May 28

Why Are We Not Taking Nationalization Seriously

Article by Ian Kilbride, published on 28 May 2024.

An important cleavage between current political party election manifestos is that of nationalisation, yet this critical issue is receiving little attention. This may be because the idea is so left field that other more immediate vote-winning issues crowd it out. But with the real prospect of a coalition government post-May 29, the economic planks of potential ANC coalition partners warrant serious consideration. Indeed, while the idea of nationalisation or renationalisation may be viewed as a socialist historical anachronism, even today, the British Labour Party is committed to renationalising rail services if it comes to power after 4 July this year.

So, where do major political parties stand on nationalisation? Having ditched nationalisation as a core tenet of policy in the 1990s the ANCs 2024 manifesto sticks to the script. Land expropriation without compensation remains policy (rather than practice), but no other industry or sector is in line for nationalisation under a post May 29 ANC-led government. However, the state looms large in practically all aspects of life on every page of the 2024 ANC manifesto. Greater state intervention in health, education, banking, industry, infrastructure and public services are promised. The most notable intervention of course is National Health Insurance, but the ANC manifesto also portents the introduction of prescribed assets for pension funds, a sovereign wealth fund and the forging of a ‘state or public banking sector’. Ambiguously, the manifesto undertakes to “protect industries, like steel”, but is absent on its achievement.

By contrast, both the Economic Freedom Fighters (EFF) and uMkhonto Wesizwe (MK) election manifestos place nationalisation front and centre of economic and industrial policy. For MK, “the foundational issues of poverty, unemployment and inequality stem from the theft of land and mineral resources.” For the Jacob Zuma-led party, post-apartheid reconstruction cannot be pursued under the ‘neoliberal’ policies of the current “failed” government that prioritise the market over state intervention. Consequently, MK commits to expropriate all land without compensation, nationalise the South African Reserve Bank, major banks and insurance companies, as well as ‘strategic mines’. Both ArcelorMittal and SASOL are in line for renationalisation.

Topping the EFF manifesto’s seven pillars is the expropriation of land without compensation ‘for equal redistribution’ in use and the nationalisation of mines, banks and other strategic sectors of the economy, without compensation. As “the most untransformed sector in the economy”, banking and financial services are targeted for special treatment by the EFF as they are regarded as underpinning white monopoly capital as an effective ‘third state’.  Not content with expropriation and nationalisation, the 2024 EFF manifesto goes far further than its dirigiste competitors in promising the establishment of state-owned enterprises in construction, cement, pharmaceuticals, healthcare equipment, mining, food stocking as well as IT and cybersecurity.

Predictably, none of the nationalisation or state-owned entity promises contained in these manifestos have funding models and calculations attached, less still any consideration of the costs and indebtedness of existing state-owned enterprises.

By contrast, market and private sector friendly party manifestos promise to denationalise, partially privatise or disband state-owned enterprises, though the specifics and modalities of achieving these reforms remain vague. The Democratic Alliance, for example, affords state owned enterprises just two lines in its manifesto, subsuming this under the theme of bringing public finances under control.

Yet state owned enterprises warrant far more attention than this, particularly with respect to their drain on South Africa’s narrow taxpayer base, their unsustainable debt levels, endemic corruption and failure to meet the most basic of public needs. It is no exaggeration to suggest that how a governing party deals with SoEs is intrinsically linked to how they will deal with the broader ailing economy.

Indeed, private sector friendly parties have failed to address in any meaningful way the central claims made by the political left.

The justification for nationalisation remains appealing and powerful to many. On this view, the state has a moral, social and economic imperative to intervene in the economy to address the injustices and legacy of decades of economic exclusion of the majority. Neither a free market nor social market can achieve this, certainly not within the time frame demanded by the marginalised and nationalists. Paradoxically, the demonstration effect of the role played by the apartheid state in establishing, supporting and protecting local petrochemical, energy, steel, insurance and banking sectors in favour of white Afrikaner interests in particular is not lost on today’s nationalists.

Competition and competitiveness are dirty words in the lexicon of political parties who would nationalise, yet there is a dangerous naiveté in the belief that nationalising an entity will inure it from local, regional or global competition. The protection of nationalised entities from competition can only be achieved in one of two ways. Either through constant institutional evolution and innovation to stay ahead of the competition, or protection through tariffs, subsidies and bailouts. The former is rare among nationalised entities, even in the developed global north. The second requires the imposition of tariffs or costly subsidies to support the nationalised entity. While not uncommon globally, this form of taxpayer support results in institutional flaccidness, inefficiency and burgeoning debt. Ultimately, none of this is pro-poor.

The application and enforcement of operating criteria other than excellence, competence and competitiveness place any entity at an operational disadvantage, resulting in under-performance and delivery failure. Indeed, if the most persuasive argument in favour of nationalisation is that of effective and reliable basic service delivery to the poor, nationalisation demonstrably fails this test across the globe time and time again.

The Zondo Commission and the recently opened cadre deployment files reveal what we already knew to be true; the temptation and incentives to appoint the politically connected (rather than competent) to state owned entities are simply too seductive to ensure good governance. There is, of course, a logical circularity to this system of political reward, which creates and perpetuates obligation and dependence from the appointee to their political patron. That’s how patronage works. But this as we have seen, is the road to national perdition rather than liberation.