Tuesday, December 15, 2015

President Zuma’s tarnished legacy

And how it has strengthened our democracy.

When an astute chess opponent leaves his queen exposed, your instinctive reaction is to take it. Mindful of his skill, however, you consider that it may be a deliberate sacrifice to achieve check-mate a few moves later. But you take it anyway, and then discover that your opponent simply made a stupid blunder.

I cannot think of a more appropriate analogy for President Zuma’s sacking Nhlanhla Nene as Minister of Finance and then having to backtrack to reappoint Pravin Gordhan. The brazenness, manner and timing of the announcement, and the ensuing flip-flop, all point to the unthinkable: the possibility of a simple, stupid blunder – perhaps triggered by a hissy fit after Nene’s doomsday address to cabinet a few hours earlier. While tantrums can sometimes reveal the monster within, in itself it is also a disturbing reflection of power-blindness, one that does not fully realise its own limitations.

We have clearly paid a huge price for this folly and in the weeks ahead will continue to do so. It’s not necessary to repeat the doomsday responses from a large body of respected commentators, analysts and economists, including some of the nebulous calculations of the cost. They are all valid, but at the same time miss the most important point of all: the drawing of a solid line in the sand to show the world that democracy is very much alive and well in this country. The disturbing image of an unstoppable autocrat hell-bent on power-mongering and political intrigue for self-gain has been substantially countered if not destroyed.

In time that should become the overriding message to counter the immediate concerns about having an unstable, unpredictable and confused captain at the ship. Without doubt his wings have been severely clipped. Only time will tell whether this bird of prey can fly again. I somehow doubt it.

At the very least that solid line in the sand will remain as a reminder, not only for the captain, but his lieutenants and inner circle as well. It stands clearly drawn. Cross it at your peril. It is formed by invincible forces that stand outside conventional democratic processes but are crucial to them.

The first is the global markets. They can be criticised for being bi-polar, fickle, impetuous and even emotional. But no country can ignore them, especially not one with an open economy such as South Africa. They will wreak havoc with your domestic well-being; consumer prices, jobs, your ability to borrow money, and the price you pay for your debt.

Current world markets may be fickle, but that very fickleness is why a country has to gain their trust and their favour. In a perverted way, and with the hefty “klap” we have been given these past few days, there is a glimmer of hope that in time we can do just that. For market trust is also largely based on a perception of checks and balances in political decision making. The last few days have shown that we do have that, certainly the first such sign in a very long time since Zuma took the helm.

Another relatively newcomer to power curtailment are the social media. The power of a free conventional media has been known for some time, but in my view and life experience is often overrated. But not so the social media. While admittedly they are relatively new in my life, I have never quite experienced such a galvanised expression of anger and outrage at a government pronouncement: vehement, inflammatory, perhaps even hysterical and defamatory. We have been given a taste of those forces that triggered the Arab Spring, and the ability to effect regime change. Not even the most megalomaniacal mind can ignore that, despite its still rather limited reach in this country.

These two forces: markets and media stand on a rock solid foundation in this country of a vigilant citizenry, as often demonstrated in ongoing street protests and elsewhere; powerful institutions, including Chapter 9 bodies and an active NGO sector; a strong and independent judiciary; an overriding constitution, and a still solid private sector that may have become muted by global economic conditions but that still has to be seriously wooed to contribute to the welfare of South Africans.

Certainly, President Zuma has made serious inroads into all of these. But ironically one could also argue the opposite:  that we should be celebrating Zuma. Not lamenting him. He has single-handedly stopped the growth of a political party that was becoming far too dominant and autocratic. He has created the strongest, albeit disjointed, opposition since 1994. He has put the mighty ANC on the defensive, forcing it to defend its behaviour rather than its promises; personalities rather than principles. He has fragmented not only his party, but its alliances, and has triggered the birth of another powerful political player in the form of the EFF. This will no doubt become evident in next year’s local elections.

The lessons of his tarnished legacy are also valuable. Having a moral compass is not only a question of sound values; it is also a matter of self-preservation. One cannot rule effectively and sustainably on patronage, fear and seduction. Sustainable power is based on having the interests of followers at heart. Great leaders are always seen as servants first. We have also seen that panic is seldom productive; outrage and anger is much more effective.

On balance it has been a good week politically. Far from our democracy being weakened, it has been strengthened. In time, hopefully the credit agencies and markets will come to see that.

Sunday, December 13, 2015

Purpose and provision

The two most vexing issues in retirement.

Our local family doctor has just retired. Word has it that in the early stages at least he has been at a bit of a loss and frustrated with the change. He has now resigned himself to spending time with his family as he “contemplates his future”.

This is certainly not an unusual experience for many entering retirement, especially those that see it as an end to something and not the beginning of something – an end to years of toil and simply entering a life of leisure. For medical doctors this must be particularly frustrating. Most of us see medical practice as the ultimate form of fulfilment, a purposeful pursuit in service to others, and one where there is constant affirmation of a contribution to society. This is particularly so for those is small town practices, where they get to know their patients intimately and are viewed by them as members of an extended family. In addition, of course, few in medical practice need be too concerned about provision, and no doubt over the years have ensured that this spectre will not haunt them when they stop practising.

But what it does show is that even those who do not lack provision in retirement can still be frustrated by lack of purpose. Unfortunately for many retirees both are of concern. Purpose and provision are the two main driving forces in our lives and finding a proper balance between the two is fundamental to contentment. For purpose and provision you can also read contribution and reward; meaning and means, and the basic instincts of empathy and survival.

