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Series: What is transformation? The white roots of BEE 2006-05-19
Moeletsi Mbeki

*Political economist and deputy chairman of the South African Institute of International Affairs. This is expanded version of a public lecture given on Wednesday 26 th April 2006 at the University of the Witwatersrand.


It is a great honour to be invited to give a public lecture by South Africa’s leading centre of learning. I read somewhere that 1/3 of the top managers of South Africa’s large corporations are Wits graduates while another third are from abroad. These figures therefore make clear the premier contribution that Wits has made, and is making, to the country’s economy. Wits University is to our economy what Fort Hare University is to our politics.


The last time I gave a public lecture at a South African university was on the subject of Black Economic Empowerment (BEE) at the University of Pretoria. For my trouble, I earned myself the hatred of South Africa’s BEE tycoons. Luckily these are polite, cultured folks who do not throw rotten tomatoes and practice the art of thrashing perfected by some members of academia and trade unionism.


Today I have been asked once more to talk on South Africa’s elites’ concepts of transformation. As I know this group is also tolerant, it is not them that I am apprehensive about. My fear is that because I have been out of touch with academia for such a long time, what I have to say may be old hat to most of you. If that is the case, my suggestion is that those who have heard it all before should feel free to follow the example of our Members of Parliament and sleep throughout the presentation. The University assures me wine and beer will be served after the presentation so your sleep will be well rewarded.


Dominant classes


Somewhere in his many pronouncements, Karl Marx made the observation that in any given epoch, the dominant ideas in a particular society are the ideas of that society’s dominant class or dominant classes. So for me to answer the question what constitutes transformation in South Africa today, I have to first answer the question who is the dominant class or classes in South Africa? 


It seems to me that we do not have one dominant class; we have two dominant classes. The black upper middle class dominates the country’s political life today. This class however, plays next to no role in the ownership and control of the productive economy of South Africa. Their key role in the economy is one of overseeing redistribution of wealth towards consumption. They manage - or should I say they mismanage? - a few state owned enterprises inherited from the National Party era.




At the level of the productive economy, South Africa has another dominant class which I call South Africa’s economic oligarchy. These are the owners and controllers of the Minerals Energy Complex (MEC) that, according to Zaveher Rustomjee and Ben Fine in their book “The Political Economy of South Africa; From Minerals Energy Complex to Industrialisation”, constitutes the dominant core of the South African economy. To the Minerals Energy Complex I would include the financial sector which Rustomjee and Fine show is enmeshed with the country’ s mining companies.


If I may use what I suspect is now an old fashioned political category, South Africa therefore has a ruling class. This is the partnership between the politically dominant black upper middle class on one hand, and the economic oligarchy that owns the Minerals Energy Complex on the other. This partnership was first identified by Sampie Terreblanche in his book “A History of Inequality in South Africa, 1652-2002”, where he pointed out that in the early 1990s there were in fact two Codesa’s – Codesa I, he said, was the public negotiations between political parties for the new democratic constitution and Codesa II was what he called secret negotiations between the economic oligarchy and representatives of the black upper middle class.


It is this new ruling class that in the final analysis determines what constitutes transformation in South Africa. More accurately I should say it is this ruling class that determines what is desirable transformation in our society and what is not desirable transformation.


Codesa I and Codesa II thus gave us South Africa’s transformation equation. According to this equation, parliamentary democracy + globalization + black economic empowerment = transformation.


From my description of what constitutes South Africa’s ruling class, there are two groups that are conspicuous by their absence from the ruling class but are very visible in civil society. These are the capitalist classes engaged in manufacturing and distribution on one hand and of course organised labour.


If you examine closely South Africa’s economic and social policies you will find that the interests of manufacturers and those of organised labour come a distant third and fourth - and in some cases don’t feature at all – to those of the two dominant classes referred to earlier.

How does the economic oligarchy see transformation, what does it want transformed (and not transformed)?  Similarly how does the black upper middle class see transformation and what does it want transformed (and not transformed)?


To answer these questions, I will first describe the nature of the MEC. Secondly I will give a brief sketch of the history of the black middle class.


