The parallels between South Africa and the US: The role of business leaders if we want to change course

South Africa only began its transition from apartheid in 1990 when it became politically unsustainable to govern a country that worked for a small portion of the population. In the US, we’re at the cusp of reaching that milestone. 

When we moved to South Africa in 1991, apartheid had just been abolished. South Africa at the time looked like a country in western Europe. It offered excellent education and the best healthcare in Africa… that is if you were White, of course. I saw this difference when I attended a Black school that year - we learned little, teachers were mostly absent, and students knew that it didn’t matter much whether they attended school. The difference was stark when I moved to a White school later in the year - it had a library and heating. Students could afford to think about which college to attend. 

Even when the rest of the world condemned the human rights violations, locally there wasn’t reason enough for change. The status quo was working well for the White population in power. What finally sparked change was when the global sanctions began to take effect and foreign investment dried up. As the economy began to stall, the system no longer met the needs of the White population. It became clear that the inequality was no longer sustainable and it led to a political mandate for change. 

The events in the US today show that our inequality has grown to a point that it is no longer sustainable. Reminiscent of South Africa, police brutality is commonplace even as the government has persistently portrayed it as a few bad apples that give law enforcement a bad name. The protests have helped expose how often police use excessive force. Police brutality, however, was only the spark that set the situation alight. 

The pandemic has unmasked that our first-world systems are designed for the well-off minority (much like in South Africa in the ‘90s). The inequality in our healthcare system has resulted in a disproportionate number of casualties in Black and Latino communities. This was compounded by the fact that Blacks and Latinos made up a larger percentage of essential workers, although their work environment has mostly treated them as expendable. Meatpacking plants that employ a large number of Black and Latino people have been deemed essential and are required to stay open. Yet, the employers aren’t mandated to even disclose the number of COVID cases in their facilities. The protests sparked by George Floyd’s killing are the result of pent up pain and anger from a long history of systemic inequality that's now becoming more visible. 

The inequality in the US has now grown to the point that it’s beginning to affect the economy for the White majority. Between 1983 and 2013, White households saw their wealth increased by 14% while Black and Latino household wealth declined by 75% and 50% respectively. In 2013, the median household wealth of Black and Latino families was $11,000 and $14,000 respectively, compared to $134,000 for the median White family. In the US, 70% of the economy is driven by consumer spending. As a result, as the wealth inequality persists and Whites become a smaller portion of the population, the wealth decline among the minorities will have an increasingly visible effect in slowing consumer spending and therefore economic growth in the US.   

The wealth disparity has also created an achievement gap between races that has cost the U.S. economy more than all recessions since the 1970s according to a McKinsey study. If the achievement gap between low-income students and their wealthier peers had been bridged by 2008, they would have added $670 billion in GDP. In essence, the achievement gap is slowing GDP growth. An IMF study backs this trend finding that countries with high levels of inequality showed slower growth than countries with more even income distributions. The same study also found that inequality makes growth more volatile and creates unstable conditions for a sudden slowdown in GDP growth.

What we can do as business leaders

As business leaders, we hold enormous power (and responsibility) in shaping this change both politically and in how we affect our employees' lives. Recent posts by companies about solidarity with Black Lives Matter seem increasingly like an effort to abdicate responsibility when they don't say what leaders and organizations are changing in practice. Here are three things that we can do in true solidarity with the Black Lives Matter movement: 

1. Dismantle inequality in employment: A rarely discussed issue is the importance of ending the practice of asking candidates if they’ve ever been arrested or have a record. According to a study published in the journal Crime and Delinquency, the discretionary leeway in policing has meant that half of all Black men in the US have been arrested at least once by age 23 and the vast majority of these are minor offenses with the most common one being “disorderly conduct”. We contribute to systemic inequality by excluding those with a record from applying for jobs.

We can also reduce the income inequality in society by creating an inclusive culture where we hire, value, retain, and pay people of color equally. In the tech industry, 68% of executive leaders are White men, 19% are White women and 4% are women of color. We must invest in inclusion training and promote people of color. But in doing anything we have to examine why we’re doing it. The same actions will feel like charity if we’re pandering to the problem and feel that we must fill the numbers. However, if we’re deliberate in our intent to change the status quo because we find the status quo unacceptable, our actions will lead to progress. 

2. Stop the practice of stock buybacks: In 2018 companies in the S&P 500 spent $806 billion on stock buybacks that benefit executives and shareholders. A large portion of this was funded by the Trump administration’s Tax Cut and Jobs Act of 2017. The tax rebates that have driven our profits and stock prices have been funded by cuts to social safety nets that disproportionately affect minorities.

When buybacks aren’t funded by tax cuts, they heavily rely on corporate debt. 30% of the funding for buybacks in 2017 came from corporate debt according to JPMorgan Chase. The result is the current corporate debt bubble that has ballooned to almost 50% of GDP. According to S&P, BBB rated bonds (two notches above junk) make up 53% of the total investment-grade debt pool compared to 17% in 2001.  

To keep market liquidity and prevent a collapse reminiscent of 2008, the Fed announced that it would buy up to $2.3 trillion in debt from the U.S. market - this includes debt from firms that were downgraded to junk after 22 March. With declining earnings, many of these corporate BBB bonds will turn to junk. The federal deficit that results will eventually require balancing by increasing taxes and reducing social spending, both of which will disproportionately affect minorities. Stock buybacks essentially amount to wealth redistribution: taking from the poor and giving to the rich.

3. Support fair labor practices: The weakening of labor regulations has resulted in a larger income divide. Businesses outspend unions on lobbying at a ratio of 16:1. The result is that Congress has passed tax cuts but the federal minimum wage hasn’t changed in over a decade and is still $7.25 per hour ($2.13 an hour for tipped workers). According to MIT’s Living Wage calculator, even in Harlingen, Texas, which has consistently ranked the cheapest place to live in the US, the federal minimum wage isn’t enough to live on. 

The tech industry has also contributed to discouraging unionization for low wage workers. For example, Facebook Workplace allows administrators to block trending topics among employees - their demo showed how it suppresses words like “unionize” in their Workplace Chat. You can create change by paying living wages and discouraging practices that intimidate and prevent workers from unionization.  

Unless we take action and make meaningful changes, we’re contributing to and preserving systemic inequality similar to apartheid. 1990 was the year South Africa began its transition from apartheid. Let’s mark 2020 as the year we begin our vision-driven transition to a more equitable country that works for all.