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Privatisation the debate

Over the past few months there has been a fierce debate about what kind of economic policy South Africa should follow. At the heart of this debate is the question of whether to privatise the big state corporations or whether they should remain nationalised. It is important for us ail — not only politicians and economists — to understand what this debate is all about. In this story Learn and Teach deals with the "nuts and bolts" of this debate.

The first part of the story is about the ownership structure of the South African economy at present. The second part contains an interview with Bobby Godseil from the private sector, and Floyd Mashele from the labour movement. Both tell us about their respective "camp's" views on this topic.

The South African economy consists of three main sectors

  • big state-run corporations, called the public sector or nationalised properties

  • privately-owned businesses — or the private sector

  • co-operatives and other small businesses in the formal and informal sector.


The private sector established big corporations such as the Anglo American Corporation (AAC), Sanlam, Rembrandt Group and SA Mutual. These four are the largest privately-owned businesses and together they control more than 80% of this sector's assets.

Anglo American, for example, is involved in gold and diamond mining, banking, insurance, properties, and so on. Its assets include shares in the two mining giants, Gold Fields of South Africa and De Beers Consolidated Mines; First National Bank, Southern Life Association, Holiday Inn hotels, OK Bazaars, Argus Printing and Publishing, the Carlton Centre complex, and many other businesses.

The bulk of profits from these businesses go to the owners, the directors and the shareholders.


The public sector dates back to the beginning of this century. Between 1910 and 1950 the state established large corporations that provide essential services such as transport, electricity, atomic energy and petrol, education, health and social services and so on.

Among the firms which supply these services are the Electricity Supply Commission (ESCOM); SASOL; Iron and Steel Corporation (ISCOR): South African Transport Services (SATS), which includes the South African Airways (SAA) and the South African Railways and Harbours (SAR&H); the Atomic Energy Commission (AEC) and the Fisheries Development Corporation.

The government ran these nationalised properties "on behalf of the people" and used the income it got for building public schools, roads, hospitals and so on. We know, however, that the government used most of the money for the benefit of the whites. It also used the income to promote and maintain apartheid structures by building separate facilities. It spent millions on the security forces and on running the homelands and the tricameral parliament.


From the mid-1980s, the South African economy began to grow very slowly. There were many reasons for this — among them are the lack of new investments as overseas firms pulled out of South Africa because of apartheid and sanctions. Everybody — the state, the private sector and the people were hard-hit by this ill-economy.

Increasingly, the government found it difficult to meet its obligation to provide goods and services to the public. To try and get more income, the government increased tax and borrowed money from the world banks and other countries. Even so, it could not get as much as it wanted.

Finally, the government began to think seriously about privatising. In 1987, it released a document called "Privatisation and Deregulation in the Republic of South Africa". From then on, the wheels of privatisation started to roll — and are still rolling.

Privatisation is carried out in a number of ways. One of the most common ways is to sell corporations off to the private sector. If the state sells off all of its nationalised corporations, it will get about R70 billion. The government will then use part of the money to pay off its debts.

The private sector supports the government's privatisation strategy. There is, however, strong opposition from other people — especially from the giant labour federation, the Congress of South African Trade Unions (COSATU) and its affiliates.


Bobby Godsell is a man with many portfolios. He is the director of the Anglo American Corporations' Industrial Relations and Public Affairs, Office of the Chairman; Chairperson of the Manpower Committee of the South African Chamber of Commerce; he holds the Portfolio of Labour Legislation of the South African Employers Consultative Committee on Labour Affairs; he serves on the Economic Advisory Council of the State President and he is the Vicepresident of the Chamber of Mines.

Learn and Teach: Perhaps we can start off by asking you if your views represent the majority of people in the private sector?

Godsell: First of all, let me say that the private sector is not a movement. It is really the many thousands of businesses that are privately owned in the country. On many issues, the people in the private sector do not agree. So, I cannot say that I am speaking for the private sector as a whole. I can only give you the broad views of Anglo American. Anglo American has two goals — firstly, to have an efficiently-run economy so that we can create as much wealth as possible and secondly, to have a fair distribution of wealth to all South Africans.

The question of whether to privatise or not is a relevant one. But the real question is how we can best achieve the creation of wealth and its fair distribution. This is what all South Africans should be asking themselves. Privatisation and nationalisation are not goals but the means of achieving the goals.

It is well known that you are in favour of privatisation. Do you support the privatisation of all state corporations?

I support privatisation because I believe that the private sector runs businesses more efficiently and productively. However, I also believe that there are businesses that should be nationalised.

Businesses that can be nationalised are "natural monopolies". The police force is an example of a natural monopoly. Any country needs a police force and I believe it is the government's job to provide the country with security. That is a pure case of public-ownership.