It becomes particularly vexing in retirement for on the one hand, the end of active employment robs one of a sense of purpose, and on the other limits one’s capacity to cope with provision, or at the very least removes aspirations for an improvement in lifestyle. So the elusive balance we may have found in our working lives is suddenly and severely disrupted.

These may be fairly obvious circumstances that face retirees. Yet many I have spoken to, and even in my own experience, one can, like our family doctor, be caught flatfooted within a short time of that critical life change.

Provision is more tangible to deal with. True, the average person does not give sufficient thought to their retirement needs early in their working careers, but as they approach retirement, most would become acutely aware of what they would need and would hopefully have read the volumes of excellent material on the subject on Moneyweb. In addition, we have a very reputable, well controlled and active financial advice and retirement planning industry in South Africa. While we still hear of many cases of pensioners being taken by scam artists and fraudsters, I do believe these are the exception.

Of greater concern in provision are the personal choices one often makes. They include whether or not to sell one’s home, moving to a different area or to the coast, taking a world sea cruise, buying a coffee shop, or investing in a new venture. These are very personal, and few financial advisers are equipped to give advice beyond pointing out the financial implications of those choices.

Many of these choices are linked to purpose, or meaning, illustrating the strong connection between both of these life drivers as well as the strong desire to continue having some purpose in life. But they come at a time when one should be more averse to risk, and it is senseless if one forges ahead with some plan to establish some purpose in retirement, only to have that potential serenity destroyed by concerns about provision. A good example is the number of people who invest in some B&B in an exotic place only to discover that it not only takes hard work, dedication and long hours, but that these ventures can be a financial drain.

I believe the real problem lies in not giving enough serious attention to the “what” and “why” of retirement rather than simply the “how”. In other words, we spend a lot of time, effort and funds on ensuring a “comfortable” and “trouble free” retirement financially, but not nearly enough, and not early enough on ensuring that we can maintain some sense of purpose. When I speak to young adults, and those in their forties and above, I strongly urge them to develop some hobby or alternative activity that they can pursue in retirement. Preferably this should be linked to some commercial benefit, not only because nothing gives one a greater sense of affirmation than a commercial transaction, but most will find the additional income very handy.

Failure to plan early to establish a sense of meaning in retirement is, in part, simply because we underestimate the sense of purpose we had in active employment. No matter how much we disliked our work, the hours, the traffic and a belligerent boss, work has an inherent sense of purpose. We only recognise that fully when it comes to an end. It’s the old story of wanting to run away from something so badly that we fail to consider properly what we are running towards.

Another danger to consider is over-reaching in the new pursuit. You may attain your dream of that small plot in some idyllic rural area, where you grow vegetables, herbs and raise some chickens for market; only to discover that in time you lose energy, concentration and all the physical faculties you need to continue that pursuit. Changing gear at that time of life is far more traumatic than at a younger age. Of course it is a personal choice whether you are prepared to face that. One simply must not underestimate the discomfort it may lead to.

People and personal bonds are a key ingredient to a happy retirement. Few can face seclusion and isolation in their twilight years. Yet many seem destined for that. I have witnessed many sad cases of the elderly in retirement homes and frail care centres, abandoned by even their closest family. Of course, this is not completely in one’s own control and indeed it is a very sad reflection on modern life to see how the elderly have fallen from their revered status decades ago, to the kind of ostracising we have today. So whatever can be done from the retiree’s side to avoid that is worth the effort.

But of course, death itself is a lonely experience. And the last few years by their very nature are an inward, reflective journey.

Wednesday, November 25, 2015

Lessons from company gunslingers


An important distinction between content and context.

Jimmy Furstenburg was a company gunslinger. It’s a term frequently heard in the frenzied days some decades ago, of organisational “re-engineering”; when structure was seen to be the most fundamental feature of company strength and which gave rise to the gunslingers, hit-men, or the formal description of turnaround consultants.

They would come in on contracts of a few years as “interim managers”; turn the company, site or plant around and restore or improve profitability. They would then move on to the next one and like the old gunslingers of the American West, reputation would open new doors and determine the lucrativeness of the next contract. Specialised knowledge and experience of their clients was far less of an issue than their ability to massage metrics, manpower and other resources to ensure that at the end of their term they had restored the site to maximum profitability.

One of the better known in South Africa, was Coleman Andrews, an American import contracted to restore South Africa’s national airline, SAA to profitability. After 20-months at the helm, the company could report a profit of R350m. Andrews left with a pay-out of R220m, 14 months before his contract was to expire and stripping assets such as aircraft, and outsourcing internal functions to the lowest bidder. Even a superficial glance at the performance figures would have revealed that without the sale of aircraft, SAA was still running at a substantial loss, which returned within months of Coleman’s departure.

Despite many turnaround specialists probably having done laudable work, it’s a moot point whether these efforts on balance caused more harm than good. It was more than coincidence that in the wake of the re-engineering fad, we saw the birth of another called sustainability, still a major force in organisational strategy today. The era of re-engineering and with it the ugly sisters of containment, rationalisation, restructuring, reconstruction, deconstruction, and similar terms in consultant-speak, came on the back of a fundamental shift in the 1970’s to short term thinking and maximum returns in the shortest possible time. This was not only witnessed in company strategy but also individual behaviour.

