South Africa’s Competition Law Needs a Free Market Rethink
The economy is not a pie – at least, not a limited one.
In South Africa our competition law aims to promote greater ownership in the economy by historically disadvantaged individuals. This objective – which is further reinforced by the Competition Act's public interest requirements for mergers – appears to overlap with the goals of other legislative measures, such as the Broad-Based Black Economic Empowerment Act.
You will find it difficult to locate anyone in South Africa who opposes Black people, a demographic that has historically been disadvantaged, having a greater stake in the ownership of the South African economy. However, the interpretation of this provision is crucial and delves into the core of both the positive and negative interpretations of the law, a topic we unfortunately do not have time to explore now.
As an example of the various interpretations, let us engage in a thought exercise. One interpretation could be that the South African government will no longer actively prohibit Black individuals from owning and operating businesses in areas that were previously designated as
The absence of prohibitions, or more accurately, the removal of state-imposed restrictions on Black individuals – given that Apartheid was a state policy – would be sufficient to satisfy the standard of greater ownership standard outlined in the Act.
Another interpretation is that, in addition to the absence of state inhibition for Historically Disadvantaged Persons (HDPs), the state must take further action to facilitate equity transfers from private companies that are not owned by HDPs to those same HDPs.
In the second interpretation, when state competition authorities evaluate a merger, they will assess whether the acquiring firm has High-Density Population (HDP) ownership. If the firm does not possess HDP ownership, this may influence the decision regarding the approval of the merger.
Since this interpretation is the one adopted by South Africa, it typically leads to mergers being approved with conditions rather than being denied. These conditions often include equity transfers to Historically Disadvantaged Persons (HDPs), either within the company itself or by influencing procurement policies to mandate the use of HDP suppliers for these private companies.
These interpretations underscore the foundational beliefs prevalent in our society regarding the economy and the field of economics itself. The second interpretation, which advocates for some form of mandated equity transfers for HDPs, operates under the assumption that the economy is a fixed pie. Consequently, to achieve this greater ownership for those who currently lack it, the pie must be divided into smaller portions and redistributed to those without ownership.
Yet, the economy is not a pie – at least, not a limited one. It is a constantly growing or shrinking entity, where the prosperity of individuals is not dependent on taking from one person and giving to another. Entrepreneurial activity within free markets enables individuals to thrive without it coming at the expense of others.
This is evident in the fact that there are generally prosperous and non-prosperous jurisdictions. In some cases, living standards in Country A are better than those in Country B, even for individuals who are considered poor in both countries.
The inhibition of entrepreneurial activity among HDPs in South Africa is well-documented, as it has been enshrined in various types of legislation. Nevertheless, even within this stiflingly unjust environment, economic activity persisted among HDPs. Some of the entrepreneurs who emerged during that period continue to influence our political landscape, along with their institutions and businesses.
This demonstrates that promoting greater ownership for HDPs does not have to rely on taking resources from previously advantaged groups, such as white-owned businesses, and distributing their equity to HDPs as a form of charity.
Rather, greater ownership should be encouraged among HDP businesses, which are predominantly Black-owned and founded. These businesses should have the opportunity to operate in the South African market with minimal state interference. The removal of such barriers and the empowerment of numerous HDP entrepreneurs to excel in their endeavours is what competition authorities ought to promote.
There are other pieces of legislation, such as the BBBEE Act and the Employment Equity Act, which govern the aspects that competition authorities mandate in merger conditions. This results in a duplication of responsibilities when competition authorities also seek to actively enforce procurement and employment policies or equity transfers for private companies to HDPs.
Beyond the philosophical assumptions regarding economics that shape our understanding of competition law in South Africa, we must reevaluate the interpretation of public interest provisions from a technical standpoint aimed at eliminating redundant legislation.
Hopefully, South Africa will reconsider this interpretation and adopt one that recognises the capacity of HDPs to create prosperity and manage their share of the economy independently, rather than relying on it being provided to them in any manner.
Zakhele Mthembu, BA Law LLB (Wits), is Policy Officer at the Free Market Foundation.
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Well done Mr Mthembu,
One might add that what has become known as the Anti-Competition Commission should not have anything in its mind nor any powers at all that relate to matters other than competitive behaviour . That is behaviour in markets that keeps prices down and supply plentiful.
Stipulating BBBEE shareholding and Attempting for example, to prevent firms that are merging with others from reducing future staff compliments, does not serve to reduce prices nor increase nor maintain levels of competition. On the contrary, requirements of such nature serve only to maintain or increase prices. Hence one of several reasons for the anti-competition tag!