Star Economist Says Black Economic Empowerment in South Africa Has Failed

Thomas Piketty on South Africa
Thomas Piketty, French economist behind Socialist party candidate Francois Hollande's plan to tax all income over one million euros ($1.3 million) per year at 75 percent, poses in his office in Paris April 11, 2012. Piketty has recently said that black economic empowerment strategies in South Africa have not been successful. Charles Platiau/Reuters

This article first appeared on the Council on Foreign Relations site.

On October 3, Thomas Piketty, the French economist and best-selling author of Capital in the 21st Century, said in his prestigious Nelson Mandela lecture that South Africa's " economic empowerment strategies... were not successful in spreading the wealth." He said that 60 to 65 percent of the country's wealth is held by 10 percent of the population, compared with 50 to 55 percent in Brazil and 40 to 45 percent in the United States. He made the point that out of the wealthiest 5 percent of South Africans, up to 80 percent are white.

That South Africa is one of the most unequal countries in the world in terms of distribution of wealth, and that the 9 percent of the population that is white holds a disproportionate share of that wealth is well-known. It is a reality that various black economic empowerment strategies were designed to address and have failed to do so. Piketty in his Mandela lecture made certain suggestions: a national minimum wage, workers on corporate boards, and accelerated land reform.

In a comparison of the history of inequality in France and South Africa, Piketty addressed the race factor: "The difference of color of skin is also important because when everybody is white in France, you can sort of forget a couple of generations later who comes from what group, which is more difficult with the color of skin."

There appears to be a consensus in South Africa that "something must be done" about inequality and that formal programs such as the current Broad Based Black Economic Empowerment (BBBEE) are not working. But, there is no consensus about what to do. According to the South African media, former finance Minister Trevor Manuel after Piketty's speech suggested the issues are political not economic: "We've got the framework in place but I think the problems are not in the economics: it is not even in the tax law. Our problems are in the leadership and how we convene society to understand we're in this together."

From news reports, Piketty does not appear to have addressed the greatest driver of poverty: very high levels of unemployment, which approaches 50 percent in some demographics. That in turn reflects the dearth of unskilled jobs where official trade union and government policy has long promoted a highly-skilled "labor aristocracy." Paradoxically, there are labor shortages because the poor primary education available to the mass of the population does not prepare them to enter the workforce. Meanwhile, elites benefit from the best academic institutions in Africa, and among the best in the world.

John Campbell tracks political and security developments across sub-Saharan Africa for the Council on Foreign Relations.