The South African Civil Society Information Service
A nonprofit news agency promoting social justice. Seeking answers to the question:
How do we make democracy work for the poor?
A nonprofit news agency promoting social justice. Seeking answers to the question:
How do we make democracy work for the poor?
By Saliem Fakir · 19 Jul 2011
A while back, Deputy Minister of Transport, Jeremy Cronin penned a column in Umsenbenzi, the online publication of the South African Communist Party, where he wrote that perhaps we should be thinking about the ‘socialisation’ of wealth, rather than the nationalisation of assets.
Cronin was positing the idea that the nationalisation of assets, for all intents and purposes, is not the only device for dealing with income inequality, unemployment and widespread poverty. He perceptively also noted that the nationalisation debate was a Trojan horse for an asset grab by a new class of elites, in the name of national development.
While Cronin’s socialisation of wealth is also just another name for the nationalisation of income or profit for the purposes of social development and distribution; it is not the same as the nationalisation of assets. And, both capitalist and non-capitalist economies have used this device to spread the benefits of national wealth more fairly. Whether we are talking about taxes, levies or royalties doesn’t matter - it’s all about corrective action.
Let’s look at some examples where mineral wealth has been used for greater social benefit starting with the Alaskan Permanent Fund (APF) in America, the heartland of free market capitalism. Alaska first discovered oil in 1959, leading to an economic boom in the 1970s and 1980s when oil and gas produced large budgetary surpluses for the State of Alaska.
In 1976 Alaskans voted for an amendment to the constitution, which specified that “at least 25% of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue-sharing payments and bonuses received by the state shall be placed in a permanent fund.”
In an implicit manner, residents also voted for the fund to ensure that both state and private operators didn’t plunder windfalls, either through state misappropriation or private greed.
The fund’s objectives were threefold: to promote economic diversification and development, to promote wealth distribution and to be used as a savings account for the state.
The latter objective is self-explanatory, but the economic diversification and development objective includes providing infrastructure, subsidised loans and high-risk equity investments to the people of Alaska. While the objective of wealth distribution ensures that Alaska’s fund distributes an annual dividend to each of its residents. Dividends are only distributed to individuals if they can prove that they have lived in Alaska for at least a year.
Alaska’s fund grew from an initial investment of US$734,000 in 1977 to US$28bn in March 2008. The fund posted an 11.1% return last year when its closing balance was US$33bn.
No doubt the model can’t be applied directly to South Africa as the APF’s benefits flow to a small population and not the entire US. But the principles for its application are quite illustrative and demonstrate, at the very least, that it’s not impossible to develop a system where a country or region’s wealth can be fairly and justly distributed amongst its entire population.
The Alaskan model is not unique. However, where this kind of intervention is made, there is an implicit recognition that in certain sectors where there is potential for natural market monopoly, it should not come at the cost of social solidarity and national progress.
Neither should the role of the state be predatory. Its role should be one of constructive development and redistribution either by the imposition of a fair wage, or if this is not feasible, to increase social welfare through indirect income compensation. Forms of indirect income benefit can come through subsidised public transport, free schooling, free university education and other interventions.
The concentration of ownership and wealth and its related flow of proceeds, upholds an untenable status quo for the future. The economy simply can’t create more concentration and inequality. The reaction to which is visible anger, impatience and growing discontent on our streets.
Neither is it quite certain that a new form of concentration - that of assets in the hands of the state - will reap a better development dividend or more economic privileges for the poor.
The constructive socialisation of wealth or the nationalisation of portions of market income and profit is perhaps a far more sophisticated way to achieve a social end without disrupting the economy as a whole.
Unfortunately for us here in South Africa, the wrong proponents of nationalisation mislead the nation with false promises and solutions for our problems of unemployment and inequality.
If one considers that the widening of the state’s span of control over productive assets in South Africa has so far been a mixed blessing, is there any confidence that a new solution could bear fruit?