Despite rigorous efforts to ensure sustainability, including King III, good governance prescriptions, sustainability reports and even legislation, short termism is still firmly entrenched, exacerbated greatly by executive rewards based on dubious criteria, shareholder pressure for immediate returns and the frenetic pace of trading in financial instruments. Turnaround specialists and interim managers by the nature of their briefs, simply fit into this mould.

It was an epiphany Jimmy had on one of his last assignments that gives an important insight into this behaviour. He told me that despite many successful ventures, he was becoming increasingly disillusioned with what he was doing. It dawned on him that he was constantly working with content, and very little with context. It was during this time that he came across my work and publications and decided to change his career course. He has collaborated with me on two recent books and is taking the concepts further in practical application in the marketplace.

Content is simply working with the factors mentioned earlier: financials, manpower deployment and resource allocation.

Context relates to the company’s relations with its outside environment, with its purpose and with factors such as markets, customers, innovation and those things that give all involved a sense of purpose and making a difference to others.

It’s an important insight that can easily be lost as one squeezes company operations for maximum returns in the shortest possible time. At the same time it gives a valuable tool for assessing a company from a variety of perspectives, including sustainability and investment. An emphasis on content may deliver results for traders and speculators, but context is far more important to longer term value investments.

A company’s focus on content or context can easily be identified simply by seeing what company leadership is pre-occupied with; what excites the CEO and his team; what grabs the attention of the board. There are many examples apart from the SAA debacle, which illustrate how an exclusive emphasis on content can lead to disastrous long term consequences. Yet, for many it seems to be the more important of the two. A more recent example, of course, is MTN’s run-in with the Nigerian authorities. A focus on income (content) overrode regulatory requirements (context).

The distinction is equally important in many other areas of our lives. The most obvious is our working environment. I can recall a number of articles I have written about this, albeit from a different perspective. For most, the daily working routine is simply about content: about tasks, deadlines, deliverables, time clocked and the routine pay check. The broader context of making a difference to others’ lives is lost, although it can be easily found simply by making the link between those tasks and the common purpose of all in the company in serving its market.

There is a well-known anecdote that illustrates this: the one where a sweeper at NASA was asked what he was doing and he replied: “Helping to put a man into space”. The same distinction can fruitfully be applied in assessing our personal lives: how much is related to routine, forgettable content and how much to elevating and empowering context.

Content is about means; context is about meaning. Content is about living; context is about life.

Wednesday, November 11, 2015

Education: beyond slogans and hash-tags

The missing link in getting real value from education.

There were two Koreans in the class of 1983 of the Senior Management Development programme at the Oxford Centre for management studies (now called Templeton College). They were severely disadvantaged because one could manage only a few English sentences, and the other hardly understood the language at all.

They would record every word of every lecture and with the help of an interpreter back home, work through the material for hours after class. In effect, they were spending twice the time on lectures as their classmates did. Yet, they soldiered on for months, helping each other in a camaraderie typical of those determined to achieve a common goal. As if that was not enough, they would constantly question their fellow classmates who hailed from various countries, again recording every word and throwing that into the mix of information they would work through at night. It was as if they were hopelessly addicted to knowledge.

These two were a perfect reflection of a nation determined to succeed – one that clearly saw education and knowledge as the key ingredient. They epitomised the superhuman work ethic that Koreans were known for, and I finally got to understand what was behind the Korean economic miracle.

Of course there were many other factors that contributed to that miracle, not the least of which was the conversion within one generation and with massive US funding, of a mostly agrarian society at the end of the Korean War in 1953 into a largely industrialised state. With that came huge investment in education and training. Then there was cultural cohesiveness, galvanised by the constant threat of an aggressive northern neighbour. Above all, like Germany and Japan after WWII, they were a society devoid of any sense of entitlement; one with low individual expectations and high aspirations. The perfect recipe for success.

It is that recipe that South Africa would do well to consider seriously in its current agonising about education, particularly accessibility to higher education. The student unrest of recent times has sharpened the focus on this undeniably critical issue but has also created some blind spots that we may ignore at our peril.

Much has been said about affordability, and funding will no doubt be central to the debate in the foreseeable future. The issue of whether we can afford “free” or at the very least low cost access to higher education, can easily be answered with the question of whether we can afford not to. Education as part of state expenditure should be reassessed to be viewed in the same light as infrastructural and not current expenditure – because the benefits of skilled and productive labour are felt some years later.

This makes the expectation by Higher Education and Training Minister, Blade Nzimande, of greater private sector involvement in meeting these costs disingenuous and a deflection of accountability. Apart from the fact that the various forms of government and state owned enterprises are the largest employers in South Africa, what benefits the private sector ultimately also benefits the government.

While matriculants are writing their final exams, we should be reminded that access to higher education is the smallest part of wasted potential. This loss is far greater at secondary level, and even more at primary level. Funding for education generally is not the primary issue; we have one of the highest proportions in the world of budget allocations to education. Dismal returns on that investment are the real issue.

But at the outset, we have to explode the myth that education on its own will promote growth. All it can do is remove skills shortages as an impediment to growth. The same can be said of capital: availability on its own will not promote growth, only remove an impediment to growth.

Certificates are never proof of competence. We have an obsession with diplomas and certificates in South Africa as an end in itself and not a means to an end; to the point of risking fraudulent claims at the highest levels and irrespective of subjects covered. There is an assumption that the certificate alone is the final decider of the holder’s destiny. Yet low economic growth and a global trend towards lower labour participation have led to a relatively new problem of graduate unemployment.

