Sunday, December 11, 2011

The species that killed itself.

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Some 200 000 years ago, a dying elderly female was kept alive by the compassion of her fellow creatures. We know this from palaeontologists who studied her fossilised jawbone so many years later.

Then already, in that small group of creatures that formed part of our prehistoric gene pool, humankind was demonstrating an attribute that was to drive it to become the most majestic and predominant species on the planet – the capacity to take care of each other. It’s a theme I have dealt with before and one that stubbornly and unapologetically informs all of my writing. For I believe firmly that this attribute, the universal human value of love and compassion, has not only made us into a great species, but has the capacity to keep us there, and to offer the ultimate if not only solution to our human problems – on an individual, group, national and global level.

It is more than idealistic rhetoric. It is more than acquired behaviour. The capacity to care is not the result of nurture, but of nature. It is as instinctive as a mother sacrificing her life to save a child; a stranger spontaneously coming to the aid of a fellow being, an inexplicable act of heroism. Scientists say we, more than any other creature or species, are endowed (some may argue burdened) with mirror neurons that create a constant and immediate empathy with the plight of another. Few of us have not felt that urge to extend a hand to someone who has fallen in our presence, or have not felt the “virtual” pain when someone bumps his or her head.

The discovery of these neurons was made only in the late 1990’s and one wonders how Darwin’s theory of evolution would have been written had he been aware of this neurological feature. What makes us distinctly human is not the way we look, walk, eat, or even communicate: it is how we behave. Our ability to put ourselves in someone else’s shoes is our greatest strength.

I have also tried to show in this column, in books and other articles over many years, how this spirit of generosity and of benevolence has underpinned great achievements on an individual, social, political and business level. Of course, the evidence is always anecdotal. One can never with absolute certainty say what really motivated those heroes of the past and present, apart from their own statements. But clearly their achievements were affirmed by the difference they made to others, not by what they got out of it for themselves. Their intention then is irrelevant, but it is doubtful whether they would have achieved what they did without a very powerful, if not overriding motive of making a difference, and if they were so totally self-absorbed that they could not appreciate the needs and wants of others.

Conversely, seldom will you find amongst champions those who flagrantly and exclusively pursued profit, self-gain, recognition and fame. This, according to Abraham Maslow, is not what self-actualisation is about. Indeed, the unbridled pursuit of self-gain and the championing of it as the engine of prosperity have brought humankind to the brink of its own destruction. We can only marvel at our perverted success in being able to ignore such a fundamental lesson that was learnt 200 000 years ago, and to deliberately turn off the mirror neuron switch that accounts for our magnificence in the first place.

It is when one extrapolates individual self-interest to a group, company or country that it becomes muddied and perhaps more invidious. Individual self-gain easily becomes group self-gain sustained and fuelled by a herd mentality, and a facile transfer of accountability. Self-interest becomes national interest and patriotism an excuse to hide individual accountability behind a flag. History demonstrates that some of the world’s biggest crimes and malevolence towards others have been committed under the pretext of “in the national interest”. For most of the perpetrators that pretext means exoneration and unaccountability.

Yet it need not be so. Families can be groups of people with benevolent intent towards others, incubators of generosity and nurseries of moral character. Groups can marshal and extol their members to a greater good, even those that ostensibly are there purely for self-gain, such as labour unions. Companies can and should be the enablers of meaning for those involved in adding value to people’s lives through the product they make or service they provide.

The same principle holds true for countries. The belief that the most prosperous and successful economies are those with a strong national interest bent that see the rest of the world as an exploitable resource, simply does not stand up to scrutiny. Extensive scientific research by the World Bank in the 1980’s revealed that a primary ingredient for national economic well-being was having an external focus. A variety of the latest “prosperity” indicators (admittedly all done before the latest Eurozone crisis) covers many countries that are well known for their national sense of global responsibility.

Gross National Income Per Capita rankings have invariably and fairly consistently included countries such as Norway, Switzerland, Denmark, Sweden and the Netherlands. You will find them too amongst the top in Human Development Indices, Gini income equality measurements, and Gallop Happiness Indicators. Their presence in these rankings may not be absolute proof that having a global social conscience is a must for prosperity, but it certainly shows that the opposite of national self-interest is not the Holy Grail many pay homage to.

There’s been at best only lukewarm commitment by the biggest global contributors to global warming at the Cop17 climate change conference in Durban. At the time of writing, prospects for meaningful common gains by the countries represented were remote. It has been argued that in the absence of an international accord, national interest itself will encourage nations like China to combat climate change, as they choke on their own emissions. Climate change is not geographically selective and most would agree that a concerted international effort is needed for meaningful progress. It is indeed the one cause where national interest has to unconditionally come second.

If taking care of each other is humanity’s strongest claim to majesty, then those talks have been a discouraging reflection of how far we have strayed from our essence. Generosity can never be subjected to a haggle. That is a transaction and while perfectly appropriate in most circumstances, it is highly improper in a forum designed to ensure humanity’s future.

The term “save the planet” already has within it a touch of arrogance. From a cosmic perspective, the planet has little interest in whether it is green, red, blue or yellow; whether it can sustain life or revolve in a solar system as a big barren but beautiful ball. What needs saving is our species.

The further we move away from our qualities of benevolence, generosity and compassion, the less likely we will be able to do that. We could become known to some intelligent force vast distances away in time and space, as the species that literally killed itself.

Monday, December 5, 2011

Blinded by colour.

The three most important dimensions of any activity are: “what”, “how” and “why”.

They also apply to writing: knowing what to write, how to write it and why write it at all. I find the “why” the most distressing. The welcome stipend one gets as a columnist is useful in structuring some discipline to the activity, but my own experience has proved beyond doubt for me that money is a poor motivator – a subject that I have covered extensively before. It brings me back to my definition of “decent work” which is “that which gives a sense of meaning in being able to make a contribution to another”. Purpose is all about meaning, and lasting meaningfulness is seldom found in what we receive, but rather in what we give. The extremely important caveat of this approach is not to be too concerned about the outcome; to be detached from an expectation of making a difference, for that could reflect a need to satisfy one’s own ego.

This brings me to the subject of this article – one which really raises a question whether there’s much point in covering it despite its critical importance. Few things in life suffer from assumptions and preconceptions as much as race, ethnicity and culture do … indeed they are founded on these defects of human behaviour. Writing about any race issue will be either endorsed by a solid group of “converted” or automatically rejected by detractors. At the extreme, one could argue that even a discussion about race is itself racist, which may explain my own discomfort in dealing with it.

It was one of those many and endless TV panel discussions about young black aspirations that made me realise with some shock how destructive and blinding the race perspective is to everyone concerned and to the country as a whole. Emotive phrases and slogans such as “white monopoly capital”, “white wealth tax”, “we want what the whites have”, the “legacies of apartheid and colonialism” are thrown into the discussion as if they are the only causes and solutions to our problems. But all these slogans really do is add venom, emotion and defensiveness to the interaction; narrowing it to one dimension and thwarting any useful outcome. Ultimately they simply exacerbate racial divisions.

This topic has many dimensions and can be approached from a variety of angles, but let’s focus on the ideologies that have divided mankind for centuries – the control and ownership of resources. It is really quite simple: if we could overnight swap the “colour” of the various actors on the economic stage, would the problems disappear? If we could, say, convert all of the “monopoly capitalists” to black, and consign all whites to being poor, would the problems of centralised economic power, income disparities and dismal employment prospects for the youth suddenly evaporate?

By colouring very real profound economic issues with a race dimension, we are not only hindering meaningful solution seeking, but we are trivialising the deep malaise that is confronting not only South Africa but the world as a whole. Being constantly informed by race is diverting our attention and forcing us to look for answers where they most likely do not exist. They will ultimately fail and become totally counter-productive.

A good example is the now generally recognised failure of the original approach to Black economic empowerment. It was thought then that the imbalance in ownership of capital had to be redressed by simply allocating equity ownership to black partners. In the process a new elite was created, instant billionaires appeared out of no-where, and some very dubious practices such as tenderpreneurship were encouraged. We were blinded by colour to one simple truth: empowerment is not about owning things. It’s about doing things.

Empowerment is about making a meaningful contribution to others because that is where our true value lies. The extension of ownership to staff suffers from the same defect. It’s what I previously called the “worker capitalist delusion”. Employee share schemes do little to enable employees in controlling their own or the company’s destiny, largely fail as productivity motivators and certainly have had little effect on labour unrest, flexibility and labour costs. In addition, a large number of people are left out of the empowerment loop.