Minerals Energy Complex


South Africa is very well endowed with natural resources, especially minerals and metals. This has created a unique form of capitalism which I call capitalism with South African characteristics. The South African economy is dominated by the extraction of minerals from the ground; their processing into metals through the use of electric power and chemicals and their sale to the rest of the world. Most of the assets of the South African economy are devoted to these activities. These activities account for most of South Africa’s exports.


This was how Rustomjee and Fine described the Minerals Energy Complex.


“In identifying the MEC as lying at the core of the economy, there is at its own core those sectors associated with minerals and energy in the narrow technical sense. The role of gold as a key sector in the South African economy is well known. Its importance has declined in recent years with the declining price of gold, the fertility of reserves and the emergence of other sources of supply in the world market. However, other metals have gained in their prominence, especially platinums. The same is true of coal; it is responsible for 80% of the country’s primary energy needs. It also provides for 20% of the country’s exports and 1/3 of all non-gold exports. But very little coal is used for direct energy needs. The vast majority is either converted into electricity (over 50%) or into oil (over 30%). On a global scale, the South African economy is uniquely dependent on electricity and is uniquely electricity-intensive, with levels of consumption per capita comparable, for example, to those of the UK, despite limited domestic consumption by the majority of the population.“  


Amongst the industries that constitute the Minerals Energy Complex are:

·                                            Coal, gold, diamond, platinum and other mining activities.

·                                            Electricity generation and distribution.

·                                            Non-metallic mineral products.

·                                            Iron and steel basic industries.

·                                            Non-ferrous metals basic industries.

·                                            Fertilizers, pesticides, synthetic resins, plastics, basic chemical and petroleum.


Of course minerals are a blessing to South Africa (and to Africa) in that they have helped to kick start a process of capital accumulation through attracting foreign investors and promoting the construction of physical infrastructure. Among the weaknesses of the MEC is its dependence on wasting non-renewable assets, dependence on imported technology and capital, over–exposure to volatile world markets. Most importantly however, a key characteristic of the MEC is its dependence on abundant, cheap, unskilled labour.


History and character of the black middle class


The origins of black middle class date back to the 1830s when the British eventually realized they could not crush the Xhosa without forming alliances with other African tribes. During the war of 1835-37, the British identified a group called Amamfengu or Fingoes as potential allies.


The second group that the British identified were other groups among the Xhosa who had become displaced in the succession conflict between Ndhlambe and Ngqika especially the Gqunukwebe clan.


The third group the British identified was a community of Khoi people living along the valley of the Kat River.


These groups became military allies of the British in their struggle to subdue the Xhosa. In return for military support the British shared the captured land and cattle with the Afrikaner farmers and with the British 1820 settlers who were the commandoes that also supported the British army against the Xhosa. The British introduced their black allies to the ways of the modern capitalist world of that time. They transformed them into peasant farmers and introduced them to Western religion, writing, modern medicine, Western clothing, modern citizenship and electoral politics.  This model was transferred to Natal in the 1840s when the British evicted the trek Boers and took over Natal south of the Tugela River.


Out of this peasantry emerged South Africa’s African middle class – Christian, missionary educated, anglophile, liberal, pro-capitalists and attuned to parliamentary democracy which was introduced by the British at the Cape Colony in the 1850s.


The African middle class was soon joined in particular by the freed Malay and other slaves many of whom became independent entrepreneurs after the abolition of slavery in 1834-38. During the last quarter of the 19 th Century the peasant and ex-slave middle class was joined by free Indians who had paid their way to South Africa and worked as independent merchants, teachers, doctors, and, most famous among them, Cambridge educated lawyer, Mahatma Gandhi.

A leading member of this black middle class, one Micah Kunene, asked by the South African Native Affairs Commission in 1903, if he would like to see the British leave South Africa and return home, had this to say:


“If the white people and the King (of England) were to desert us now and leave us here, there is a great section of us who have approximated to a great extent to the white man’s way of living, and to the white man’s way of doing things; and there is a large number of us who have not advanced at all, who have remained as they were practically in former days. I am afraid that those who have remained in their former state would kill us all, particularly civilised Natives, because we have bought lands, they do not approve of the ownership of land. They know too that whenever there has been a war, against Natives like ourselves, we have always been with the (colonial) Government and gone out to assist them in those wars… Therefore, we feel that we are far better under our (colonial) Government, and are far better than if we were deserted and left to the mercies of our people.”