The latest quarterly labour bulletin puts graduate unemployment at about 9%. It is a moot point whether this will not increase further as the supply of graduates increases. In some emerging economies, such as China and India where there has been much emphasis on higher learning, graduate unemployment has been estimated at about 30%. In many developed countries such as Europe and North America, graduate unemployment at about 7½% is often higher than the general unemployment rates. These figures increase significantly for youth unemployment.

As an analysis by economist Mike Schussler’s shows, education is needed for economic growth, but on its own does little to promote growth. He points out that there has been a significant increase since 2002 in the number of adults with matric or more, yet there has been no notable increase in economic growth.

All of this points to an urgent need to introduce a touch of realism in student expectations and to counter the display of entitlement, supported no doubt by lofty aspirations entrenched in the constitution and political rhetoric. The ultimate victims will not be those who made the promises, but those who expected them to be met. It has become fashionable and arguably very counter-productive, to shame into silence those who use terms such as “entitlement” and “unrealistic expectations”, with responses such as “trans-generational privilege” and “legacies of the past”. Whatever the merits of those responses are, there is no greater destroyer of self-accountability than finding someone or something else to blame.

The often argued “mismatch” between subjects covered and skills required in the workplace is, in my view, also exaggerated. All knowledge should be empowering and indeed apart from highly technical and specialised fields, many find theoretical knowledge obtained in academic pursuits of limited value in practical application. Witness too the number of self-made men and women with either limited or irrelevant academic achievements.

If students apply the same fortitude to self-help as they did in their protests they will be assured of a much brighter future. There are three main components to self-fulfilment: academic qualifications; skills and experience, and willingness and self-accountability. It is the latter that defines us and has by far the greatest effect on our destiny. It is the ultimate determinant of success. It is also an essential component of entrepreneurship.

Shame on those who blunt that in our youth for popular appeal and political expediency. Even greater shame on those who fall for it.

Tuesday, October 27, 2015

When business soars

A salute to the real spirit of free enterprise


It’s become quite fashionable to bash business. This is not only because of the often irrational adherence to, and in some cases the revival of outdated ideologies, but the perceived transgressions of companies in customer service, approach to labour, and often anti-social behaviour such as price and supply collusion, corruption, environmental pollution and many others. As we saw with the recent Volkswagen emissions scandal, even the most trusted brands are capable of breaking that trust.

Then there’s the business environment itself, which has changed dramatically in the past four decades to become increasingly shorter term in thinking; profit maximising; shareholder value focused; inordinate and arguably unjustifiable executive reward systems; income disparities and inequality; declining labour participation and centralisation and growth of global capital and financial instruments.

It must be difficult to throw the business laundry in this murky water and expect it to emerge unstained. Those are the things that pre-occupy popular news headlines. They also completely overwhelm and distort the true spirit of free enterprise. But occasionally some do break the mould and serve as a reminder what business is about; that they indeed come from the real and original mould.

That original mould is confusing for ideologists who claim that they have been produced by a particular economic system or theory. In fact, for the most part they stand apart from systems and yet are crucial to them. It also leads to some comical assumptions by organisational theorists who believe that these majestic giants can be replicated through structure, strategic templates and reward systems pandering to the material self-gain of those involved.

There are three forces that account for entrepreneurial genius and they seldom exist in one person.


This is the real creative power of humanity. It can happen at any level, sometimes by accident and sometimes dating back years, even centuries, More often than not discoveries come from the unrecognised, unsung, often unrewarded and yet the true heroes of innovation – scientists, researchers, backroom developers and even the average Joe or Jane. Discoveries are independent of systems or social constructs. They are nurtured through curiosity, and reinforced by education and knowledge.


This takes discovery and converts it into practical application. It changes form into meaning. Again, this is aloof to economic systems and is also the outcome of curiosity as well as the core of all successful and sustainable ventures – usefulness to others.


This is crucial to the sustainability, development and growth of what has been discovered and invented. Without commercialisation the first two will either die or lie dormant. Its critical contribution is in attracting resources such as skills, capital and labour, ensuring a sustainable equilibrium in their distribution in production.

It is clear that economic systems play a critical role in this phase which can only be nurtured and sustained in an environment of individual freedom guided by the forces of legitimate transaction of supply, demand, price and competition. But it also has a few flaws.

One is the belief that the system alone creates the whole majestic process, to the extent of attributing it exclusively to the application and rewarding of capital, sometimes at the expense of other contributors. In the process, weight is giving to institutionalised abstracts such as capital or labour, as if they have a singular thought, motive or predictable behaviour. In truth they are an imperfect abstract of a multiplicity of constituent forces.

Another is the inordinate recognition both publically and materially, that it gives to a specific person or people involved in this phase and failing to recognise fully other contributors. Yet, one has to concede that true entrepreneurial flair lies largely in commercialisation.

The best example we have of this process has been space exploration. The first discovery that led ultimately to propulsion in space was the use of steam in the last century AD and then by the accidental use of gun-powder in China in the first century. Many steps followed, with one of the more significant being the development of the V2 rocket in Germany during the 2nd World War. Then came the “space race” which saw the Soviet Union launching first a satellite and then a manned craft into orbit, and later came America’s first moon landing. The development of space exploration up to that point was clearly independent of systems and regimes – from individual experimentation to large scale government involvement.

