The welfare state has not worked! SA needs an entrepreneurial state

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File image: IOL

25 years after the dawn of democracy, South Africa has become the most economically unequal society in the world. The top 1 % of South Africanʼs population owns 70.9 percent of the nationʼs wealth. The bottom 60 percent of South Africans collectively control only 7 % of the countryʼs assets.This is according to a 2018 World Bank report into Poverty and Inequality in South Africa

The economy is not growing, it is instead contrasting. Violent crimes and gender-based violence against women are on the rise, unemployment sits at 29%, that is to say at least 10 million South Africans remain unemployed. Our State Owned Entities (SOEs) are struggling to keep afloat, there is widespread corruption and massive looting of state institutions. Irregular expenditures, incompetence and mismanagement have become the order of the day in our public institutions.

This is despite all the tremendous efforts that have been since 1994 to build a strong welfare state that is responsive to the needs of ordinary people. For example, amongst all the 54 recognized states in Africa, South Africa is the only country with a social grant system (administered through the South African Social Security Agency).

Moreover, South Africa makes provision for free state funded basic and higher education, state subsidized water and electricity and many other social support programs. This begs the question, why has there been a failure to address poverty and unemployment in the country ?

Those from the liberal tradition blame the centrally planned economy. They argue that the state must only play in the economy in so far as fixing market failures is concerned. That the state must must only protect private property and enforce contracts between two or more parties. They blame the state for the poor economic performance and for the staggering unemployment rate. The argument in this regard is to say that the state must also refrain from regulating the employer-employee relations. The attack is on government labor policies such as the Minimum Wage Act.

Those from the left armed with theory and conspiracy theories blame the so called greedy white monopoly capital for the countryʼs socio-economic issues. This camp argues in favor of the nationalization of commercial banks and mines and the expropriation of land without compensation thus putting it under the custodianship of the state.

For this camp, the solution lies in extreme redistribution of wealth whereby wealth is expropriated from the wealthy and given to the poor and the historically marginalized on a silver platter. However, thorough and honest analysis will reveal that the solution lies in neither of the policy direction proposed by the two camps.

In fact, honest interrogation will show that the past 25 years of the ANC government extreme wealth redistribution programs put us where we are today. Our citizens have become heavily reliant on the government for free bees and handouts. Those who are politically connected have developed a sense of entitlement precipitated by the BBBEE government policies.

You don’t have to take my word for it, just look at the millions and billions Rands of owed to the power utility (Eskom) by townships like Soweto and the various municipalities across the country.

The wealthy citizens of country withdraw their investments, others have taken their money into safe havens as result, investments have dropped mainly because no one can invest with the threat of losing their investments into expropriation without compensation. People invests because there is a qurantee of returns on their investments. There is a crisis of policy uncertainty in the country!

The unintended consequences of the welfare state has been the creation of consumerists, institutionalized corruption and a heavily government dependent citizenry.We become a nation of people who consume without producing. There are others of course who want overlook this fact and find comfort in blaming apartheid and “white monopoly capital”.

The welfare state has not worked, neither will a market-oriented society that will commodify every aspect of our lives workout. What we need is an entrepreneurial state. A state that will not only play a role in fixing market prices and market failures but also invest into innovation and technological development.

If we are to address poverty and unemployment as a country, our state or should we rather government will have to invest more into our education sector, into research and development and build a strong infrastructural system. There is a reason why the US is a world economic powerhouse. And that is not wholly due to the intellectual and innovative minds of people like Steve Jobs, Jeff Bezos and Mark Zuckerberg nor any of their predecessors as we are often made to believe.

The US government has since time immemorial played an entrepreneurial venture capitalist role in the economy. The Apple company for example, not only owes its early research funds to the Small Business Innovation Research (SBIR) programme but also indigenously made use of publicly funded technology to create smart products. Moreover, the algorithm that led to Google’s success was funded by the US state agency particularly the Defense Advanced Research Projects Agency (DARPA).

It was the US state agency, NASA to be more precise that landed the first person on the moon. Needless to mention, the significant contribution made by the US government in funding the computer and internet revolution.


Lehumo Sejaphala is a law student at University of the Witwatersrand. He is also a blogger (lehumosejaphala.wordpress.com), founder and Editor-in-chief of an online publication called the Voiceless (thevoiceless.co.za).