“Monopoly capital”, whether white or black, state or private is little more than centralised economic power which is of real concern to everyone, and which is the main grievance driving the Occupy Wall Street movements worldwide. The simple fact is that market capitalism whether by Smithian default or by financial manipulation has arguably become socially inefficient.

We can fairly challenge the view that these deficiencies are inherent in the Smithian model. Until about forty or so years ago, the West led by the United States, showed significant reductions in inequality. Then came a substantial dismantling of market controls and deregulation from about the mid-seventies and whether instrumental or coincidental financial markets exploded to reach exponential frenzy in the last twenty or so years. Key “players” (there is a pun in there!) in these markets and share-value driven overpaid corporate executives became the new “capital class” hammering a wedge of income disparity into society. They have joined the more deserving and innovative business heroes of the past, present and future, like biker gangs gate-crashing the church fete.

The real tragedy of the debt ridden economic model of today is that the aspirational dream is dead for a large number of particularly and sometimes highly educated young folk. This may be a prison that they are constructing for themselves, but let’s face it, while becoming a new Steve Jobs or modern day Henry Ford may have been a remote dream in the past, it was kept alive by a belief in hard work and equal opportunity. For most, this dream no longer exists and when the 1% is made up largely of beneficiaries of a financial or boardroom lottery, disillusionment by the 99% turns to stone throwing, street protesting anger.

We cannot ignore the real need to redress economic demographic imbalances. But being blinded by colour to a more fundamental reality is counterproductive. It is also highly dangerous.

Tuesday, November 29, 2011

Red flags on green.

From a small hill within walking distance from my home, I have watched the Breede River wind its way towards the sea, its flow so gentle and imperceptible that its surface mirrors growth along the banks. High above, a fish eagle scans the river’s shallow waters, and its distinctive call adds a touch of nostalgia to the blissful scene.

Three years ago, I saw that same river burst its banks to become a vast expanse of rushing water, carving away precious top soil from many hectares of long established cultivated land and dragging millions of tons of soil and crops to the sea. The middle of its frenzied flow resembled a highway of fast moving giant trees, boats, jetties, geysers, and of course, thousands of plastic containers from large water tanks to small bottles.

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Less than 100 kilometers downstream, the turbulent waters stripped or destroyed the contents of several of the luxurious holiday homes at Malgas, submerging many to roof height, including the estate formerly owned by the infamous Brett Kebble. Most of the once proud possessions were converted into debris and were deposited with contempt by nature on the beach or in the lagoon at Witsand. It was the worst flooding of the Breede River in 100 years, we were officially informed.

I become aware again of one of nature’s most remarkable attributes: its fickle power that at one moment can be reassuring, nurturing, calming, and the next awe inspiring, frightening and intimidating. I had the rather absurd thought at the time that perhaps I had somehow made a very small contribution to its destructive tantrum by some earlier thoughtless “environmentally unfriendly” act.

You hear that a lot these days. “Climate change” has become an inevitable component of virtually all discussions: unseasonal weather, early peach blossoms, packaging, diet, lifestyles, a gnat invasion, company accounting, advertising, branding, car models, a nagging cough and a visit to grandma -- a lot of it probably generating more expedient hot air than CO2 emissions. In public awareness alone, we have come a long way since Al Gore’s Nobel prize winning, power-point global crusade. As one who at one time followed the debate closely in fascination at how close human behaviour was bringing us to a precipice of self-annihilation, I must confess the scientific debate is a bit confusing. Is the CO2 atmospheric duvet going to make things hotter by keeping heat in, or make things cooler by keeping the sun’s heat out? Are we not merely witnessing one of nature’s short or long term cycles?

But what is clear is that as a species we have become a force of nature, influencing it in ways that we are not only unsure of, but the effects over which we have little or no control. Nature is frightening enough without our help. Prodding it into fury is extreme folly. At the very least, one should take very seriously the latest conclusions in a United Nations report that climate change is “already leading to increased incidences of floods and heat waves, and that such incidences will become more frequent and severe if the global rise in greenhouse gas emissions is left unchecked.”

Of course things have not stood still after the Kyoto protocol was signed in the early 1990’s. The COP17 gathering in Durban hopes to give further impetus to these efforts. South Africa’s own “green accord” signed this month brought together an impressive array of vested interests which even the skeptics must concede reflects serious intent and a common, unifying acceptance that this merits attention and action.

As is often the case, mankind finds opportunities in challenges and climate change certainly presents a host of them in terms of innovation, research and development. But it would be a mistake to equate these with an industrial, technological or communications revolution that will propel the world on a new growth path with, as Cosatu seems to hope, the creation of hundreds of thousands of additional jobs. That will be ignoring the fundamental underlying truth: that exponentially increasing non- tangible economic growth arguably contributed to the problem in the first place.

We do not need much more than a few broad brush strokes of our modern history to illustrate this. The first is the population explosion which has seen the number of people on the globe more than double from the mid-seventies to the 7 billion we have today. Each of these people, on average experienced a near tenfold increase in income (after inflation) over the same period – with a near doubling in the last 7 years alone. Even if we take vastly improved efficiencies and the highly uneven distribution of this income into account, it translates into demand on the planet’s resources of anything between 10 and 20 times more than a mere 50 years ago.

And then in the last twenty or so years, we became hooked on debt, paying for today’s spending with money not yet earned. This inflated current consumption beyond the restraint of having to earn it first, plunging the whole world into a financial imbalance. That froth is also in a meltdown. This was all underpinned by a disastrous half century behaviour shift to “want-it-now”, instant gratification, short termism, rampant expectations and greed. One of the side effects of this financial aberration was to create a much wider gulf between haves and have-nots, the consequences of which we are seeing in city streets across the world – a species at war with itself.

The two fangs of misbehavior that are imbedding themselves deeply into humanity’s flesh are living beyond its means financially and beyond the tolerance of global resources. We have indeed reached a fork in the economic road. The one is a super-highway tempting us to drive at the same reckless speed we have become used to; the other, a slower, longer and more scenic route.

Perhaps the double whammy of a financial meltdown and climate change will confirm the cul-de-sac of the first path. The second at least holds the promise of a return to sound values and broader social contentment – albeit not in my lifetime.

Tuesday, November 22, 2011

When small is big.

You often find a very strong bond in the smallest of employment relationships – like that between Sam the dairy man and his employees; caterer and helpers; garden services and a handful of lower skilled workers; coffee shops and waiters. It is a bond that is virtually impossible to replicate in a bigger or corporate business environment.

It is based on the involuntary intimacy of the business; the informal sharing of information; a general awareness of risk; a greater feeling of involvement; some sense of a common destiny and a greater sincere and unrehearsed appreciation of customers.

Small, medium and micro-businesses offer much more than a solution to reducing unemployment – they could be the incubators of empowerment, of exposure to basic business principles, of enhancing economic literacy, of entrepreneurship (the lack of which economist Mike Schussler has highlighted) and most important of all, of forging a sound relationship between employer and employee – tilting an effective lance at the out-dated, dysfunctional and false dogma of an automatic conflict between labour and capital. SMME’s can be nurseries of mini-Nedlac’s – a cordial, co-operative and mutually empowering partnership between labour, capital and government.

This is so precious that anything that detracts from it should be resisted and removed and all means of promoting it should be explored. The biggest threat is imposing on the parties unaffordable and cumbersome rules of engagement. If they cannot afford lofty ideals such as “decent work”, “a living wage”, and all of the other costs of our majestic labour laws, then these should not be enforced at this level. The other benefits mentioned far outweigh the dangers of fewer controls.

Only one principle should be sacrosanct – that of individual choice. It is one organised labour hates because it erodes the very basis of its power – that of centralised control and command. But we simply ignore, or are not even remotely aware of the enormous costs of maintaining this ideological affectation. It goes far beyond the cost of strikes and the loss of productivity and competitiveness. Just think of the enormous, luxurious and pricey structures of trade unions, their highly paid officials, their headquarters; industrial relations departments, yuppie consultants, labour courts, labour lawyers and, and… Heavens! It must run into the billions. Of course, not all is superfluous, but a major part of it is based on the assumption of automatic conflict.

Zwelinzima Vavi will vent pure vitriol at the thought. “Exploitation!”, “Slavery!” and “Injury to one”, I can hear the lament. I often wonder why the regular and self-evident injury to one by the grand ideal of the “all” is so ignored. We see it all the time: reluctant strikers being assaulted and being labelled “scabs” and “sell-outs”. I’ve never quite understood the sanctioning of collective dictatorship over individual choice, aside from preventing outright lawlessness and criminality. But then, I am something of an individualist and an extremely belligerent herd follower. Suffice to say that centralisation of authority should never be accepted lightly. It is often based more on expediency, power mongering and control than on positive societal aspirations.