Today we are still in the early stages of full commercialisation of space activity, primarily through the use of satellite communication and exploring space travel. There is little doubt that private enterprise is going to play a leading role in the final conquest of space, especially with the entrepreneurial genius of people like Elon Musk.

The most fascinating part of all is what motivates the great minds and actors that have made such a difference to our lives. Our singular obsession with capital, specifically the profit motive, denigrates and demeans these contributions. It taints them with a brush of material self-gain which simply does not give credit to the real essence of their achievements – their ability to look way beyond self-gain, often to the extent of ignoring the accounting spreadsheets. (See what motivates Elon Musk here and others here)

Yet we try and replicate that genius in a collective called companies or “business”, subjecting them to a completely different, arguably very narrow, focus of return on capital. It leads to the kind of confusion the huge battery of organisational theorists now display – trying to define “purpose” and “profit” as separate, and yet insisting that they are the same; purpose simply being a means to a profit end. This eventually leads to semantic gobbledygook. (For latest example see Moneyweb article here).

Ultimately you can never buy entrepreneurial genius, only reward it.

Tuesday, October 13, 2015

Why economists often get it wrong

When theories they follow no longer work in practice

The recent article by Moneyweb columnist, Magnus Heystek, challenging the reliability of predictions by rank and file economists, draws attention to the tenuous basis on which many forecasts rely. It was something of an offhand comment on social media by one of the more outspoken and challenging members of the profession, Mike Schussler, that points to a much deeper malaise – the divergence between conventional theory and practical experience. This indicates that it is not so much that economists are often getting it wrong, but that the assumptions they make are based on economic laws that may no longer hold true.

At the root of the problem is the massive accumulation of investment funds coupled with a growing capacity to generate these funds incestuously. It does so through large scale leveraging and speculation with a never-ending supply of money through debt. In the process it has rewritten a very old classic economic law that enterprise, or the production of goods and services, leads and capital follows. In essence that law means that enterprise creates value which in turn collateralises debt and ultimately redeems it. This holds true even for Governments who have to rely on tax income from enterprise to fund and redeem their debt.

Latest figures show that global debt stands at some $200 trillion. That is nearly 3 times gross world product (or the sum of national GDP’s), and $56 trillion more than it was before the financial crisis in 2007. In theory, debt should expand money supply, leading to increased consumption and demand, which boosts production and in turn increases incomes of workers and returns for investors. Hi-ho, hi-ho, it’s off to market they all go to spend for even more prosperity. That’s classic “trickle down” stuff that has been the basis of convincing arguments for capitalism. Indeed those that scoff at concerns about current levels of global debt rely largely on an assumption that in time that dynamic will kick in and we will see a return to the old and real world of value creation responding to consumer demand to gradually redeem that debt.

They point to the level of massive debt after the war, and how the world was able to restore equilibrium in subsequent years. Of course, what is ignored in that assumption is that reconstruction after wars not only needs massive debt expansion but also leads to considerably enhanced productive economic activity through repairs, renewal and replacement of destroyed property and factories. Combined with giant leaps in technology, it is virtually guaranteed to introduce an era of abundance.

But this time it is very different. Debt and low interest rates have not fuelled consumer demand which in turn would encourage production and higher economic growth. For that reason it has also not encouraged investment in productive capacity, with corporate reserves globally at high levels. In South Africa alone latest estimates put company savings at a staggering R600 billion. This is a fundamental break from conventional economic modelling, something which policy makers refuse to acknowledge with successive bouts of quantitative easing first in Japan decades ago, then the United States and now Europe. Today, there is an inconsistent combination of a system flooded with low cost money, low interest rates, low inflation, and low growth, causing untenable imbalances with which most readers will be familiar.

It is common knowledge that an inordinate amount of money has been flowing into speculative instruments, including high-end property, stocks, bonds and derivatives. Latest estimates put the last mentioned alone at some 20 times greater than Gross World product. The feverish speculation in shares is reflected in the U.S. where trading of securities in a year is nearly 130 times the value of underlying IPO’s and secondary offerings -- $32trn to $250bn.

This has fundamentally changed the relationship between finance and real value creation. In an earlier Moneyweb article I questioned whether financial services had not become a parasitic monster. It is no longer “fringe” or outrageous to question not only whether the sector adds value, but whether it may indeed be destroying it. The champions of speculation, derivatives, and trading in financial instruments have always argued that these activities “smooth” market adjustments.

This holds true only as long as the conventional model of enterprise leading and finance following is observed. When the roles are switched and the tail wags the dog you no longer have a smoothening effect, but the opposite. This is especially true when that tail is manipulated by anticipation, expectation, rumour and greed of a bunch of skittish, sometimes even cavalier actors. According to speculative theory one should never have enduring states of overbought or oversold, based on the underlying fundamentals.

It is not that those fundamentals are completely ignored. It is just that they are seldom properly assessed, given sufficient weight and can sometimes even be swayed and influenced by the speculation itself to become self-fulfilling prophecies. In these circumstances one cannot entirely blame economists for preferring a consensus view. Of course we should admire those that don’t; those that stick their necks out. There are few enough of them and it is indeed a great pity to see their heads blown off for breaking ranks and trying to emerge from the trenches of consensus or expedience.

But even when they do, one can only wonder how they cope with so many irrational variables. It’s a bit like trying to make sense of a conversation in a lunatic asylum.