Electricity is another example of a natural monopoly. Imagine if 15 firms were to compete for the supply of. electricity in Soweto. There would be 15 sets of cables; 15 sets of trenches and so on. That is not practical. So I would say that ESCOM can remain nationalised.

But, it would also be possible for electricity to be privately owned and supplied — provided that one company supplies an area. You can't have many companies all supplying the same area.

Steel production is not a natural monopoly and I would argue that the privatisation of ISCOR was correct. In South Africa, there are two major steel producers — ISCOR and Highveld Steel, which is owned by Anglo American. I believe that these two companies should be left to compete with each other.

Why do you think competition is so important?

Competition is the best way of protecting the interests of the consumer. If the consumer does not want to buy from Highveld Steel, for example — perhaps because the person does not like Anglo American, or because of high prices or low quality — they have a choice.

One should not undermine people's right to choose. I went to the German Democratic Republic — East Germany — a few years ago. There was nobody without employment, there was no inflation and the health services were good. But the people did not vote for the Communist Party in the recent elections. One of the reasons why was because they wanted to have choices — which they did not have under 40 years of communist rule.

Many people have said that if health services are privatised, the majority of people would not be able to afford them. What is your view about health services?

I believe that it is the government's job to provide good health services for the poor and to train doctors. At the same time, however, there is no need to stop private practices. So, I support a case for nationalised health services while at the same time saying private services should continue.

You spoke of the protection of the consumer. How do you protect consumers if ESCOM is nationalised?

Public-owned corporations should have a board on which representatives of the state, the employees, and the consumers will sit. In this way all the relevant interests will be represented.

What do you say to the argument that privatisation leads to rationalisation, which usually leads to retrenchments?

Any organisation has to run itself in an efficient way. One of the ways is that you don't employ more people than you need. If you employ more people than you need, some of these people won't contribute and you will have to get the money to pay them from somewhere. This is a law of life.

But workers have also been retrenched because of the decline in the economy, shrinking of profits, expensive mining and the low price of gold. Rationalisation and retrenchments are also carried out for this reason.

It is not a good thing, for anybody, to lose a job. I believe that retrenchment should be made difficult in all businesses. There should be detailed and strict procedures for retrenchment. No person should lose his or her job without the employers demonstrating that they have tried everything possible to save the person's job.

The goal of creating wealth, as you have described, is a long term goal. In the short term, what do you think should happen to meet the people's expectations and to maintain political stability.

I understand that there are a lot of expectations and that something needs to be done. I would also like to see the situation changed. I fully support the upliftment of people and in that respect, I agree with the goals of the Freedom Charter and socialism.

However, we must remember that there is no short-cut to social progress and wealth-creation. You cannot pass a law to create wealth. In South Africa we will have to make the economy grow at least five times if we are to make it possible for more people to benefit.

At present a lot of government spending goes on middle class people. That should stop. The present government should enter into negotiations with key political organisations, trade unions, and social welfare services, and explain to them what its aims about the economy are. It is important that everybody has a clear understanding of the government's position.

In a future South Africa, the democratic structures such as a democratic government, the trade unions and management should come together — with the two goals in mind — and decide how best to achieve these goals. I also believe that the government should help the poor people through a sensible distribution policy using the tax-payers money. It must develop public works programmes for the unemployed.

However, I do not support the use of public funds to employ people when they do not have any jobs to do. The fact that the National Party did it in the past does not make it right.


We spoke to Floyd Mashele of the Post Office and Telegraph Workers Association (POTWA) about the labour movement's views on the economy. Floyd is the second national vicepresident of POTWA and is also on the union's Campaigns Committee. In addition, he is the National Coordinator of COSATU's Antiprivatisation Committee.

Learn and Teach: What is COSATU's view of South Africa's future economic policies?

We are looking forward to a mixed economy in which the public sector, the private sector and the co-operatives will have a role to play.

It is well known that COSATU supports the nationalisation of essential services and is against their privatisation. Before we talk about privatisation, can you tell us why COSATU supports nationalisation?

First of all, I should repeat that we want a mixed economy. We are not talking about nationalising every business or corporation, only the big state-run corporations. We support nationalisation because we believe that these corporations can help the new government deal with inequalities and provide services at a low and reasonable rate.

In this country, black people have been disadvantaged for over 300 years. The little land that we had was taken over by force and by laws such as the 1913 Land Act. Black people earn low salaries; they do not have enough education or skills. The rate of unemployment among blacks is high. About seven million people live in shacks in the Pretoria, Witwatersrand and Vereeninging area alone.

In the short term, we need to create 450 000 jobs a year if we are to keep up with the population explosion. We need at least 850 000 houses in the black areas, and several schools, hospitals, creches, roads and so on. To create these jobs, schools, hospitals and so on, the state needs the resources that big nationalised corporations can bring. The trade union movement is prepared to look at other ways of getting resources. If there is any other effective way, let us have it!