Of course, we cannot ignore the inherent dangers of laissez-faire even if it is restricted to a certain group of economic actors such as small business and “mom and pop” stores. The general decline in benevolent values and the rise of greed and short-termism has infected business across the board.

I would argue simply that small business has a greater intrinsic resistance to this disease. For one thing, the type of people you find in this sector often if not mostly are not as profit obsessed as their “executive” counterparts in the corporate world. Pay disparity is seldom if ever an issue. Mike Schussler’s research (which led to a rather bemusing and pointless debate with Adam Habib) shows that owners often earn less than their employees. They tend to have more modest aspirations, blend in with their community, indeed are part of it and do not easily sacrifice a good name, reputation and community approval. They are in closer touch with their customers, very often know them personally especially in smaller towns, and are more service driven. The intimacy of their environment both with their market and staff is a strong deterrent to bad behaviour.

Labour relations in this group should not be onerously regulated and imposed. The approach should be consultative and mediatory. Servant leadership principles and methods of involving their employees in their business should be encourage both through teaching, training and other promotions, as well as incentives, either through tax or preferred supplier categories. We can seriously consider replacing B.E.E. with S.B.E. – Small Business Empowerment. Such a programme can, for example, ensure preferential treatment for a small entrepreneur that has some or other fortune sharing system with his or her staff. In turn these rewards could be exempt from tax below a certain level.

Japan’s success in its post-war employment was based on two fundamentals: (1) turnover growth was favoured over profit maximisation, and (2) preference was given to small, village based enterprises in the supply chain. These led to strong employee care and growth systems, participative management practices and pay discipline. This says simply that big business, corporates, and government could play a much bigger role in supporting this sector than they are at present.

We have to think of small business differently – not as a “business” but as part of our family and community, providing us with products and services. We have to think of small business in terms of the Market driven model that I have defined before, and not the Profit driven or Labour driven model. Small enterprises should be taught and encouraged to use the Contribution account in accounting for their business. This automatically guides them to common purpose and common fate in terms of fortune sharing with staff. It can be a requirement in formal reporting conventions.

A small business by its very nature tends to pursue wealth creation rather than profit maximisation. Wealth creation, or value added is the only metric of benevolence that exists in business.

As a common focus for all in a small enterprise, its pursuit becomes a huge competitive advantage, not a weakness.

Monday, November 14, 2011

Commercial xenophobia.

I have always been something of a Frederic Bastiat fan. The simple and satirical treatment of economic issues by this mid-19th century economist is still relevant and valuable reading for a broad audience, including the barely economic literate.

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My favourite is his sketch on the “train that never went”. For those unfamiliar with the story, Bastiat was scoffing at the concept of government creating artificial “growth points” (A bit like our previous decentralisation efforts.) In this case, the idea was to have trains stop at new stations in the French countryside. Passengers would get off and promote trade at the new station. So if a train went from A to B, a new station at C mid-way would create a new economic hub. But then he argued, why not divide the distances again, to have trains stop at D and E …and again…and again. Why not, he asked, have one long stop and have growth points all along the way.

His parable of the broken window is another classic. Here he relates the story of a shopkeeper whose son broke a window pane. In his defence, the son argued that there was a silver lining in the broken pane because it meant more work for the glazier which promoted job creation. This story reminds me of the time that workers at a West-rand mine trashed the surface because they had heard that some of the cleaners were going to be retrenched. Routinely trashing the surface would secure the cleaners’ jobs. Bastiat used his parable to explain his theory on the “seen and unseen” in economics, or the theory of unintended consequences.

Bastiat sees little difference between the window breaker’s logic and calls for government protection of certain industries. To illustrate this he wrote another classic, a petition to the French government from the “Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting”. They wanted the government to block out the sun because it worked under conditions far superior to their own in the production of light and was flooding the domestic market at an incredibly low price. It was blatantly unfair competition, they argued.

In similar vein, he wrote his engaging cameos around Robinson Crusoe and Friday, with Crusoe representing pro-intervention sophistication, and Friday always challenging him with simple logic. In one of the sketches, the pair had worked out that their island was suitable for both hunting and planting, which needed 12 hours of toil a day to ensure sufficient food. One day, a canoe arrived from a foreign island which had plenty of game but no agriculture. The foreigner offered to supply them with all the game they needed in exchange for two baskets of vegetables a day. This meant they would have to spend an additional three hours a day on agriculture, but they no longer needed to hunt for six hours a day – saving three hours of toil a day.

The punch line of the story was that Friday loved the idea, but Crusoe opposed it. If you read the parable at this link, you will be bemused at how familiar Crusoe’s arguments sound today in trade protection circles. In the end, Crusoe insisted on certain guarantees which had the foreigner in uncontrollable mirth as he paddled back to his island. Echoes of Walmart!

Bastiat sums up his opposition to trade protectionism in the following quote: “The sort of dependence that results from exchange, i.e., from commercial transactions, is a reciprocal dependence. We cannot be dependent upon a foreigner without his being dependent on us. Now, this is what constitutes the very essence of society. To sever natural interrelations is not to make oneself independent, but to isolate oneself completely.”

His dock-working countrymen would have done well to heed this advice when, some years ago, they delayed the off-loading in Marseille of foreign fruit long enough to ensure that it was spoilt. This was done to protect French fruit growers against competitive imports.

This is just one illustration of the many degrees of commercial xenophobia that hinders free international trade. These include appeals to patriotism in “buy local” campaigns, exchange rate manipulations, subsidised local production, trade tariffs and of course outright import controls. Using the national flag as an appeal to consumer loyalty may seem harmless enough, but the latest “New Growth Path Local Procurement Accord” has an arm twisting element which could lead to consumers paying some costs towards the 75% local content target.

Of course, Bastiat has many detractors and his theories have to be tempered by the realities of today when laissez faire ideals have all but been abandoned; destroyed by some of its own champions who promoted greed, unbridled self-interest, speculation, immediate self-gratification and profit maximisation as the engine which drove it. We also have the realities of a tit-for-tat foreign trade environment that simply cannot find even-handedness in the Doha rounds of world trade talks.

There’s nothing wrong with informed and level headed consumers basing their buying decisions on more than price and quality. Indeed, South African consumers are arguably a tad too apathetic in using their purchasing power even on those criteria, let alone other social issues such as the environment. We just have to be careful that being caught up in the fervour of “local-is-lekker”, we don’t protect and encourage inefficiencies and lack of competitiveness. The point is that we should be focused more on the needs of customers and consumers, including foreigners, and less on the needs of suppliers, including workers and shareholders.

Domestic trade alone can never sustain us in the long run. Successful economies have always been built on having a world view and being internationally competitive. We should stop seeing the market as a resource to be exploited but rather as a means to be of service to others.

It may be better for us to have a “sell South African” campaign, than a “Buy South African” effort.

Monday, November 7, 2011

Prisoners of freedom.

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There’s something tragically and dangerously seductive in the latest “strugglers” war cry for “economic freedom”. Despite its magnetism, those who promote or slavishly follow it should understand its context and meaning to the same extent as someone has to understand the dangers of experimenting with heroin.

For one thing freedom itself is never an absolute state. We learn this very quickly when we progress from adolescence, that giddy time when we rebelled against all forms of authority, to adulthood when we discovered that freedom comes with the restraints of responsibility and accountability. 18th century French philosopher Jean-Jacques Rousseau may not have been the first to write about the conditional nature of freedom, but he certainly expressed it the most memorably in his aphorism: “man is born free and everywhere he is in chains”. These same chains, and many more, are being rediscovered by many South Africans after the euphoria of the first democratic elections.

And unwilling to accept that perhaps these chains are largely in the nature of a Social Contract or our own Constitution, they are now being defined as “economic chains”, to be removed even if it means tearing up the contract.

Economic disparities and poverty are a real problem – one that is compounded severely by perceptions that drive the debate and the absence of universally accepted scientific definitions. There is supreme irony in comparing the seemingly well fed and clothed jogging poverty protestors, to the destitute groups seeking solace in aid camps in Somalia. We seem to prefer wallowing in envy rather than gratitude. Justified or not, these comparisons are the carriers of the deadly virus of unrealistic expectations. In the increasing absence of the means to fulfil legitimate aspirations, comparisons and expectations have become a flaming torch that could set fire to the constitution, the burning of which will without question enslave us and the arsonists beyond our worst nightmare.