I do not intend to go into the trials and tribulations that this black middle class went through in the 100 years between 1892 when it started to lose its franchise and 1994 when it regained it and became the dominant political power in the country. This story has been told most ably by among others Colin Bundy in his book “The Rise and Fall of the South African Peasantry”; Govan Mbeki in “South Africa: The Peasants Revolt”, Eddie Roux in “Time Longer then Rope” and by Tom Lodge in “Black Politics in South Africa since 1945”.


In 1994, the black upper middle class emerged enormously powerful because for 100 years they had been the torch bearers for democracy in South Africa while their 19 th Century partners, the British imperialists, had swapped democracy in South Africa for super profits from diamonds and gold. At home the black elite controlled powerful institutions such as the South African Council of Churches and the Catholics Bishops Conference. It provided political leadership to the formidable trade union movement of Cosatu and Nactu. It was thus seen at home and abroad as the natural replacement of the floundering Afrikaner elite that had ruled South Africa since 1907 when the British gradually withdrew politically from South Africa and handed political power to the militarily defeated Boer generals.


The black elite’s connections therefore reached into the White House and the State Department in the United States of America and into No 10 Downing Street and the Foreign Commonwealth Office in the United Kingdom.


Transformation equation


In conclusion I would like to explain the transformation equation of parliamentary democracy + globalization + black economic empowerment = transformation.


The primary objective of the economic oligarchy during the Codesa II negotiations was to ensure the preservation of the MEC. The quid pro quo for the black upper middle class representatives agreeing to the preservation of the MEC, was the creation of Black Economic Empowerment.


The second objective of the economic oligarchy was to get the emerging black political elite to agree to the use globalization to maintain the cheap labour system required by the Minerals Energy Complex. In the past, cheap labour for the MEC was achieved by amongst other methods, recruiting unskilled labour from the vast region of Southern Africa as far north as Angola and Tanganyika. Long before the Southern African Development Community (SADC) was formed in the 1980s, Southern Africa as an integrated region was invented by Wenela, the Chamber of Mines’ Witwatersrand Native Labour Association.   


The old ways of maintaining cheap labour have been studied by Francis Wilson in his famous book “Labour in the South African Gold Mines”. These old methods could not be sustained after the independence of Southern African countries and after the growth of trade unionism amongst black workers in South Africa. The new way of keeping labour cheap was therefore through importing wage goods from cheap producers in the global economy especially China.


The outcome of using globalization to cheapen consumption goods for the working class in the MEC is however the destruction of the non MEC manufacturing sector in South Africa. This explains why capitalists in the non MEC manufacturing sector were excluded from Codesa II. It also explains why organised labour was also excluded. The destruction of the manufacturing sector is in reality at the root of the growing impoverishment of South Africans as it leads to growing structural unemployment.     


We have seen above that the black middle class have been the promoters of parliamentary democracy in South Africa for more then 100 years. They were also the avowed enemies of the Minerals Energy Complex which they saw, quite rightly, as being behind the dispossession of the African peasants, the introduction of the pass system, the perpetuation of the system of cheap labour and their exclusion from property ownership. The nationalization of the MEC was therefore top of the list for the black middle class. Ironically the nationalization of the mines was also top of the list for the Afrikaner elite under the leadership of the National Party.


This was how Nelson Mandela in 1956 described the importance of the nationalization clause of the Freedom Charter:  


 “The charter strikes a fatal blow at the financial and gold mining monopolies that have for centuries plundered the country and condemned its people to servitude. The breaking up and democratisation of these monopolies will open up fresh fields for the development of a prosperous non-European bourgeois class. For the first time in the history of this country the non-European bourgeoisie will have the opportunity to own, in their own name and right, mills and factories, and trade and private enterprise will boom and flourish as never before.”


To avoid what Mandela wanted to implement, that is, the breakup of the MEC, the economic oligarchy at Codesa II, offered BEE.


