Capital Mystries: The De Sototian thesis and the sustainability of South African Agriculture and Forestry SMEs.

ABSTRACT

This article assessed the validity of Hernando De Soto`s postulation that tenure formalisation is the bedrock of successful small businesses (SMEs). This was done with a focus on SMEs in the Agriculture and Forestry sector of South Africa. Based on historical-sociological deductions the article discovered that De Soto`s assumption regarding the benefits of SMEs' formalisation (e.g., asset fungibility) has not fully materialised especially considering the heterogeneity of small businesses regarding their production scale, orientation, geographical positioning, knowledge and technology appropriation etc in rural South Africa. To verify the implications and assumed benefits of business formalisation, 29 interviews were conducted with smallholders; policy makers; small business development managers; and researchers at colleges and universities. Purposive sampling and snowballing were used in the sampling of respondents. The findings indicate that De Soto ignored important issues concerning SME development such as their differentiation, knowledge and skills needs, and linkages with established businesses, and the cultural context SMEs exist (varieties of capitalism Whitely) importance of, hence the lack of a nuanced exposition about their development. The failure to historicise also truncated his ability to capture the path-dependent nature of SME development especially in South Africa emanating from the skewed colonial and apartheid accumulation patterns. This could have been important in the reconstitution of the communitarian principles that governed African societies before colonialism and apartheid and how communitarian values could inform rural SMEs. Hence the a need to understand communal tenure systems under traditional authorities as custodians of precolonial traditional values (Criticise Ingwenyama Trust- Motlanthe Commission Report, 2018). Historicization would also have enabled an understanding of the effects of neoliberalism on SMEs, especially the growth of informal businesses from the 1980s onwards in South Africa. Nonetheless, the article discovered that traditional authorities` dictatorial tendencies in the administration of communal tenure negatively affect the plantation economy in communal areas, hence a call for tenure individuation along the De Sototian lines. Although De Soto`s arguments are reductionist, their wholesale rejection is objectionable as their applicability was confirmed in some contexts but found wanting in many instances. The heterogeneity of small businesses calls for differentiated approaches or an integrated framework that accommodates the various aspects of small business approaches including the sectoral and technological systems of innovation, the grassroots clusters approach, the capabilities approach; actor-system networks; etc. Hence the need to reconsider and locate the De Sototian thesis within an integrated framework informed by tenets from other small business development frameworks.

The current standalone approaches address specific small businesses' issues but fall short of addressing the heterogeneity of small businesses. Within the South African context, critiques of the De Sototian thesis have fallen into the same problem as De Soto himself for not going beyond his prognosis to integrate small business development frameworks and locating De Soto within an integrated framework that considers the heterogeneity of small businesses. An understanding of the applicability of De Soto`s ideas is critical for South Africa`s SME policies have been informed by his ideas. This understanding is important in reframing/refining his development ideas within an integrative model or framework for the formulation of integrated policies and strategies that address the vicissitudes of small businesses to improve their survival rate. This article addresses whether the benefits of business formalisation have been realised regarding small businesses in the South African agriculture and forestry sector. The aim is not just about validating or mystifying the De Sosotian prognosis but going beyond the mere posturing by most of De Soto’s critics to try to locate and recontextualize his ideas with the broader frame of small business development.

Keywords

SMEs, informal, formalisation, tenure individuation, Hernando de Soto