Microsoft Word 6-057 a gentler Capitalism Final version June 2006. doc

 

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This segregation policy, which also means protection and care for the 

Native in the land of the Afrikaner, but decisively rejects any attempts at 

equality, gives the Native an opportunity to develop what is his own, so that he 

can have pride and self-respect as a Native, instead of being continually 

humiliated as a failed and imitation white.

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The oppression of blacks under apartheid was “politically, economically, and 

ideologically” brutal. Anti-apartheid groups mounted vigorous political resistance, and 

over time, armed struggle. After decades of oppression and unrest and growing 

international sanctions, South Africa finally emerged from apartheid in 1990 when 

Afrikaner President F.W. de Klerk repealed the major laws that legislated almost every 

aspect of the lives of black people and released Nelson Mandela, the literal and symbolic 

leader of the resistance movement, from prison after 27 years of incarceration.  President 

de Klerk’s actions set the stage for a new and radical transition of power in South Africa. 

Mandela was elected President in 1994 with 63% of the vote in the country’s first 

free elections on a campaign slogan of “A Better Life for All.”  Under Mandela’s 

leadership, South Africa achieved what many viewed as a political miracle: averting civil 

war and uniting a divided nation of people and cultures.  South Africa adopted a 

constitutional democracy in which equal access and treatment for all South Africans were 

guaranteed and human and property rights were protected.  After decades of white-only 

rule in which a minority (11%) of the population controlled virtually all of the country’s 

wealth came the promise of economic opportunity for all (see Exhibit 1 for key South 

Africa demographics). 

President Mandela and the ANC were elected as part of a fragile coalition 

government in a post-Cold War environment. Although a violent revolution was averted, 

the new ANC government recognized that the liberation movement, which succeeded 

with aid from COSATU and SACP, the trade unions and the communist party, would not 

remain patient in the face of one of the most inequitable distributions of income in the 

world.  The ANC promised free education for all, a million new homes over five years to 

help combat the country’s acute homeless problem, and the extension of electric and 

water service to millions of homes.  Once in power, however, the ANC found itself in a 

quandary.  Many hoped the ANC, with its socialist roots, would favor nationalization and 

the radical redistribution of wealth.  After consulting with their traditional constituencies 

and international financiers, however, Mandela’s government adopted a tight fiscal policy 

intended to stimulate long-term growth through debt reduction and decreased inflation.  

Their macroeconomic strategy was characterized by privatization, deregulation, fiscal 

austerity and trade liberalization to encourage domestic and foreign investment.

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    This 

decision was not without controversy; some accused the government of abandoning its 

social agenda.  Even more, these measures left the government with limited funds for 

social programs.

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11

 See 

www.cchr.org/racism/pasa1.htm

 (Citizen’s Commission on Human Rights). 

12

 R. Vietor, “South Africa: Getting in GEAR.” Harvard Business School No. 9-798-012.  

13

 A. Sampson, Mandela.  New York: Alfred A. Knopf, 1999, p. 471. 

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Black Economic Empowerment 

 

The South African economy was once again opened to the outside world, but with 

the end of apartheid and the associated trade embargos and sanctions

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, many companies 

were ill-prepared to compete in a global economy with its demand for efficiency and 

innovation.  The economy had suffered years of serious decline towards the end of 

apartheid (real GDP per capita was negative between 1984 and 1996). 

The government understood that the damage done to the non-white communities 

under apartheid would not be easily repaired.  The majority of the population was 

uneducated (60% of adults had not attended school), owned no property, and held 

extremely low-wage jobs.  The new government adopted policies to broaden the 

economic participation of blacks within the constraints of a free market economy.  An 

analogous transformation occurred fifty years earlier in 1948 when the Afrikaner-

speaking National Party took control of the government from the English-speaking

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United Party.  As in that previous transformation, the new ruling party quickly perceived 

that a transfer of political power did not result in a transfer of economic wealth.  As one 

Afrikaner executive remarked, “The process the country is going through now – other 

than the fact that different people are involved – is not much different from what 

happened here in 1948.  There was a change in the controlling elite, but very little else 

had changed.  My father lived in a house that looked like a squatter shack – no different 

from the house that Irene grew up in.”  To improve the economic conditions of 

Afrikaners and integrate them into the mainstream business community, the Afrikaner 

government instituted, in the early 1950s, what in contemporary times would be 

considered an affirmative action program for Afrikaners.  By the time apartheid 

collapsed, the South African government controlled a larger share of national economic 

activity than any other country outside the Communist bloc.  They used this control of the 

country’s assets to advantage whites.

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In 1994, whites owned virtually all businesses and held all but a handful of 

management positions in South Africa.  To avoid government intervention, English-

owned

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 and Afrikaner-owned corporations responded to the new political climate by 

participating proactively in what was termed Black Economic Empowerment (BEE). 

BEE consisted of a number of initiatives to increase the participation of previously 

disadvantaged individuals (including blacks, women, and the disabled) in the formal 

economy through company ownership and management. The national government 

believed historical inequalities in the economic arena needed to be addressed for South 

Africa to achieve sustainable development and prosperity.  Incentives were introduced to 

                                                 

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 For example, in 1986, the U.S. extended its trade sanctions to ban the import of coal, steel, uranium, aluminum, iron, 

agricultural products, and textiles.  The U.S. also banned the export of oil, arms, and munitions with a prohibition on 

“new investments in and credits for South Africa.” 

15

 South African whites were commonly categorized into two groups – English-speaking and Afrikaner-speaking.  

Afrikaner-speaking whites were descended from the original Dutch settlers of the Cape.  English-speaking whites, who 

on average were wealthier and better educated, were descended from the English businessmen and bureaucrats that came 

to South Africa. 

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R. Abdelal, D. Spar, and K. E. Cousins, “Remaking the Rainbow Nation: South Africa 2002,” Harvard Business School Case No. 

9-702-035.

 

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 In apartheid South Africa, businesses tended to be owned by either Afrikaner-speakers or English-speakers, but not 

both. 

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