The case for US investment in South Africa

IT has become increasingly common for people to show their strong opposition to apartheid in South Africa by demanding that various institutions sell all of their stock holdings in any company that invests in that nation's economy. Too often, these demonstrations have ignored the many implications of such actions. To clear the air at the outset, it is apparent that virtually every United States participant in the debate on investment in South Africa quickly agrees that apartheid is an evil system, with no redeeming virtues. That is not the issue. The controversy relates to whether US private investment in South Africa helps or hinders the process of moving the South African society away from apartheid.

The supporters of eliminating US investments in South Africa present a very simple and direct case: The very act of putting money in South African business props up that nation's economy and buttresses its racist political system. Therefore, if enough American companies threaten to pull out, that will force the South African government to eliminate apartheid.

A variation of that argument is that, if enough investment funds leave that country, its economy will collapse and the minority white government will be overthrown. Thus, the opposition to continuing investment in South Africa is, in effect, a counsel of despair -- things have to get worse before they can get better. Given the entrenched position of the minority white government and its nearly totalitarian control over the black population, it is hard to see this approach leading to improvement for many years.

Opponents of divestment present a more optimistic alternative. They contend that, right now, the status of many blacks in South Africa is improving because most US companies doing business there have abandoned apartheid and are demonstrating how well companies perform in a nondiscriminatory environment.

Companies that account for a large majority of the local employment of US businesses in South Africa (including Exxon, IBM, and Citicorp) have agreed to abide by a common set of principles. These requirements, developed by the Rev. Leon Sullivan of Philadelphia, are substantial; company adherence is audited annually by the consulting firm of Arthur D. Little Inc. The six Sullivan Principles include integrated workplaces and eating facilities, equal pay, fair employment practices, and special educational, training, housing, and health programs for nonwhite employees.

Considerable detail is attached to each of the Sullivan Principles. For example, the companies pledge to desegregate all comfort facilities, eliminate all signs specifying race, recognize unions of black workers, establish management development programs for blacks, and support the elimination of laws establishing racial discrimination in industry. These companies have spent more than $100 million outside the workplace to aid their employees and others in the black community.

An ironic aspect of the controversy over US business investment in South Africa is the nature of the opposition in that country from the extreme right as well as the extreme left. Those advocating the violent overthrow of the existing order want to see that nation destabilized by the exodus of US companies. What is far more revealing is the opposition by the firmest supporters of apartheid. The latter view US companies as leading South Africa to economic and social freedom and thus to the multiracial society that they oppose so vehemently.

In striking contrast, some of the strongest supporters of American investment in South Africa are the leaders of the black workers, who share the tangible progress that is being made -- in the midst of an otherwise difficult situation. We need to note that the Sullivan Principles call for the signatories to set up wage and salary ranges which, at a minimum, are ``well above the appropriate local minimum economic living level.'' Chronic labor shortages will continue to increase the demand for nonwhite workers. Thus, further economic progress for blacks is likely under present circumstances.

There is another aspect of the opposition to business involvement in South Africa that is worrisome. I am referring to the implication of adopting the same moral approach on a broader basis. For example, some conservatives are now urging companies to stop doing business with the Soviet Union. To support their case, they point out the many people who have perished in the gulags, the USSR's extensive use of slave labor, and the brutal occupation of Afghanistan. Others urge curbs on business dealings with many Arab countries because they discriminate against women and Jews.

We need to face the fact that restricting private investment to nations whose regimes we all approve of is neither practical nor effective. Trying to follow this approach on a comprehensive basis would lead people to sell their shares in companies doing business in most parts of the world. But, on reflection, a modern economy cannot operate if each of us insists on imposing our own foreign policy views on the rest of society by forcing economic transactions through a political filter. Moreover, countries we disapprove of will not be hard pressed to find other trading partners. Thus, pursuing a strategy of disinvestment means giving up both our business interests and any practical leverage that we may have had for effecting social progress.

A former chairman of the Council of Economic Advisers, Murray L. Weidenbaum is now director of the Center for the Study of American Business at Washington University in St. Louis.

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