We need not go into the list of problems experienced with state-owned enterprises in South Africa suffice to say that as a result of the poor performance of the state in crucial areas of the economy, it has sowed the seeds of doubt. Poor delivery, corruption and/or misappropriation of funds tarnish good arguments for state intervention.
This is not to say that nationalisation is not an important strategic question or desired intervention in certain circumstances. Some countries nationalise strategic mineral assets for good reasons. Oil is a good case in point.
Most oil today is nationalised. It is a strategic asset for geo-political reasons, so nationalisation makes sense. And where the demand for the commodity far outstretches the globally available supply, significant windfalls in revenue are to be achieved.
Many countries such as Norway, Saudi Arabia and Kuwait have created sovereign wealth funds to manage these windfalls of revenue during boom times. Kuwait, for example, is arguably the only country in the world born out of a sovereign investment fund.
The Kuwait Investment Authority is in actual fact the modernised version of the Kuwait Investment Board founded back in 1953. The fortunes earned by the Board put in place the stepping-stones for Kuwaitis to gain their independence from Britain.
On the other hand, the Government Pension Fund of Norway, formally known as the Government Petroleum Fund, was created by the Norwegian government to stop the country from being besieged by the resource curse that many other oil-rich countries have fallen victim to. The Norwegian government sought to use the fund to secure the long-term interests of Norway. Their strategy is much admired, as it seems to have managed the use of oil profits very well. Today Norway's pension fund is the fourth largest sovereign wealth fund in the world. The Fund's revenue comes from several sources: oil taxes from companies operating in the oil industry, fees from exploration, licenses as well as dividends that the state earns as one of the shareholders of the national oil company Statoil.
There may well be strategic mining assets we want to nationalise in South Africa. However, for that we need a broader debate and context (such as a better understanding of the value to the global market and strategic interests of other countries), as opposed to a hollow and rhetorical debate about ownership.
At the same time, we should not forget that countries that have no natural wealth have proven far more adept at being global economic powers through state ingenuity and leadership, the resourcefulness of their people and the development of sustained knowledge and skills to produce goods and services that do not only meet domestic demand, but also the needs of a global market.
Japan, South Korea, Cuba and many other countries come to mind. There is a lesson in all of this.
After all, while natural resources or assets need to be developed, these assets only reap rewards if they are productive. Simultaneously, assets require financial capital and entrepreneurship. They require knowledge, skills, technology and most importantly the development of quality goods and services, either to meet basic needs or the requirements of commercial consumers.
None of this can be achieved without a thorough focus on the development of our human capital. Thus, the nationalisation debate in its current form, forces upon us, once again, another distraction from the real cause of our sorrows - South Africa’s true salvation will only come with the development of our human capital.
Africa, including South Africa, has always had the dubious honour of only being valued for its natural resources. The people of this country and continent have always been neglected as potentially strong contributors to national and global economies.
Unless we also think about how to develop our human capital, in addition to how we should be socialising our wealth, those so eager on political power will carry us through, yet again, another detour into under-development and everything dark that goes with it.
There is little that can be considered “developmental” on the agenda of the current nationalisation debate in South Africa.
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Nationalisation
A sensible article. The government is proving itself totally incapable of managing our natural resources and basic infrastructure. Nationalization will create more opportunity for corruption and greed.
Nationalisation vs Socialition
A brilliant article. I wish the author was among those policy decision makers who is also very influential. I do not understand why it takes our government so long to realize a "not working" strategy so as to brainstorm possible workable new ones like ones suggested by Mr. Fakir
Great Article...Sense in the Maelstrom of Vested Interests
Really, really good piece saliem...there are good ways and bad ways of doing this...finance has not really helped empowerment and the recipients wanted the bling before reading the fine print of the deals and how they were structured...so hopefully with views like this getting more mainstream, we can have meaningful empowerment in our economy that breeds stability...
