South Africa: The Fear of Oligarchy
Tuesday, July 24, 2012
Daron Acemoglu and James Robinson

In our last post we pointed out that the fear of economic collapse has generated some quite surprising outcomes in South Africa since 1994. The African National Congress (ANC) were so concerned that alienating the white elite would be very costly, they ended up with a society even more unequal than the one they inherited.

How did that happen?

We argued that this was in some sense an unintended consequence of the cautious policy that the ANC adopted in 1994. In effect the ANC completely abandoned the policies which it had adhered to since the formulation of the Freedom Charter in 1955 which stated:

The national wealth of our country, the heritage of South Africans, shall be restored to the people; The mineral wealth beneath the soil, the Banks and monopoly industry shall be transferred to the ownership of the people as a whole; All other industry and trade shall be controlled to assist the wellbeing of the people.

This policy had been confirmed by Nelson Mandela as recently as May 1990, after his release from prison and during his first public address to South African big business, when he said:

it is quite obvious that the economic power relations represented by the excessive concentration of power in a few white hands have to change … one of South Africa’s imperatives is to end white domination in all its forms, to deracialize the exercise of economic power”.

Sounds radical, but in practice it wasn’t. Why not?

In our last post we argued that the fear of collapse put the ANC between a rock and a hard place.

But there is more to it.

In 1993 the financial services company Sanlam sold 10% of its stake in Metropolitan Life to a black owned consortium led by Nthato Motlana, a former secretary of the ANC’s Youth League and one-time doctor to Nelson Mandela and Desmond Tutu. After 1994 the number of these deals began to grow rapidly, reaching 231 by 1998 and by this time some estimates suggest that as much as 10% of the Johannesburg Stock Exchange (JSE) was owned by black businesses. This was a spontaneous start to what has become known in South Africa as Black Economic Empowerment.

Put crudely, these first deals were attempts by white capital to give the ANC political elite a stake in the private enterprise economy they dominated. Perhaps the major driver of the lack of effective reform in the extractive economic institutions of Apartheid is not just that the ANC elite were fearful of collapse but also because they started seeing their personal interests in the continuation of the same economic institutions.

And of course, this is nothing but a version of Robert Michels’s Iron Law of Oligarchy. Some evidence that there is at least some truth to this comes from the following figure which plots the relationships between leading South African firms and prominent ANC politicians.

Each link represents a non-executive directorship that a particular politician holds. This figure contains some of the most powerful people in the ANC including Cyril Ramaphosa (middle), the man who negotiated the transitional agreement with the National Party; Tokyo Sexwale (middle right), long time prisoner in Robben Island with Nelson Mandela; Max Sisulu (top left), son of Walter Sisulu, one of the founders of the ANC youth league with Nelson Mandela and one of the towering figures in the struggle against Apartheid.

So could it be that although initially the transition in 1994 started creating inclusive political institutions, this process has been reversed by the capture of the new black political elite by the white business elite? Could it be that this has then ensured the continued domination of the economy by the white business elite even as the white political elite has been cast aside after 1994?

Article originally appeared on Why Nations Fail by Daron Acemoglu and James Robinson (http://whynationsfail.com/).
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