Growth sacrificed for comfort in South Africa – Mbeki
Concerns are mounting over the trajectory of South Africa’s stagnant economy, with prominent voices arguing that the concentration of political power in the hands of a consumption-driven middle class poses a significant threat to the nation’s future prosperity.
Political economist and chairman of the South African Institute of International Affairs, Moeletsi Mbeki, has been a particularly vocal critic of this dynamic.
In an interview with BusinessTech, Mbeki said that policies prioritising the interests of this influential group are stifling economic growth and hindering the development of a more equitable society.
This is because an inflated middle-class standard of living comes at the expense of investment in human capital.
Mbeki stated that South Africa’s economy has essentially come to a standstill, failing to show sufficient growth to create employment and address its deep-rooted social issues.
He contends that while the African National Congress (ANC) initially won broad support with the promise of “a better life for all”, once in power, it strategically focused on bolstering its core constituency: the African middle class.
Policies such as Black Economic Empowerment (BEE), preferential procurement, and high public service wage bills primarily serve to advance and maintain the interests of this group.
This is particularly evident for those employed within the burgeoning public sector, where over 30% of the budget is used to satisfy the immediate employment demands of less than 4% of the population.
He argues that this focus led to a significant improvement in the living standards of the African middle class while the broader economy stagnated.
The impact
A critical aspect of Mbeki’s analysis lies in the historical context of asset ownership within the African middle class in South Africa.
Due to past discriminatory policies, this group lacks the substantial private assets common in the middle classes of other developing economies.
“Now the consequence of this is that there are fewer and fewer resources for reinvesting in developing and growing the economy,” said Mbeki.
He suggested that this pattern of prioritising elite consumption over mass development creates a cycle of underdevelopment and poverty.
Consequently, he said that their primary means of securing and improving their living standards has become their control of political power and the state.
This control is exercised through the tax system, which extracts resources from the private sector and redistributes them in the form of highly inflated salaries within the public service, benefiting the middle class that controls the state apparatus.
The outflow of capital from the private sector severely curtails its capacity for reinvestment, innovation, and job creation —essential components for inclusive economic growth.
The failure to invest adequately in education, healthcare, and infrastructure for the majority hinders the creation of a skilled and healthy workforce capable of driving sustainable economic growth.
Furthermore, Mbeki is critical of the implementation of BEE, arguing that it primarily facilitates the transfer of resources within existing companies to a small, politically connected elite. It does not foster genuine entrepreneurship and new wealth creation.
He emphasises the urgent need to cultivate new entrepreneurs from historically disadvantaged populations, which he believes is disincentivised by policies that favour public sector employment and reliance on existing structures.
Drawing a comparison with Asian economies, Mbeki highlights a crucial difference in the priorities of ruling elites.
In Asia, the focus is on economic growth and the upliftment of the broader population through investments in education, healthcare, and housing, often at the expense of the consumption of the middle and capitalist classes.
In contrast, Mbeki suggests that many African elites, including those in South Africa, prioritise their own consumption.
This results in underinvestment in crucial areas of human capital development, as evidenced by South Africa’s low ranking in the Human Capital Index.
The recent formation of a Government of National Unity (GNU) has raised hopes for policy reform, but Mbeki remains sceptical.
He views the GNU as potentially just a continuation of the ANC’s existing policies that favour the African middle class.
While the Democratic Alliance (DA) has joined the coalition, Mbeki notes their limited success in leveraging their position to enact significant economic policy changes, particularly those that would fundamentally alter the flow of resources towards the public sector.
Mbeki suggests that abolishing BEE could be a “quick win” to attract foreign investment by removing the requirement for investors to cede equity to a politically connected elite.
However, he doubts the current political will within the GNU to implement such a drastic change.
Ultimately, Mbeki’s analysis portrays an economy dominated by the consumption demands of a politically influential middle class.
This dynamic, characterised by the siphoning of resources from the productive private sector to fund inflated public sector salaries, is seen as a significant impediment to sustainable and inclusive economic growth in South Africa.
Unless there is a fundamental shift in policy priorities towards a production-driven agenda that benefits all segments of society, Mbeki said that the country risks continued economic stagnation.
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