April 19, 2007

South Africa 2003-04: Two Economies?

Second in a series of posts about South Africa, originally written during the 13 months I lived there in 2003-04.

In November 2003, President Thabo Mbeki spoke of South Africa's

two parallel economies, the First and the Second. The First Economy is modern, produces the bulk of our country's wealth, and is integrated within the global economy. The Second Economy (or the Marginalised Economy) is characterised by underdevelopment, contributes little to the GDP, contains a big percentage of our population, incorporates the poorest of our rural and urban poor, is structurally disconnected from both the First and the global economy, and is incapable of self-generated growth and development.

To a large extent the "First" economy is formal, with receipts, records, a credit system, and legally enforceable rights and remedies. The "Second" economy lacks all of these things; it is informal, regulated by community norms, and based on small cash transactions.

The division isn't purely racial, but it is very largely so. Affirmative action policies have improved the situation since 1994, but not very much. In recent years a more aggressive policy known as "black economic empowerment" (BEE) is pushing corporations to acquire substantial equity investment from black partners. So far this too has brought disappointing results. Since the total amount of black-owned capital is tiny relative to that owned by whites, it's common for would-be "empowerment partners" to borrow most of the money they want to invest, sometimes from the very firms they are investing in. The financial markets and the multinationals don't like this very much. Corporations that acquire highly leveraged "empowerment" investors get kudos and government contracts, but their share value tends to plummet dramatically. Heavy demand for their capital has benefited the rich black elite, but the BEE strategy has not (yet) succeeded in drawing poor blacks into the "First" economy in the very large numbers needed to make a dent in South Africa's massive poverty and unemployment. The endemic weaknesses of affirmative action programs — entitlement sensibilities, frictions between beneficiaries and non-beneficiaries, rapid promotion of inadequately qualified staff — are already creating debate among policy intellectuals here about sunset provisions for these programs.

Mbeki certainly didn't invent the "two economies" idea, or even the phrase, but his public endorsement of it created something of a stir. Commentators here criticized the concept on a number of fronts. It tends to re-racialize an issue whose post-apartheid basis is (in principle) class; it's part of what some observers see as an Mbeki-led trend toward re-racializing South African political discourse. As rhetoric, the notion lets the government explain away its failure to overcome persistent, and in fact increasing, poverty. Gloomier pundits read it as ANC preparation for a more direct state intervention in the economy. Finally, some said, this language tends to constrict thinking about the "Second" economy, since it suggests fighting poverty by progressively converting the second economy into the first — rather than finding creative ways to improve living standards within indigenous economic traditions.

There's something to all of these criticisms. Yet there's an intuitive power to the idea that simply can't be denied. As a middle-class white American, it's impossible to live in South Africa without staring the "two economies" in the face. As a historian of technology, it's impossible to ignore the ways these economies are built into everyday life here. The two economies aren't just about money and property. They are very definitely about race and ethnicity, as well as class. They're embedded in two parallel, interconnected sets of infrastructures, and in two sets of expectations about the role of technology in work.

For us, daily reminders of the Second Economy come in the form of two human beings: Henrietta, the Zulu housekeeper we inherited from our landlady, and Nolizwi, Luka's Xhosa nanny. (I've left out their last names to preserve anonymity.) We've learned more about South Africa from them than from anyone else. On her monthly half-time salary of R1200 (about $200), 45-ish Henrietta supports her elderly mother. She also supports her 10-year-old grandson Siphosihle, who takes antiretrovirals for the AIDS he contracted from his mother (Henrietta's daughter), who died of the disease a few years after he was born. 27-year-old Nolizwi supports her arthritic mother, her own daughter, and her two sisters on R2500 (about $420).

At double to triple the minimum wage, these are handsome salaries by South African standards. What we pay Nolizwi is about as much as a professional nurse earns here; nonetheless, with food prices at about 75 percent of US levels, the margin between these salaries and bare subsistence is paper-thin. Both Henrietta and Nolizwi tell horror stories about their former employers, who expected 16-hour days of hand-and-foot service for R500 a month. The luxury of cheap domestic help is a trope of conversation among Euro-American expats here. Between 1 and 1.5 million South Africans, almost all of them black women, are domestic workers — a huge chunk of the total workforce.


Tshikotommbi said...

thanx for the wornderful article. if i may ask, what do you suggest the south african government should do to bridge this gap?

Noluthando said...

I will be doing a presentatin on the two economies of South Africa and I must admit that your article has been enlightening and has changed my perspective on our economy.Theres no use in bieng ignorant cause that will noy make a difference.Thanks again