Tweaking the Old or Building Something New? Dealing with the Troubled Political Economy of Mining in SA

By Saliem Fakir · 22 Oct 2012

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Picture credit: Pouring gold courtesy The Puzzler/Flickr
Picture credit: Pouring gold courtesy The Puzzler/Flickr

In many respects “Marikana” represents our own ‘Arab Spring’.

After the massacre the wave of wildcat strikes in other sectors outside of the platinum industry, had they gotten much wider popular support, could have fundamentally shaken government as well as the complacent and disinterested business community.

This is not the first time that miners have turned against an oppressive system of rent. It’s happened many times before in our country -- the most notable event being the 1922 Rand miners’ strike.

The Rand strike and rebellion was also a crucible for South Africa. The state unleashed violence (using 20 000 troops, tanks and air bombers) against white mine workers. The aftermath was a scene of death (on both sides). At the time, Prime Minister Jan Smuts’ government fell to the opposition in the next election.

The same story of upheaval and then reconfiguration occurred in the 1970s. This time with wildcat strikes by black mine workers, which led to the creation of the Wiehahn Commission. The Commission called for the legitimation of legal strikes and improvements in living conditions. But on the whole, the system was kept intact, much like before.

The same is likely to happen with Marikana: rock-drillers will receive better pay (which they deserve), a more inclusive collective bargaining system will be introduced in the platinum sector and the whole living out allowance system is likely to be overhauled.

This will weaken the clout of current established trade unions. But what we can look forward to are talks upon talks where the entire crisis will be treated as a mere bump in an otherwise sound ‘industrial relations’ system.

However, this is hardly just a problem of industrial relations. What it really represents is the problem of a corrupted political economy between state, private companies and established unions, that has led to the collapse of governance and accountability in the resources sector as well as many other parts of the state and economy.

The entire political economy of mining is based on a model of rent seeking that is about freeing up cash for the immediate and not preserving it or creating new assets for the future.

The current system of mining, predominantly created and delivered through a private sector driven development model with a cosy alliance between local and international capital and state-sponsored empowerment deals, is matched only by a weak state that collects taxes but is unable to deliver development, where it really matters, through its own institutions.

Ironically the 1940s shift of power to Afrikaners brought about a change in the Anglo-Saxon dominated mining industry as a result of nothing but shear political will and an intrusive government policy aimed at breaking up the economic monopoly that Anglo-Saxon capital enjoyed ever since Cecil John Rhodes arrived on the scene.

And state intervention worked. Think of the creation of the Industrial Development Corporation, National Finance Corporation, SASOL, Gencor, Sanlam and many other entities. These were all creations of Afrikaans dominated politics and state. They re-directed rents towards the development of Afrikaners and eventually the wider white population.

That was the last and only time South Africa witnessed such a large restructuring of the economy where the Afrikaner state and private capital got together to ensure that the flow of rents from mining went into industrial development and human capital (albeit for whites only). We may never see such restructuring again.

The outcome of Afrikaner intervention was that South Africa was dominated by a mixed-economy system for the next 40 years in which one arm of the economy was very strongly aligned to the state and the other to international capital and Britain.

The model in the post-1994 era has been full of rhetoric about state intervention, but in reality, is a model in which domestic white capital in alliance with international capital has created a system of co-option with black capital.

State ownership of enterprises and agencies in the economy has never been easy sailing or stable. In South Africa, many state enterprises and agencies have lived a troubled life of financial woes, changing boards, corruption and internal management conflicts. They did not close the loop of economic imbalance, but merely widened it.

It is not as if our own policy-makers do not know that the political economy of mining can be different. After all they were early champions of Ben Fine and Zavareh Rustomjee’s seminal analysis on the mining and energy complex, as their ideas percolated in a host of pre-1994 ANC documents and in COSATU’s most engaged industrial strategy work of the 1990s.

The issues are understood, but the state’s capacity to frame and execute a new economic model for mining has not been evident as it increasingly pushed through the co-option model of black economic empowerment.
This was not naivety. It was part of the plan and compromise with old capital in South Africa. Black economic empowerment has ensured share-schemes not only for a few politically well-connected individuals, but also the investment arms of the ANC, COSATU and if a more recent Mail and Guardian exposé is true, even the SACP.

In contrast, resource rich countries that have succeeded with economic development and improving the welfare of their populace have been able to do so because of three things: a) ensuring that the rent model for their resource rich sectors had the right policy instruments in place; b) the governance over the allocation of resource rights and allocation of revenues by the state was independent and free from political interference; and c) they simply diversified their natural resource capital into other forms of assets and capital; for example, in new infrastructure, industry and improving the skills base of the country.

Revenue models vary. They include user fees, super-taxes, such as Australia has on windfall income during commodity booms, production-sharing agreements like Chile and Norway have secured via state enterprises, and export levies like China exercises to ensure domestic beneficiation rather than foreign and export quotas if a country’s preference is for domestic security of supply - like we once did for coal.

Institutional models also vary. Most oil and gas rich countries have sovereign wealth funds or stabilisation funds to protect the economy against exchange rate fluctuations, loss of income during bust periods and to ensure the long-term financial stability of the economy.

Some have established state mining companies and even state banks to deploy capital in the right places and in so doing also restructure the ownership patterns of the mining economy. There is a plethora of literature on what can be done better, not to mention the number of study tours officials and politicians have embarked on in the last 18 years to learn about what goes on elsewhere.

What is to be done is known, but the political will and capacity to execute a different system does not exist.

The current system will lead to more tragedy and pain for all of us but it won’t be changed. The entrenchment of old and new capital is too deep to uproot. There are also debts to pay on deals.

Mining just like the rest of the economy has become a game of patronage and access. It has very little to do with the long-term future of the country. In fact it has very little do with the rest of us. We should heed this oft-quoted World Bank report warning: “There are no sustainable diamond mines only diamond countries with sustainable economies.”

Fakir is an independent writer based in Cape Town.

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