But what is very, very sad about the youth march for “economic freedom”, is the expressed understanding that it means “having what the rich have”, or more specifically, ownership of minerals and land. This statement alone reveals volumes about their perspectives. Freedom is seen to be synonymous with owning, rather than doing. Freedom is having designer clothes rather than an opportunity to do something meaningful with one’s life.

Informed by our own life time of experience and the lessons of our forefathers, we as the “retiring” generation are then tempted to shake the youth out of this outlook…one that we ourselves encouraged; that has led to pressure on resources, environmental destruction, wealth disparities, waste, impatience, market volatility and unsustainable consumption and acquisition – all for little, if any, increase in human contentment.

We should impress on them that seldom does one find freedom in wealth and possessions. For in the pursuit of them one either becomes a wage slave, or defined and controlled by what one owns. Many simply get trapped in the have-more-want-more hedonic treadmill.

They should know that the true value of a human being does not lie in what they own, but in their capacity to make a contribution to others; that if they define themselves by their possessions, they are indeed very shallow, and their legacy will go with them to the grave. True empowerment is a state of being, not a state of wallet.

They should be taught that a decent job is not about its pay and benefits, but rather that which gives a sense of meaning in being able to make a contribution to another. They should be reminded that Nelson Mandela found meaning in imprisonment simply by having a purpose greater than his own needs, and that a doyen of psychology, Viktor Frankl, wrote one of mankind’s greatest psychology texts out of his experiences in a Nazi concentration camp.

They should be inspired by the heroes of the past and present, in business, politics, and all fields in society who made invaluable contributions to mankind not because of any financial reward but because of their desire to make a difference, passion for their work, their knowledge and experience. Material rewards on their own have seldom driven the human spirit to do great things. They also seldom provide lasting peace and contentment.

It would be good for the marchers to know that they will never be the best they can be by focussing exclusively on what they can get out of a situation. Being prepared to go beyond what they know they can get, is the essence of risk, entrepreneurship and adding value to society and ultimately for themselves. It is far better to create a job than to look for one. If they toyi-toyi to Pretoria in the belief that they will get a hand-out of South Africa’s wealth, then they are stifling their own capacity to do something meaningful with their lives in service to others. They change the march from being majestic to shameful.

But I suspect I am being a bit unfair to some of those marchers. I suspect that some of them do not share the definition of “economic freedom” as being about hand outs from the rich to the poor. More likely, they were there to show their disenchantment at not being able to find meaningful work; at having their aspirations smothered by the circumstances of our time. To them, clich├ęd advice that economic freedom comes from hard work must sound awfully patronising.

While I salute and have empathy with those so frustrated, my only response to that is that the cause of death of aspirations is invariably suicide rather than murder. Aspirations, which are simply a willingness to do something meaningful with one’s life, to add value to others and being prepared to hold oneself accountable for one’s own destiny, can be nurtured to find expression in many forms.

Marches, protests, and other forms of dissent may break a chain or two, but the real prison is the one we construct for ourselves. The walls and the bars are made up of expectations, attachments, greed, envy and raw material self-interest. If freedom means being able to give expression to these, then we become prisoners of our own freedom.

Monday, October 31, 2011

Blaming yesterday, today and tomorrow.

There is a modest Brunfelsia pauciflora ‘Eximia’ a few meters away from my lounge window. For the botanically disadvantaged, it is a “yesterday, today and tomorrow” and its fragrance often drifts through the open windows on the gentle caress of a light North Westerly breeze during these nights that are hesitantly heralding summer.

Some say the brush got its name from its flowers which at any moment reflect all three dimensions of time. I see it more romantically: its fragrance depicting nostalgia, joy and promise. But that romance disappears fast in the context of our South African life, which seems so irrevocably stuck in the legacy of the past, the world woes of the present, and some “Nostradamic” spectre of the future. That rhetoric is wearing extremely thin. It is trapping us in inertia and a cumbersome debate with little prospect of productive outcomes.

There were elements of it again in Pravin Gordhan’s latest medium-term budget. But to give the finance minister his due, there was also significant recognition of the extent to which we have only ourselves to blame for the economic troubles we face.

True, we have acclaimed with some justification our ability to avoid the full effects of the post 2007 financial meltdown, largely because of our banking and fiscal prudence.

There was also a mild boast on Gordhan’s part of the 3.5% growth we were able to achieve while many of the developed countries were struggling with job shedding rates of less than 2%. Of course, they mostly still have unemployment rates below 10% while our 30% is in a totally different category of anxiety. The real point though is that we should be comparing ourselves with other emerging economies where many, including our BRICS partners have been able to record growth rates of 7% to 10%. That discount falls squarely on our own shoulders and accountability must be fully divorced from the “goggas” of yesterday, today and tomorrow.

The most pressing is, and always has been, education, skills and experience. We do not need a better example of the severely debilitating effect of a lack of skills than our inability to spend productively and effectively, the money that has already been thrown at projects. A lot of it (25% by municipalities and 16% by provinces) simply gets thrown back – after a bit of skimming to line the pockets of cronies and tenderpreneurs. This puts a huge question mark not only on proposed fiscal measures to improve this performance, but on the ultimate value of the shift to spending on infra-structure.

But for all of that and at the very least, this shift is perhaps the most encouraging aspect of the “mini” budget. At last we are challenging labour’s voodoo economics that jobs must be created through wage driven growth and consumption expenditure. The penny seems to have dropped with a distinct clang that we need to shift priorities from welfare to jobs, from hand-outs to hands-on.

The pay-now-earn-later fallacy has been at least in part, the cause of a burgeoning and bloated civil service which now absorbs some 40% of government expenditure, where the average pay is between 40% and 50% higher than peers in the private sector and where the track record on service delivery, productivity and old fashioned customer care has been nothing short of appalling. I have always been totally mystified by this strange feature in our economy, where people in non-competitive and relatively secure jobs can be paid so much more than their peers in a much riskier and harsher environment.

Good luck to Pravin Gordhan and his intention to cap government pay hikes to 5% and reducing the payroll share of his budget. He has already been put on notice by Cosatu’s Zwelinzima Vavi, who questioned this approach against the light of “that fellow who last year walked away with some R600-million rand in pay, bonuses and share options.” Now, I wonder who that could be? Throwing pay disparity into this mix is not only disingenuous, but mischievous. It would have been far better if Vavi offered some further solutions on making our labour force more globally competitive.

My previous writings all attest to an aversion to debt, whether on a personal, company or government level. But few of us can build a home without a bond. There’s a distinct difference between borrowing money to acquire or build things that will last for many years, and maxing out on a credit card or using bond finance for daily and routine expenses. I for one, will not have much of a problem with saddling my children and grandchildren with repaying a debt the fruits of which will still be enjoyed by them and their offspring for generations to come.

So far from quivering at the thought of a 40% public debt to GDP, I would rather question the validity of that measurement itself. It really is a formula that mixes apples and pears. Public debt is owed by the government and accumulated over a long period. I fail to see the relevance in comparing it with GDP which is a one year measurement for the country as a whole and which can change from one year to the next . But then the fallacy becomes absurdity when it is benchmarked with other countries, where the underlying criteria could be totally different – such as the size of the government to GDP; the composition of the debt, its maturity, the lenders and terms. A simple example is the continued investor faith in a Tsunami ravaged Japan which for a number of years has had a public debt to GDP ratio of nearly 200% without them getting their kimonos in a knot. But when Greece approaches 100%, they break plates in more than dining rooms.

Far more relevant, I would have thought, is the cost of servicing that debt as a proportion of the overall budget. It is the same criterion that banks use in determining your bond entitlement – the size of the instalment in relation to your income. It used to be a maximum of 25%. Although we cannot compare this directly with the government budget, we could argue that debt servicing costs of some 15% of the total budget is reasonable. Expressed in money terms of roughly R150bn, it may seem like an unbearable burden, but the money borrowed has to be given a future value in terms of inflation, and must be seen against the economic benefits of the infra-structure established, and additional tax revenues through growth stimulus.

We are a young and growing country. It makes sense for us to have a relatively high debt to develop roads, bridges, railways and other infra-structure. Certainly a lot more sense than developed nations running up debt to bail out banks! This is a point that seems to have totally escaped that fellow in parliament with an Italian accent that lamented our road to the Parthenon. “Rubbish!” was Gordhan’s justified response.

