposite is true. Public services and public sector companies are mispriced. They do not offer cheaper services to the poor as they are monopolistic, inefficient and dysfunctional, and therefore more expensive. In addition to offering expensive services, the SOEs also continue to hobble the country’s economic development due to bottlenecks associated with inter alia Eskom, Transnet, and our digital migration.

Despite the government’s aspiration to use SOEs as a core feature of a developmental state, SOEs sit at the centre of our country’s stagnant development. To stimulate growth, the government urgently needs to introduce structural reforms. These include rectifying our infrastructure bottlenecks, reforming our labour market policies so as to allow for more market orientated employment needs and pricing so as to assist in employment creation, and improving the quality of government services. We also need to lessen red tape so as to make it easier to start and run SMEs, consider tax and other incentives for small companies to hire and train low-skilled workers, provide clarity of economic and industrial policies, and demand greater accountability and leadership from both the public and private sectors. However, all indications are that there is no political will for such reforms and so we sit, spouting short-term, quick-fix slogans instead of implementing long-term difficult policies that will lead to a reduction in unemployment, inequality, and poverty.

Sean Gossel is a senior lecturer at the UCT Graduate School of Business. This article is based on an interview he did with SABC. This article was first published on the 30 May 2017, on Fin24.
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University of Cape Town Graduate School of Business
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