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Economic Collision in the Wake of Apartheid

Small-scale capitalism is the next big step in the evolution of South Africa.

September 05, 2002|JAMES P. PINKERTON | James P. Pinkerton writes a column for Newsday in New York.

SOWETO, South Africa — This region is the cradle of the anti-apartheid revolution that transformed South Africa from white minority rule to black majority rule. Now that black political participation is secure, next on the national agenda is black economic empowerment.

Yet the way forward is much debated as old ideologies contend with new practical realities. And so the battle is joined: lingering quasi-Marxism versus rising small-scale capitalism.

Nelson Mandela lived in Soweto as a young man. Arrested in 1963 by the white-supremacist government for his political activism, he was imprisoned for three decades before becoming the country's first black president, in 1994. Today, his erstwhile residence is a national shrine, while he lives in a mansion in a once-white suburb near the site of the World Summit on Sustainable Development.

That summit met for nearly two weeks, issuing vague recommendations on such issues as global warming and renewable energy. But long after the delegates have departed, the economic future of this country will depend on what happens in places such as the Baragwanath taxi park.

A taxi in South Africa is not a luxury but rather a necessity, filling in for a government that can't afford mass transit and the people's inability to afford autos.

Yet the intricate system that has emerged is a leading indicator of black upward mobility. Individual entrepreneurs park their minivans by destination; then they negotiate the route to be taken with as many paying passengers as possible. Meanwhile, hawkers crowd hundreds of nearby stalls, selling everything from candy to shoes to chickens.

No government agency runs these operations. Instead, Baragwanath is an example of what the free-market economist Friedrich Hayek termed "the spontaneous order of the marketplace." I buy a T-shirt that reads, "Soweto. Know It. Feel It. Do It."

This is small business in action. This is sustainable development. This is the hope for a new South Africa. To be sure, the ghosts of the past still haunt. I look up and see an artificial yellow mountain, known simply as "the waste dump." That's the slag heap thrown up from the mines along the Witwatersrand, the gold "reef" discovered in 1886.

The mines made South Africa rich, although with repressive regimes in power most of that wealth went to just a few people. In addition to the economic effect, the mines had a political effect, convincing much of the black political class that Marxist analysis--rich versus poor--was correct. And so the black government mostly ignored the interests of the taxi drivers and hawkers of Baragwanath as it pursued its anti-capitalist agenda.

This year, the national government has moved toward new rules intended to guarantee blacks between 30% and 51% of mine ownership. To left-wing activists, it was simple justice, long overdue. But to investors, it was simply a sign that the South African business climate was about to take a turn for the worse.

The value of the currency, the rand, fell by half, and prices on the Johannesburg Stock Exchange fell sharply.

The local magazine Finance Week reports that whereas in 2001 foreign investment totaled $3 billion, this year, in the wake of the government's proposed policies, foreigners have disinvested $350 million. Fearing a recession, the government has backpedaled, and both the money and the market have regained some of the lost ground.

The irony is that the mines are mostly played out. Today, South Africa accounts for just 16% of world gold production.

Moreover, the yellow metal is no longer as precious as it once was; the international economy now favors added-value manufactured products, not mere mined commodities.

So just as South Africa had to shift from an unsustainable system of political oppression, so too it will have to shift from an unsustainable system of resource extraction.

The hope for this country is an entrepreneurial mercantile class, such as the people at Baragwanath. They might not be following economic policymaking in detail, but as they work their way up they should at least expect government policymakers to liberate themselves from the dead ideologies of the past.

Only then will South Africa find its own path to sustainable development.

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