But before we place our offspring in the hock for trillions, we do need an assurance from the Finance Minister on one of the most important issues of our time. It is the issue of accountability. The spenders have to be held fully accountable for the results.

There’s that famous Chinese adage that says: “Give a man a fish and you have fed him for a day. Teach him how to fish and you have fed him for life.” But there is a crucial element missing in this proverb. It is willingness. I may give someone the means and ability to catch fish, but without a willingness to do so, that someone will still prefer a hand-out of fish. The only way to ensure willingness is to hold him or her accountable for catching the fish. The culture of accountability has to be nurtured across all levels of our society, particularly staff in the public and private sectors.

Full empowerment happens only when we accept full accountability for our actions. No number of permutations of “B’s” and “E’s” can ensure that.

And again, our empowerment can only be ultimately measured by the extent to which we have made a meaningful difference to the lives of others.

Monday, October 24, 2011

OWS without wows.

When you see a dog clip_image002chasing a bus, the imp in you prompts a thought about what the dog would do if it caught the bus: would it become a passenger, or the driver, or even claim ownership of the bus? I had a similar thought in following the latest protests of “Occupy Wall Street” or “Occupy Whatever” in different parts of the world. What indeed would this motley group do if they had to deal with the fruits of their “occupation”?

As someone who has written a fair amount in “The Human Touch” on Moneyweb and before, on the subject of inequalities and disparities in the modern global economy, I could have been basking in some state of “I told you so”. But that would have been inexcusably presumptuous. For one thing, as a journalist and ex-news reporter one is more often than not guided by the writings and views of economic gurus and experts than by one’s own insights. For another it has been such a glaring issue for some time that predicting growing public dissent and protests would merely have been stating the obvious.

For all of that, I like many it seems, am relatively unmoved by these public expressions of outrage. The activists themselves appear to be blaming the main stream media, including public broadcasters, for not giving much attention to their cause. Perhaps they have missed a point about these institutions. They have always been guided more by form and technique (what and how) than by content (why). Unless the rallies attract hundreds of thousands and are led by an iconic figure such as Martin Luther King, they seldom attract the news cameras. Of course, if they turn violent like in Rome this past week, then they will make the news headlines.

There could be many other reasons why this particular “movement” is so far failing to generate much of a “wow” factor, especially in South Africa It is being tainted again with hackneyed ideological cold war rhetoric – for the most part taking a broad swipe at a system rather than behaviour and broken parts in that system. It smacks a bit of hypocrisy against the background of severe deprivation for many over a number of decades. For example, a global protest against the starvation of masses in Somalia would have been more authentic than marches against greed in the relatively affluent streets of New York. It is also easy to discount these grievances as being little more than envy on the part of those who have not caught the bus. Are they protesting against the injustice of wealth disparity, or simply saying “I also want what you have”? Is it a case of a little greed challenging big greed?

An important postulate of capitalism has always been that success breeds success; that the wealthy represent “a dream” that can be embraced by anyone in a free society and inspire them to greater things. In addition, it has been argued, wealth is never generated in a vacuum and by its very nature encourages wealth creation and productive pursuits around it.

The failure of this tenet in the last few decades and growth without jobs in many countries, has changed the perfectly normal human habit of comparison from aspiration to expectation and into a social time bomb.

And when success is perceived to be largely the outcome of cronyism, greed and corruption, or the spinning of some Lottery-like numbers in executive board rooms, then comparison breeds anger and social discord.

It would be a mistake to see the 99% whimper as insignificant. Taking a step back then other, more dramatic events such as the MENA rebellions, the London riots and Greek protests against austerity measures all have to be seen in the same context. One could argue that service delivery protests and labour strikes in South Africa also have a strong disparity element.

Wealth inequality has always been a fundamental issue in economics ever since it was raised by Adam Smith when he wrote: "No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable". Today the voices of concern have widened across a very broad spectrum to include the likes of Warren Buffett. Recently, economist Nouriel Roubini put it more ominously: “Any economic model that does not properly address inequality will eventually face a crisis of legitimacy”.

The OWS protests are clearly a challenge to this legitimacy. It remains to be seen whether they will gain sufficient momentum to make a difference and strongly influence an outcome. For now they are a feature of the vexing question ever present in economic modelling: the balance between the principles of liberty and equality.

This balance can never be achieved unless it is informed by an even higher principle: that of justice.

Sunday, October 16, 2011

The triumph of loss.

“Aren’t you afraid?” I wanted to know from my 78 year old cousin, Nel.

“I was until a few days ago. Now, no longer,” she replied calmly and serenely.

And for the third time in my life I experienced that mystical and puzzling state of detachment that people often have when they are confronted with their imminent mortality. Detachment is not the right word. It implies an indifference and aloofness which simply does not fit. You get to see that more clearly when you hold the hand of a dying loved one to comfort them and discover that you are not the comforter, but the comforted. They seem to lose all self-concern, replacing it with an empathy and warmth towards all others. In their presence you feel diminutive, inadequate and puerile. It is undoubtedly the highest state of being human, endowing many of those who go through it with a form of majesty, dignity, total serenity and a complete loss of fear and agitation.

One can only marvel at this strange trick of life – that its ultimate lesson is taught in dying. It’s a lesson extremely difficult to learn in the routine of our daily lives. We only get a glimpse of it in the presence of death and then mostly only when it is of someone close to us or our own.

Nel crossed a threshold when chronic emphysema caused her to pass out and she had to be revived with induced oxygen. The prognosis was that she had only days left and had to be admitted to the local frail-care where she now holds on, albeit stabilised to give some hope that perhaps the days will be months, if not a few years. Her mobility is restricted to a length of plastic pipe providing oxygen from a rather noisy compressor in her room. Yet for the most part she remains tranquil – something she seldom experienced in her more active state. A somewhat reclusive spinster, Nel was fierily independent, taciturnly courteous, always of modest means, prudent to the point of being tight-fisted, and highly protective of her belongings. Mall-meandering was her favourite past time, but more for looking than buying. She harboured many fears and insecurities, mostly sparked by her interest in topical events and by things completely out of her control. Her personal transformation, despite remaining firmly agnostic, has been nothing short of miraculous.

Perhaps Steve Jobs said it best in confronting his death: “almost everything -- all external expectations, all pride, all fear of embarrassment or failure -- these things just fall away in the face of death, leaving only what is truly important.” Never known for charitable pursuits or warmth towards others, even towards his own family, his last desire was that his children should get to know him.

Detachment is not a new concept to mystics or even the thousands of new age inspirational gurus. It is expressed most powerfully in the phrase “death before dying” which has a Sufi origin. Sufi master and director of the Academy of Self Knowledge, Aliya Haeri, would ask her workshop participants to write down and rank ten things that described who they were. They could range from “father”, and “journalist” to, as one wit insisted as his most significant feature: “dog-owner”. She would then ask them to savour each one and examine them in combination to determine whether their lives were in balance.

But that was not the real punch line. This came when she instructed them to start at the bottom and lament the loss of that particular title or label. For example, you lose the label “husband” or “wife” if your spouse dies. Some titles may seem difficult to lose, like “doctor” if you have a degree in medicine. But the description has little practical significance if you no longer practise. When you come to removing the last one you are left with who you really are: a chunk of marble undefined by others, labels and titles.

With that comes the realisation that the only permanent things that we can hold on to and that should really define us are principles and values, such as integrity, courage, compassion, and honesty.

We build our lives around three interrelated areas of attachment: emotions, people and possessions.

Detachment from emotions, habits and beliefs is where the real character sculpting happens. It includes letting go of preconceptions, anger, resentment, jealousy, guilt and remorse. Even some of the more positive such as trust, love, pet “projects” and pleasure come with their own health warning. Of course it is impossible to detach completely from emotions. We are human and emotions are an essential attribute of our humanity. Only a course in psychopathy will discourage emotions such as remorse or guilt, or even anger and a fleeting moment of resentment. It is the extent to which we are defined by them, when they eat away at us, guide our behaviour and become overwhelming that we have to detach. It is then that referral to a higher order of the values mentioned above becomes imperative. I do not say this lightly. I was defrauded by someone very close to me, and fully appreciate the great difficulty in letting go of anger and resentment. But I have also come to fully appreciate the destructiveness of holding on to those emotions.

