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.