What do you say to the argument that nationalised industries are inefficient and unproductive?

The government's concern has never been to run them efficiently and in a business-like manner. They were run according to apartheid principles of giving jobs to "arm en ongeleerde boere" ("poor and uneducated Afrikaners").

We are not convinced that enough has been done to make those services run efficiently and productively. We should be looking at how we.can make nationalised corporations efficient, instead of just saying "It can't work!". It is also NOT true that private companies are always efficient. Take for example, the telephone company in Britain called British Telecom. This corporation was originally state-run. It was then sold to the private sector. Soon after it was privatised, the corporation became inefficient. Finally, the British government had to intervene in order to make sure that services were provided.

The Soviet Union and other Eastern European countries are said to be moving away from nationalisation in favour of privatisation, yet the labour movement in South Africa wants to nationalise.

We can only learn from what happened in other countries and be wise enough not to commit the same mistakes. What happened in Eastern Europe and the Soviet Union does not have a direct influence on us. Conditions in those countries are different from ours and their reasons for moving away from nationalisation may not even be the same as the South African government's reasons.

We want to emphasise that nationalisation in our conditions is aimed at giving resources to the state in order to be in a position to deal with apartheid injustices. The Soviet Union and other Eastern European countries did not have a system called apartheid.

Let us turn now to the question of privatisation. Why is COSATU against privatisation?

Privatisation will affect the lives of many people and we say it should be stopped until a new and democratic government is in power. The National Party is not representative of the majority of the population and therefore has no mandate to carry out such an important decision on our behalf.

Workers protesting against privatisation We are opposed to privatisation because we know that once these services are taken over by the private sector they will be run for profits. The aim of the private sector will be to get "good results" — this means high profits — so that their shareholders can be paid high dividends.

Many of these public services are monopolies or near monopolies. In a situation where a profit-making business holds a monopoly the easiest ways of getting more profits is to raise prices of goods and services. If, for example, ESCOM is privatised and electricity goes up, many people will be without electricity. The same with the hospitals — many people will not be able to pay the high fees that private hospitals charge. Privatisation, therefore, in this case, is a ticket to poverty for ordinary people.

We need economic growth and wealth creation so that people's lives are improved. How do you think this can this be achieved?

We believe that in a new political situation, there will be much less conflict between the labour force and the bosses. As a result there will be fewer strikes, fewer stayaways and so on. So, fewer working hours will be lost.

Secondly, once apartheid goes and sanctions are lifted, more foreign companies will be prepared to invest in South Africa. More factories and industries will be built and more people will get jobs.

However, we must realise that wealth creation is not always within anybody's control. For example, if the price of gold goes down, mines are closed. This has a bearing on wealth creation and economic growth.

What is your position in relation to workers buying shares in corporations that are privatised?

The selling of shares to the workers is a strategy aimed at weakening and dividing the labour movement. Once workers become shareholders with an interest in profit, they may be opposed to worker action such as strikes and marches. So in the end, worker shareholders will benefit the bosses, not the workers.

In any case, those corporations cost billions of rands and no worker will ever be able to buy a big number of shares. Where in the world have you seen a person holding one share influence the policies of a company? Those workers who buy shares won't have any influence over the policies of the companies, only people with thousands or millions of shares will.

Why do you think the state is privatising?

That is a very important question. Privatisation is happening at a time when great political changes are happening and many people are looking forward to the birth of a new and democratic South Africa.

So privatisation is a well-calculated political strategy. Its aim is to make sure that a new government will not have any resources. This will mean an economically weak government from the word "go". This is what happened in Namibia where the government does not own anything of significance after big state corporations like the Namibian Railways were privatised — just before independence. This is what the government and big business would like to see here!

What steps have you taken so far against privatisation?

In May this year, we met with the Ministers of Mineral and Energy Affairs, Dawie and Wim de Villiers, and presented COSATU's position. We told them that we as workers are not prepared to bear the brunt of a shortsighted restructuring programme designed to rescue the government from its financial crisis.

In addition, we have voiced our dissatisfaction by marching and giving our views to the authorities in the form of petitions and memoranda. Our protests have helped. But now the government has started a new strategy of privatising "behind closed doors" and not in public as they did with ISCOR.

As far we are concerned we will fight against privatisation with all the means at our disposal. To those who will be buying the state corporations, we are saying that they must know that we are going to make sure that all the privatised corporations are returned to the people even it means renationalising them!

To our trade union members, we say that they should mobilise to make sure that none of the state-run corporations get into the hands of the private sector. We must push for our democratic right to have a say in what happens to these public properties.


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