Despite my own measure of reclusiveness, I have always had extreme difficulty in practising detachment from people. I must confess that these attachments have repeatedly caused me considerable pain. Loyalty and trust come easily to me and the price has been high – certainly high enough to discourage others from doing the same. But then, complete detachment from people can only be the preserve of psychopaths or the severely anti-social. Perhaps the dying possess the ultimate key – empathy for others that is totally unconditional and unselfish. Or is it in the Buddhist tenet that we should love all people equally? The golden rule is the same as for attachment to emotions – it should not define who we are. Abraham Maslow has argued that one of the attributes of our highest level of maturity is when we are independent of “the good opinion of others.”

Detachment from possessions and things should be the easiest. After all, it is such an obvious state of impermanence. Attachment to them is also the most dangerous, invidious and self-destructive. Yet, we have allowed it to define not only ourselves as individuals but a whole species. We have built social structures and systems around it; made it the cause of all conflict, allowed it to drive all of our aspirations, priorities and relationships and even threaten the very planet we live on. We are not only the biggest hoarding species, but also the most destructive and wasteful.

We have switched from meaning to means. The last 5 decades have seen possessions, acquisition and consumption drive our social order to near self-destruction and to a point which we facilely call a “bubble burst”, causing widespread panic and distress. Ironically, a systematic detachment from possessions may be the only way of preserving a semblance of tranquillity and hope as things threaten to fall apart around us.

There’s nothing wrong in owning things. To be owned and defined by them is perverse.

Monday, October 10, 2011

Don’t tax it: fix it! Executive pay in a bubble.

You meddle with price at your peril.

This is a wisdom that we have learned from centuries of economic experience. Price is a critical factor in moving resources to where they are most needed. It is an inexorable natural law which not only balances supply and demand but also reflects fundamental imbalances between them. Economic history is full of examples where price meddling did not correct imbalances, but indeed exacerbated them to the point of crises. You do not fiddle with the thermometer if you do not like the reading.

It is not surprising then that when debating what is one of the most critical issues of our time – pay disparities – the market purists predict all kinds of dire consequences if executive pay is tampered with through interventions such as a wealth tax. But what if the price mechanism itself is broken?

I have consistently argued that the labour “market” is one of the most dysfunctional of all. There are just too many glib assumptions, interferences, impediments and even emotional factors that frustrate conventional market scrutiny at all levels, particularly at the lowest skilled and at the “executive” level.

The pay disparity debate is rife with incongruities that have to be clarified first before it can become remotely coherent. There are so many on both sides that I can only deal with some and then briefly. I have also previously dealt with others in this column.

For starters, the “real gap” has to be better defined. As important a social issue as it is, the pay gap hysteria is based on some shaky assumptions. Gross income comparisons are used and that gap will be considerably reduced by different personal tax rates at the opposite ends of the scale. The much vaunted Gini wealth gap “shame” organised labour loves to bleat about, suffers from the same inaptness – plus some others that space and complexity discourage me from dealing with here.

Cosatu goes a giant leap further into absurdity by presenting the Gini indicator as proof that South African workers are underpaid. Our nearest comparable Gini neighbour Brazil has a maximum tax rate of only 27.5% compared with our 40%, --

implying a much higher “after tax” gap between rich and poor than in South Africa.

The biggest shortcoming in the “market-driven-pay” argument is that it lacks sound empirical research. To be sure, there are vast volumes of research and statistics on pay levels themselves, their impact and how they have been constituted, but little on benchmark drivers. For example, the Association of British Assurers questions “peer level” benchmarking as being valid at all.

Comprehensive data on poaching, resignations because of better pay offers, etc. is sparse. Also nothing tangible exists for the most important evidence such as quantified shortages and surpluses and the crucial but unquantifiable motivators and de-motivators. What really counts here cannot be counted: as Einstein would have put it.

The “market-driven-pay” argument that current levels prevent a flight of executive skills is based on a false assumption that “price” is the only or even major influence on human effort. There are many other motivators or detractors, including passion for the task, family and other ties, living conditions, tax rates, and different living costs.

Some argue that this is indeed recognised in geographical differentiation. Impossible! You cannot adjust measurements with factors that cannot be measured, particularly when the latter are highly personal and for many could be far more important than pay itself.

Another obvious flaw is the assumption that there is a single category of executive skill or talent that can be benchmarked against others of the same species and then globally. In turn, the argument goes, they come at a specific price according to supply and demand – like neurosurgeons or pilots, or tomatoes and potatoes.

There is a vast difference not only between different “executives” but also between groups. The three I identified in an earlier article are creators (who develop an innovative idea into a major business), builders (who construct big corporates from underlying and organically growing ventures) and professional managers (who are appointed by shareholders to promote their interest and mostly to enhance shareholder value.)

Creators and builders are the true entrepreneurs, often starting at a modest level and taking substantial personal risks along the way. They should be allowed maximum room to go about their legitimate business, even if it implies huge rewards.

Professional managers are an entirely different matter. They have become nothing less than a clearly identifiable separate “stakeholder” in business since the mid-seventies: a “4th estate” next to labour, capital and government. I would argue that their “price” was broken by a bizarre distortion which coincided at that time with a giant leap in short-termism, speculation, derivatives, debt and a disconnect between tangible wealth and “froth”. Today we are paying the price for 40 years of excesses and executive pay is one of them.

In the pursuit of shareholder value and applying the agency theory, shareholders have futilely tried to replicate the attributes and behaviour of creators and builders, and constructed a price on four pillars: base pay, bonuses, stock options and longer term incentives. But the premise itself was a myth and unavoidably caused a vacuum between supply and demand. Once established this price increased horizontally and vertically.

clip_image002This graph by the Washington Post shows that inflation adjusted executive compensation has quadrupled in 20 years to early 2000. Average worker pay over the same period has been static if not in a small decline. The supreme irony is that according to author Roger Martin total returns on the S&P 500 were 7.5 percent (compound annual) from the end of the Great Depression (1933) to the end of 1976, the beginning of the shareholder-value era. From 1977 to the end of 2010, they were 6.5 percent -- suggesting that shareholders have little to celebrate, despite having been made the clear priority.

Executive compensation is clearly distorted and in a bubble. It seems to have survived the global financial bubble burst, but burst it must, either through government intervention or through investor reaction. Warren Buffet and many of America’s wealthiest are NOT averse to a super-rich tax. At the very least this seems to confirm that Americans do not share fears of an exodus of executive skills if their take home pay were to be reduced.

Still, I would caution against using tax as a method of correcting pay disparity in South Africa. Economist Azar Jammine has mooted that it could be on Finance Minister Pravin Gordhan’s mind when he delivers his medium term budget policy later this month. The wealth tax debate is still far from coherent. For one thing, there’s little point in moving more resources to an environment that is rife with inefficiencies, waste, non-service delivery and corruption.

Proper cost benefit research has to be done with comprehensive data on how that money is being deployed by the rich at present – for example into charities, investments, saving and perhaps other productive pursuits. Certainly not all of it will be on toys and ostentatious lifestyles. Tax is a very blunt and seldom successful instrument in correcting supply and demand imbalances. A wealth tax may do little in the long run to uplift the poor or close the pay gap. An unintended consequence is that it validates and entrenches the faults in this market. Best the imbalance is corrected by those who created it in the first place – the shareholder body.

Any price distortion is unhealthy for an economy. This one is particularly onerous. It is arguably creating little value for those who introduced it, and is far too heavy a price to pay in social discontent.

Tuesday, October 4, 2011

Busa and Fedusa.

They may sound like two chick-flick lovers, but if these two economic actors are encouraged to dance, they might perform a tango that could make a meaningful difference to unemployment. Dance experts will tell you though, that the tango needs passion, real synergy and being precisely in step to avoid the partners ending in a tangled mess. Labour and capital are far from that!

Busa (Business Unity South Africa) and Fedusa (the Federation of Unions of South Africa) representing bosses and workers respectively, have met and have agreed to work together to address unemployment.

“Ho-hum”, some may respond. There’s been a lot of similar talk over a number of years, not the least of which has come from Government in urging business and labour to make a greater common effort in repairing this frighteningly fraying fabric in our society. Government has little room to talk. The worst strikes this past year or so were in the public sector with the private sector being relatively free of industrial action. One can only wonder what on earth an arguably bloated Nedlac, which represents the three economic estates of Business, Labour and Government, has been doing since its inception, if it has not already established common ground in beating unemployment. After all, it was founded to “build bridges that hold the nation together”, or so its lofty mission statement says. There cannot be a greater gulf in our society than the raging river of unemployment. In turn this scourge feeds off the on-going conflict between labour and capital, and settling this conflict is Nedlac’s main remit.