Tuesday, September 29, 2015

Lessons from the dead

The true nature of the evolution of humankind


Homo Naledi no doubt had many wondering what all the fuss was about. On the other hand there must have been as many, if not more, who wondered why not much more fuss was made of it. At the very least, very few would have missed the discovery of ancient hominid fossils in a cave some 50 kilometres north-west of Johannesburg, described by National Geographic as “one of the greatest fossil discoveries of the past half century”.

In revealing the discovery, lead scientist Lee Berger described it as a new species that contributed to the pool of genes that eventually made us what we are as humans today. In the process he prompted inevitable detractions from a handful of his peers and emotional protests from those who have firm beliefs about the origins of humankind. But in the end the significance of unlocking the mysteries of our prehistoric past has to be more than academic or even simply revealing how we adapted as a species. It is has to tell us something about the evolution of our behaviour, more specifically how we behave towards each other.

Indeed, this is the ultimate measure we all use to distinguish ourselves as a species: our much greater ability than other creatures to forge social cohesion as the ultimate determinant of our survival. It is that distinction which marks our evolution; that sets us apart from other creatures and accounts for our dominance on the planet. It is also that distinction that leads to a rejection of the idea that the level of social empathy which humans have, could have come from an evolutionary process and be anything else but externally inspired.

So when a team of scientists discovers that this trait may have been present in “non-human” yet prehistoric ancestral creatures dating back possibly a million years or more, its significance cannot be underplayed. It is true that Berger and his team reached this very tentative and speculative conclusion on circumstantial evidence only and by eliminating all other possibilities. This was that the fossils got there by some form of ritual burial. As National Geographic put it: “Disposal of the dead brings closure for the living, confers respect on the departed, or abets their transition to the next life. Such sentiments are a hallmark of humanity”.

It is self-evident that such a display of respect for the dead can only be the outcome of a similar regard for the living and a very high level of caring for each other. If confirmed, it would be a highly significant finding. Previously the earliest display of such behaviour was concluded from the discovery of a 200,000 year old jawbone which told the story of an elderly woman who was kept alive thanks to the kindness of her companions.

Evolution then is much more than how we have adapted physically and intellectually to our environment. The most important criteria is about how we behave towards each other. Which poses the obvious question: have we really evolved fully as a species? Are we much more advanced than Homo-Naledi? Some would argue not, although I’m not one of them.

There is overwhelming evidence of our ability to care for each other, of empathy, as an instinctive and not purely cognitive, cultural, religious or taught behaviour. This exists on a personal anecdotal level in the way we feel when we see someone in pain or distress; on a neurological level through monitoring human brain responses to the predicament of fellow creatures (or even others such as Rhino and Cecil the lion); and now increasingly through palaeoanthropology. It is also reflected in most of us recognising universal values such as honesty, integrity, justice, fairness, and empathy.

It is true that for centuries we appear to have been on an evolutionary trajectory that favours the immediate self-interest driver; that excuses acts of blatant meanness on the understanding that it is based on a natural instinct of survival. We have even come to expect this behaviour as an essential ingredient of success, and have constructed a variety of measures on an individual, country and company level that not only encourages but ultimately drives it.

Our understanding of business is that it exists primarily for the self-gain of the owners which can even be at the expense of the other, limited only by competition and laws. But in essence the opposite is true. Trade and human transaction were giant leaps in the behavioural evolution of mankind. Their very core is based on an ability to identify and respond to the needs and wants of others. To argue that this is inspired exclusively or even primarily by individual material self-gain is presumptuous at best.

Yet it was somewhat ironic to have the Homo-Naledi news headlines mostly displaced by the plight of millions of migrants and refugees. In dealing with this humanitarian crisis, how would the receiving countries and indeed humanity as a whole be ranked on the behavioural evolutionary chart?

Our evolvement as a species physically and intellectually may be at the extreme right of this chart. But our behaviour may still be on the far left.

Now that would be a far more telling measure than any other we have followed.

Tuesday, September 15, 2015

A momentous time

A trio of mega-trends fundamentally changing our lives

I’ve never had much faith in futurists. The flaw in futurism is that it simply cannot accommodate the entire context that will influence ultimate outcomes. History scholars also tell us that one can never accurately evaluate current events in the short and medium term. It needs half a century or more to place them in a fuller context and even then, their effects could continue to challenge those assumptions for decades to come.

But one could safely say that the current shifts in human co-existence are so great that even the most insightful minds will be hard-pressed to paint a picture of the final outcome, and then only in the broadest of brush strokes. When you are too close to a tapestry, you cannot see much more than a few threads; giving an impression of disjointed disorder. Stand back a pace and it becomes clearer. A further pace or two and the majesty of the work is revealed.

A very large part of humanity, individual threads in a tapestry, are in excruciating pain. Many are in grief, in struggle and in deep stress about the future – from the child refugee separated from his or her protectors in an unknown and menacing world, to a stock broker wanting to end it all after being devastated by giddy bi-polar markets. The stark difference in circumstance between the two does not reduce the level of anxiety; perhaps the innocence of the former even tempering it.

Many of those who have lived for seven decades or more, would have endured much; finding some consolation in the belief that “this too shall pass”. What is true for the individual, holds true for the species. A trio of trends we are in are disturbing if not deeply painful. There can be little doubt that they will leave humanity completely altered; a state that most likely will overturn many assumptions we have had about our co-existence: what harmonizes and what polarizes.