The BEE model had been developed over many years since the establishment of the Urban Foundation 1977 by Harry Oppenheimer and Anton Rupert. BEE entailed wealth redistribution from the economic oligarchs to the black upper middle class. An important but secondary effect of this voluntary wealth redistribution is the emergence of the new class of unproductive, rich black politicians and ex-politicians who have become the key political allies of the economic oligarchy in preserving the MEC.


What should be clear is that while the transformation equation has brought stability and elements of prosperity which we are seeing in South Africa today, in the longer term the transformation equation is creating a vast urban underclass.




Ruling classes everywhere in the world, and throughout history, use their dominant position in society to protect and advance their interests. In this regard present day South Africa is no different. As we have seen in this exposition, not all ruling classes are the same because different social and economic systems spawn different relationships between the dominant classes and the dominated or subordinate classes.

In the famous Preface to his book, “A Contribution to the Critique of Political

Economy”, Karl Marx made the following observation:

“In the social production of their existence, men inevitably enter into definite relations which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production. The totality of these relations of production constitutes the economic structure of society, the real foundation on which arises a legal and political super structure and to which to correspond definite forms of social consciousness. The mode of production of material life conditions the general process of social, political and intellectual life.”


South Africa’s social and economic structure is dominated by the Minerals Energy Complex which in turn has led to a uniquely South African system of capitalism that is mining, cheap labour and electricity intensive. On top of this structure sits an economic oligarchy that, with its army of managers, controls a handful of large companies. These companies in turn control large mineral reserves that in some instances exist only, or mainly, in South Africa, platinum being the case in point.


For 120 years since the start of gold mining in the 1880s, South Africa’s economic oligarchy has ridden many storms. Starting with the armed insurrection which it organised against the Paul Kruger government in conjunction with the Jameson Raid (1895-96); it instigated the war between the British and the Boers in 1899; it saw off many insurrections and strikes by white and black workers – 1907, 1911, 1913, 1922, 1946, 1987.


Most importantly the economic oligarchy has kept the Minerals Energy Complex completely intact through various nationalist governments – Afrikaner and black – who were extremely hostile to the central role and activities of the MEC in South Africa’s economic life. Over the years the economic oligarchy perfected the methods of placating successive political elites, Black Economic Empowerment being the latest device among many devices it invented. These devices carry a certain cost to the economic oligarchy as Sasol recently told the New York Stock Exchange, but these costs are minuscule relative to the protection that they buy.


The powers of the oligarchy to damage the political elite in a confrontation were brought into a sharp focus a couple of years ago when it leaked out that the ANC government contemplated using the BEE device to take control of the MEC. The economic oligarchy, using its immense international networks, sounded alarm bells in global financial capitals. Within hours huge chunks of South Africa’s wealth vanished.


South Africa’s transformation formula is thus not merely based on a common economic vision within the ruling class, it is underwritten by the independent ability of each constituent party of the ruling class to defend its interests.


The political elite of course also has the wherewithal to damage the interests of the economic oligarchy by using the State which it controls through democratic processes. The reality however is that the political elite are comparatively more vulnerable as the economic oligarchy can promote new political parties to challenge a hostile ruling party.    


Skirmishes within the ruling class however pale relative to challenge posed by South Africa’s shrinking manufacturing industries. We have seen that the formula transformation = BEE + globalization + parliamentary democratization leads inevitably to opening up the economy to the chill winds of Asian competition. The MEC is immune to global competition as its sells minerals and metals that are largely unique to South Africa. Manufacturing industries do not have such natural protection however. Since 1990 South Africa’s private sector employment has been declining steadily, fuelling the growing impoverishment of many South Africans. At the same time that poverty is raising among the bottom half of the population, the top 10% to 20% of the population has been getting richer benefiting from BEE wealth redistribution programmes and more recently benefiting also from steeply rising commodity prices.


These are the dynamics that make South Africa a slowly and quietly ticking time bomb. South Africa’s mode of entry into the world economy was negotiated to meet the demands of the MEC for cheap consumption goods without taking into account the ability of the country’s manufacturing industries to survive, compete, and continue to create jobs. South African therefore needs a new transformation equation. This new transformation equation cannot be developed without the active participation of manufacturing and distribution sector capitalists, organised labour, academia and other civil society players. This will clearly entail the broadening of South Africa’s ruling class to include classes of society that are currently excluded.



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