One can be forgiven too for feeling that Fedusa may not make the most suitable dance partner for business. While many may perceive it to be level headed and conservative, the more radical in labour circles would give it a “sweetheart” label compared with Cosatu. Joining forces with Nactu to revive the old South African Confederation of Trade Unions (Sacotu), will give a combined membership of less than 1-million, only about half of Cosatu’s membership. In any case, Cosatu’s more radical stance, which is being fuelled by out-dated ideological rhetoric, real income disparity grievances and an inappropriately cosy relationship with the ruling political party, has so far had much greater sway on labour events, behaviour and regulation.

For all of their catchy acronyms, umbrella organisations in both labour and business will ultimately get nowhere in solving unemployment. The lack of real and tangible common resolve will continue to stymie efforts. This resolve has to be firmly based on a willingness to sacrifice quite a number of sacred cows. There was none of that in the Busa/Fedusa statement. At best it conveyed some old platitudes and peripheral action on some non-core issues.

More importantly, umbrella organisations can only create a framework. The real action has to happen where the rubber hits the road – in individual companies and other employment cells. And even this will not be effective if it does not impact on the crucial relationship between the worker and immediate supervisor where trust is ultimately nurtured.

We simply don’t have the determination of a post war Japan or Germany, or even the later South Korea and current China to solve unemployment. While some may argue that demographics and circumstances are very different, we also cannot ignore the fact that unemployment in this country is of such proportions that it could equal, or come very close to the crisis levels that those countries faced. It may indeed need a kind of labour “reconstruction plan” that challenges all current paradigms.

We may have to temper profit expectations away from “maximum” to levels more in line with the relative cost of capital elsewhere. The harmful inflexible aspects of luxurious labour laws have to be scrapped. Tax and regulatory burdens on companies should be re-examined. Pay disparities can be addressed by benchmarking pay differences to Gini type tolerance levels. If we cannot do this in one fell swoop, then let us experiment in pockets. We can apply different rules for small and medium enterprises. We can create organisations privately or jointly owned with labour that have special dispensation, including minimum employment restrictions and fortune sharing pay policies.

Compromise is only possible if one reverts to the simple mediation tactic of focusing on what unites rather than what divides. The crisis itself is an obvious one. But there are many more that can be even more profound for job creation and retention, industrial peace and company sustainability. This brings me back to my old favourites: common purpose and common fate.

The “what’s-in-it-for-me” creed has turned our current generation into a bunch of sissies, lacking the fortitude and risk tolerance of preceding generations. Today it is far easier to be a victim than to be a champion. A perfect example is our constitution which is seen as protection for victims rather than aspirations for a higher order of behaviour.

The same attitude prevails in economic activities including business and government. They are viewed as the providers of income and security rather than of service to others. This ignores the existential reality that these services exist because they serve. It does not take a giant leap of faith then to accept that they exist to serve. Behaving that way strengthens that reality. Behaving differently weakens it. It is this behaviour that builds companies to last, that moves them from good to great, and from being anonymous to iconic.

The conflict of interest between labour and capital is artificial, out-dated and inappropriate for our times. It is divisive and makes the forging of a common purpose in companies and other economic activities impossible. It also makes completely unattainable a compromise in the interest of a greater social good,

Until we achieve some semblance of common purpose, Busa and Fedusa will be dancing to the wrong music.

Monday, September 26, 2011

Are companies lying?

Often the most difficult question to answer is “why” – that three letter word that children can repeat relentlessly until you are driven to distraction, ending up either with “enough now!” or explaining Einstein’s theory of relatively.

Ask the same question about business and you end up with nothing as clear as E=mc2, but literally billions of words in organisational theory and consultant speak. Indeed, company strategy gurus, Collins and Porras suggest that you ask “why” five times before coming close to the purpose of the business. Judging from the responses to my previous articles on this theme, in South Africa you would most likely end on the first take with a dogmatic and unequivocal “to maximise profit”. The second “why” would solicit “more profit” and the third “even more profit”, and so on.

If you want to be bemused, then go through some company annual reports to see what they themselves say about their purpose. You will be fortunate if you can find some coherence around company intent amongst the many pledges and statements that reflect “why” – mission, vision, purpose, values, ethics, goals, branding and slogans – presented either as a new version of War and Peace, or as a three word mantra. At the very least, you will end up thinking that either they are lying or that they are indeed a schizophrenic lot.

So all of the time and money spent on “bosberade” and high flying management consultants on designing missions are wasted by behaviour that belies the statements, or are contrary to popular perceptions set in stone. Yet mission statement architecture has become an industry in itself, spawning some of the highest paid and best known management gurus. Browsing through some dedicated “mission statement” websites (some 6 million are suggested by Google) I was amused to see that you can even buy software programs to tell you how to tell others why you exist! The criteria suggested by two different programmes made it possible for the user to define maybe two or more very different purposes for one company.

The need for a rah-rah mission statement remains unconvincing to many. Statistical research by California academics Lance Leuthesser and Chiranjeev Kohli examined nearly 400 annual reports of the late 1980s to mid-90s. Only 16% of the reports contained mission statements; of these, more than 90% focused on customer needs first.

One thing is clear with all “good” mission statements. They mostly do reflect benevolent intent and making a difference to the good of others. This is the essence of entrepreneurial behaviour at an individual level. It therefore makes logical sense that the same should be present at a company level. Here are some examples:

At Microsoft, we work to help people and businesses throughout the world realize their full potential. This is our mission. Everything we do reflects this mission and the values that make it possible.

The Coca-Cola Company exists to benefit and refresh everyone it touches.

[3M’s purpose is] to solve unsolved problems innovatively.

[Mary Kay Cosmetics’ purpose is] to give unlimited opportunities to women.

[Merck’s purpose is] to preserve and improve human life.

Ford will democratise the automobile.

[At Pick ’n Pay] we serve. With our hearts we create a great place to be. With our minds we create an excellent place to shop.

The above mission statements all convey a “giving” spirit or benevolent purpose. Where not defined, it’s implied all the same. This fits in with the market-driven model. We can fairly say that for a company to be both ethically right and successful it should have a “serving” purpose, and that most companies at least say they have it. And yet, many perceive and experience companies differently. The company whose actions don’t bear out its statements of purpose is telling a lie. And it does so at the expense of consistency in service and focus on the customer and there will be a negative outcome sooner or later.

I came across an astonishing bit of advice in one of the “do-it-yourself MBA” websites: “While firms exist to earn a profit, the profit should not be highlighted (in the mission statement) since it provides little direction to the firm’s employees.” This is outright duplicity! If this is what’s being taught at business schools it is small wonder when employees snigger at battle cries about common purpose. But then the sages at Quick-MBA went on: “What is more important is how the firm will earn its profit since the “how” is what defines the firm.” I would not have taken this source seriously if it did not reflect a fairly common phenomenon.

Humanity seems to be defining itself more and more by what it does and how it does it, instead of why it does it. The “why” gives meaning and meaning comes from what we give, not from what we get. Without meaning we are nothing. We have no identity. We become very disturbed people if the “what” and the “how”, which are reflections of behaviour, are out of line with purpose, motive and intent.

There has been a notable shift in the past decade or two in the way companies see themselves as reflected in mission statements, vision and core values. Reading annual reports was part of my daily fare for some thirty years, and up to about the mid-1980s I saw many mission and vision statements that either explicitly or implicitly focused on shareholder value or profits. Today you will find few that do.

The shift itself is significant. It points to a growing need for companies to behave differently and become truly market-driven as opposed to profit-driven. According to Jim Collins, the best companies have always done this, but mostly market focus is still viewed as a means to an end and not as an end in itself.

The keys to success that apply to individuals and to countries also apply to companies. The overriding principle is that if people by and large are taking more than they are giving, they will create deficits and poverty. If they are giving more than they are taking they will create surpluses and prosperity.

Having an external focus and developing people is as important to a company as it is to a country. Indeed it could not happen at a country level if it didn’t happen at the level of a company, which is after all a cell of national economic activity.

A credible and successful mission is 1% formulation and 99% adherence and application. This is impossible without sincerity.

Monday, September 19, 2011

The Swiss Role Model.

Fritz Leutwiler has thus far not been given his own biography in Wikipedia. It was the nature of the man to be modest almost to the extent of anonymity. Yet he had an ability to leave lasting insights with many after even a brief interaction.

It’s not that his achievements and impact on the world of finance have gone unnoticed. As a leading Swiss banker, chief of the Bank for International Settlements in the early 80’s and the role he played in the transition from fixed exchange rates in the 70’s, his achievements have been well documented in some of the more august financial journals. His prophetic insight is reflected in a statement he made well before computer day trading, that the growth of transactions by computer would make it difficult to “allow any proper examination” of whether a commercial bank was solvent. For central banks, measuring the amount of money in circulation “would be nearly impossible”.