Millions on the move.

Some 60 million people have been displaced in just a few short years -- most by conflict in North Africa and the Middle East. Not all become migrants or refugees but while much of the world is expediently trying to distinguish between the two, this tsunami of humans moving from one place to another has already been described as the greatest humanitarian crisis since the Second World War, symbolised by the body of a 3-year old Syrian boy washed up on a Turkish beach, and broadening public sensitivity to their plight.

The root cause is largely economic, including the spark that lit the conflicts in the first place. That in turn has been driven in part by a systemic economic flaw that in the name of free markets, unbridled movement of often fickle and opportunistic capital is allowed; free movement of commodities, goods and services to a lesser extent but the free movement of people, or more specifically labour is prevented.

In addition, we have a confusing Colonial legacy of what makes for a sovereign state: people or territory. Colonial powers with arbitrary borders and multi-lateral haggling about territories, divided homogeneous peoples and lumped together many with stark cultural differences. The current movement of people can affect all of these constructs and overturn many assumptions that have been held for centuries about national integrity. At the very least, it further encourages the pursuit of a vaccine against the social viruses of factionalism, racism and xenophobia.

Destroying the means of exchange.

When your means of exchange, money or currency, is increasingly delinked from the goods or services you are exchanging, you are creating financial alchemy. This is what we have done with financial markets, flouting an old wisdom that enterprise and trade lead and finance follows. This has also been based on a very shaky perhaps even false foundation of exploding debt: that thing that allows you to create something out of nothing, until you discover its nothingness.

I have covered this subject many times, explaining my jitters when markets behave the way they have more recently and arguably reflecting the growing uncertainty about where this highly questionable, wealth polarising abnormality will end. This is intensified for those of us where “riding out the storm” is simply no longer feasible.

Optimists believe that we have the mechanisms to cope; that indeed it is simply a question of riding out a storm; that the way things are will not end suddenly, but fade in a long and perhaps even permanent whimper of low growth, deflation and “structural adjustments” at individual country level. Pessimists believe that there will be a hugely disruptive collapse; a financial cleansing unprecedented in history. This implies a return to basics, some say based on gold, others putting their faith in the magic of cyber currencies.


People are becoming increasingly afraid. The number of studies and reports expressing concern about the pace of technology has increased. (See a recent analysis here). In short, technology is no longer seen simply as being our friend and one can no longer scoff at the effect it will have on jobs, the environment and society as a whole. It has given birth to a rapidly growing class called the Precariat: jobless, career-less, and for a large number, even hopeless and dangerous.

Still, it’s an inexorable march that has much promise, and as with previous technology revolutions, we will adjust in time. What is of concern is that it has for some time been disrupting the relationship between capital and labour, or more broadly, owners and doers in the creation of wealth. Together with financial alchemy it has exacerbated exclusivity and inequality causing an enormous strain within humanity. Both are removing an essential conduit of wealth distribution: money in the pockets of ordinary working folk which is the catalyst of demand and inclusive economic growth.

It is clear that technology is rapidly rewriting all of our traditional assumptions about economic constructs including some of the mad metrics we use to drive and assess the economic locomotive. Conventional theories of capitalism, socialism, and any other “ism” are becoming redundant. Yet we will vehemently argue from these perspectives with little thought of the need for a completely new inclusive economic model that can accommodate this change. (See WEF report here).

There are many other trends one could cite that will affect us for decades to come. Many will take issue with me because I have omitted climate change as the most important shift of all facing our species. It is true that humanity’s impact on the environment is rupturing harmony with nature. But I have not dealt with it because no-one can really be sure if humanity alone will cause an environmental apocalypse, or whether some or other major event, even extinction, will not be caused by nature itself or cosmic roll of the dice. In addition, it could be argued that what we are doing to the environment is an effect and not a cause of the other three.

So what prompted the uplifting headline that we are living in a “momentous time”?

On a personal note it is not only because advancing age guarantees one of an endurance sell by date, but also because one can only marvel, and perhaps even be entertained by the individual threads of this splendid tapestry: those that babble about Nkandla, a falling rand, a gyrating ALSI, a raucous parliament, a comic red beret, legacy tantrums and so many more. In the end, and informed by a hindsight of many years, they become little more than that ambient, hypnotic and meditational murmuring you hear on a long distance flight.

A step back and the splendour is revealed: a species at a cross-roads facing a simple choice between its two main instinctive driving forces, that of survival or empathy. I believe that we have for too long assumed that survival trumps empathy; that they are even mutually exclusive. They are the same. They are one moment. The latter is just far nobler. It’s what sets us apart and accounts for our majesty as a species.

That is the lesson of this momentous time.

Tuesday, September 1, 2015

The Rand: winning or losing?

Winning the battle but losing the peace in a currency war.

One could be forgiven for being somewhat confused by the verbal fall-out of this week’s turmoil in the currency and stock markets (see Moneyweb analysis here). For some years now, market commentators have been talking about a currency war in which countries benefit from a weakening of their currencies to reduce their export prices and maintain market share in slack global demand. In essence it means simply that a weakness is actually a strength.