South Africans should remember him as the mediator between the government and foreign banks during the debt standstill after 1985. It was at that time that I met him briefly between negotiation sessions. We were given to small talk because the negotiations themselves were shrouded in the utmost confidence, a condition that Leutwiler found easy to impose as former chief of the B.I.S.

I have always been fascinated with the Swiss economic model, ever since it recorded a negative inflation rate in the early seventies, and Swiss banks were paying – or charging -- negative interest rates on deposits. It’s a position that the Swiss find themselves in again. As investors run away from paper currencies into gold, the one exception is the Swiss Franc which is even stronger in trade-weighted terms than it was in the 1970s. Its safe haven status is not related only to well-managed finance. Think of any socio-economic barometer that economists love to talk about and you will find Switzerland consistently in the top ten – Gross National income per capita, Human Development Index, Gini Co-efficient, longevity and even the Happiness index. It has again topped the W.E.F. Global Competitive Index despite having the strongest currency in the world.

It is standard fare for politicians, economists, commentators and journalists to trot out a whole host of key ingredients for prosperity and solutions to economic woes. Using a variety of socio-economic “wellness” measures in comparing countries shows that virtually none of the supposed solutions by itself, on its own, represents a formula for success. And this “success” is in any case measurable only at a tip of the iceberg.

The fundamental conditions for wellness (or abundance, in terms of a broader understanding of that term) cannot be found in one set of circumstances. If wellness is based on individual peace and contentment, then it has to start from within the individual. I have argued that at least from a human perspective (as opposed to a spiritual perspective) wellness is based on our capacity to give to others and make a contribution to the wellbeing of the world around us, as against merely taking and accumulating. If real wellness is achieved even only partly by some of the people of a nation, then the behaviour change will most probably ensure a far higher level of sustainable prosperity.

“Can you explain the Swiss success story to me?” I asked Leutwiler. He gave a faint smile that showed he’d had the question put to him often.

“What do you think accounts for it?” he asked.

I ran through all the popular theories – neutrality, banking, holocaust spoils, pharmaceuticals, watches, knives… He dismissed each one with little more than a few words of explanation and comparison. I was puzzled.

“What then?” I asked.

“You have failed to mention one,” he said. “It’s our best-known export. The one we are probably the most proud of. Its flag flies across the world. You see it wherever there is pain and suffering that needs to be addressed.”

I had no idea what he was talking about and remained silent.

“The International Red Cross,” he offered.

I blurted back: “But that’s not an export!”

"Why not?”

“Because you don’t make money out of it!”

The depth and subtlety of what he’d said was lost on me just then, perhaps because at the time I was attuned to scientific and quantitative arguments and saw him as a seasoned banker and the last person of whom one would expect such a “soft" response. What he was telling me was that the Red Cross represents a Swiss philosophy, a way of doing things that permeates through all transactions, including business.

It is the inability to think of economics as something made up of more than the systemic and measurable that has held back its true dynamic. That the Red Cross is a symbol of human compassion is unquestionable. The Red Cross as a dynamo of economics is unthinkable. It was only years later that the whole thing made sense to me, when I recognised the importance of behaviour that the model represented and how the behaviour pattern that accounts for success in the individual also accounts for success as a country.

It’s all about the ability to look beyond the reward, to focus on what contribution one can make to mankind without linking the behaviour too firmly to a desired outcome.

It’s the opposite of what’s-in-it-for-me and want-it-now.

Monday, September 12, 2011

Televised Democracy.

Did you enjoy the Mogoeng Mogoeng show on television? I was riveted for the nearly two days of the live broadcast. It’s been hailed as a giant leap forward in democracy where the Chief Justice is grilled by his peers live on television.

But this form of governance, transparency and accountability may deserve greater scrutiny before we get too excited. The question is quite simply whether Television brings out the best in people. I have my doubts based on my own 30 years of experience in the industry. Television is primarily a peddler of impressions and perceptions rather than information and knowledge. After my first TV news appearances many years ago, a friend called to congratulate me on my debut.

“What did you think of the report?” I asked

“I can’t really remember, but wear a different tie next time!” was the response.

During one of the early broadcasts of the TV business programme “Diagonal Street” a mischievous panellists decided to bait our studio guest, mining magnate Joe Berardo. Sceptical of the mining group Joe had constructed, the panellist asked: “How can you put together a lot of nothing and call it a company?”

Missing the taunt, Joe replied: “Through hard work!”

“And you’ve done really well!” another broker panellist remarked, obviously trying to promote some relationship with Joe’s company.

A better known example of perceptions driven by TV was when Pick ‘n Pay’s Raymond Ackerman faced Clive Weil from Checkers in a TV debate that I chaired. Earlier, Weil had accused Ackerman of some dubious “confidentials” in dealing with suppliers. A livid Ackerman flayed into Weil and reduced him to a very contrite and apologetic figure. In the end there was overwhelming viewer support for Weil who was seen to be unduly bullied by Ackerman.

It is virtually impossible for people not to play to some or other gallery when the cameras are on them. It is one of the most seductive media we know and can transform people in an instant, sometimes permanently with repeated exposure into self-aggrandizing monsters. As sharp and as astute as ever, political analyst Adam Habib recognised this point and condemned the performers/actors on the Mogoeng show for being closed-minded from all sides. He said: “If they were at university they would all have failed.” But Cosatu’s Patrick Craven inadvertently highlighted the real problem with this relatively new form of public accountability and instrument of democracy. “They were too polite”, he wailed in a TV news report.

That’s it! We need and expect TV to be entertaining. Interviewees must squirm. They must be provoked until they lose it before you have a show worthy of any kind of ratings. What most will remember of the Mogoeng show is when indeed he did lose his cool and tarnished whatever dignity he tried to maintain in 15 hours of gruelling.

Today they call it “provocative” journalism. It’s a technique where old world courtesy is abandoned for emotional impact. But it’s nothing really new. As a cadet reporter I learned very quickly that you could ask a simple question in two ways for different effects: The first: “why are you investing in South Africa?” and the second “aren’t you being silly to invest in South Africa?” The content of the response will be the same, but the manner of reply different. The former is for enlightenment and the latter for effect.

At the same time, by including a subtle editorial in the question, the interviewer seems clever and knowledgeable. A few “buts” and a good dose of interruptions and abrasiveness make for even better viewing and self-promotion by interviewers. There are other, even more subtle techniques, such as intense lighting or camera angles that can make the subject appear threatening, friendly, fearful or shifty. These, I must concede are seldom if ever used by directors or producers worthy of that status.

We are still far from assessing the full social impact of the electronic revolution on human behaviour. We already know that Television plays a major role in shaping society. In the United States, for example, money and media win presidential elections. John McCain had little chance against the TV friendly Obama, whose real performance in office now overshadows his ability to win over TV viewers. But it’s a feature of modern life that clearly will not go away. We just have to be more discerning in the way we judge or assess people who either use or are abused by the broadcast media.

Then, far from opposing job interviews on reality TV, I would encourage its expansion. Why restrict it to the Chief justice? As important and as vital as that position is, there are many that can have an equal, if not greater impact on our lives as ordinary citizens.

Cabinet ministers for one should be subject to intense interrogation by a panel of both opposing and supporting politicians, and also from representatives of groups who have a vested interest in the portfolio.

Leaders of state owned enterprises should clearly be included. I cannot imagine poor judgment from a Chief Justice having the same impact on the nation as Eskom’s power black-outs had. Leadership issues undoubtedly played a major role in that event.

There is a compelling argument to include top business appointments in the loop. The sheer size and power of some companies today have made society very vulnerable to their behaviour – Enron and Lehman Brothers being two big international examples. It is a point often raised when executive pay levels are defended.

The argument for more public scrutiny in the appointment of people into top company positions is also supported by the greater emphasis on governance, transparency and accountability as in King III. Companies are quick to argue these days that they have moved their focus from a narrow shareholder interest to a broader “stakeholder” interest.

Then the panel of job interviewers should include customers, employees, suppliers, shareholders, lobby groups, and government. The point is that like the JSC, it is not the final appointer – shareholders remain that. But the latter will be far better guided by this process than by some board driven by individual self-interest.

Who qualifies for inclusion as subjects can be easily determined either by company size or social impact.

I would be more interested in the questions put to incumbents to reveal their priorities and focus.