So with the rand falling to new lows these past few days, surely we could be claiming victory in a currency war? The problem lies first with terminology. An exchange rate is nothing more than a price, and lower prices are not always a bad thing or a reflection of intrinsic weakness. Decades ago, I tried to explain this to viewers on one of my television programmes, when a decline in the Rand against the dollar was caused by a strengthening of the dollar globally, and not an inherent weakness in the Rand. A few days later, a cartoonist of a daily newspaper depicted a boxing ring with a muscular dollar pitched against a puny Rand. I was in the Rand’s corner trying to assure him that it was not he that was so weak, but the dollar that was so strong.

I have always felt it helpful to think of exchange rates as prices, rather than a true reflection of the underlying strength or weakness of the economy it is based on. This is especially true when a price or an exchange rate can be subjected to a multiple of forces unrelated to domestic affairs. These include the trading performance of other major currencies and massive market speculation in financial instruments. Any less significant instrument such as the South African Rand becomes exceedingly vulnerable and subject to wild swings.

It is difficult to avoid being parochial and blaming domestic policies when these events occur. This is highly understandable, reminiscent of the time when extreme weather was linked to women wearing bikinis in public for the first time. (That really dates me!). Many of the concerns raised in response to the performance of the Rand and our stock market fell back on fundamental economic flaws, such as chronic trade deficits, labour inflexibility, power outages, public debt, and government and SOE inefficiencies. They have been there for many years and have long since been discounted in market assessments.

But to be clear, these flaws obviously increase vulnerability to market sentiment. The tragedy is that, as the last year and a half has shown, with our weak competitive base we cannot take advantage of a cheaper Rand. Even if we win the war, we simply cannot secure the peace. We could not have had a clearer example of this than the steel industry wanting import tariff protection despite a halving of the Rand’s value in the past five years. That may be a special case because of Chinese dumping, but despite all the advantages that came our way since being embraced by the global economy in 1994, we have remained inexplicably insular and inward looking and in many respects are performing worse than we did with a siege economy prior to that. It is an extremely difficult position to maintain in today’s global economy.

Until recently a decline in the value of the Rand would elicit a typical two-handed economist response – on the one hand it would boost export earnings, discourage imports and help economic growth, but on the other hand it would create inflationary pressure by making essential imports more expensive. Today assessments are mostly negative indicating a growing acceptance that we have structurally become a net importer – a situation exacerbated by an end to recurring commodity booms.

Our failure to become a significant exporting nation boils down to something I wrote about before – an inability to see global markets as an opportunity to make a contribution to others; something that we owe, rather than that they owe us. You can never bring your needs and wants to the marketplace – only what you can offer. We seem to have extended an incapacitating domestic sense of entitlement to the world arena. Until we can reverse that, both at home and abroad, no amount of grand value-adding ambitions will be realised.

Another important issue is that market turmoil ultimately has a life of its own. We seek fundamental, logical, real and tangible causes for behaviour that in many respects is delinked from reality. As economist Dawie Roodt has pointed out in a radio interview, stock markets have been behaving irrationally globally for some years now, given their bullish nature in a climate of low economic growth in most countries.

All of this has been based on the massive growth of financial services and the explosion of debt in the last 3 decades.  In the U.S. for example the trading of securities in a year is nearly 130 times the value of underlying IPO’s and secondary offerings -- $32trn to $250bn. It’s also been estimated that the size of trading in financial instruments including derivatives equals some 60% of Gross World product.

The only appropriate analogy I can think of is that this is a case of the tail wagging the dog. When the dog whimpers on events such as disappointing GDP figures, the tail wags it, not only hurting the dog but swinging it even further. It’s been mooted for some time now that the financial and property asset bubble created from unprecedented debt levels has to burst, and that a return to some form of cleansing which should have happened after 2007/2008 is inevitable.

Perhaps my hope that it would not happen in my time is being dashed.

Monday, August 17, 2015

Retrenchments and the clash of titans

Forging a new understanding between adversaries.

We should be in the middle of a strike season but this has clearly been overwhelmed by what is rapidly becoming a lay-off crisis. While we are heading for a multi-party summit on the issue (see report here) it may be worth reminding ourselves of the inexorable forces confronting us and the need to bury old paradigms.

Involvement by government, organised labour or even employers, either through more controls, mineral license bullying, implied nationalisation, strike threats, exchange rate manipulations, incurring bigger company losses, or disguising inefficiencies through trade barriers, will ultimately have little sustainable effect, perhaps even make matters worse.

Jobs are not created or sustained by governments, companies, capital or labour but by responding to demand reflecting people’s needs and wants. And while there is a mesmerising attraction to the idea of a pure, omnipotent, trustworthy and ultimately benign force that guides transactional correctness, there is a deeper context that cannot be ignored.

A maxim I have often used says “markets are perfect; they will perfectly reflect all our imperfections.” It is dealing with those imperfections that we get stuck in a quagmire of much academic drivel, rhetoric, labels, slogans and populist babble that in itself just drags us deeper into that bog. In the end it is a matter of trust. What or who do we trust more: governments or private enterprise; laws or unfettered competition? And then to what extent?

Whatever we do, we cannot ignore the inexorable and mighty dynamism of markets – that force which gives expression to individual needs, wants, fears, hopes and dreams. It is also the arena where we can create meaning in our lives, where we can express our contribution to others and receive rewards to sustain that contribution. Things start going awry when that arena is seen as an exploitable resource exclusively for self-enrichment and minimum contribution for maximum gain – whether by plutocrats or governments. This destroys the ideal of having markets as unregimented as possible.

Time and again and throughout history we have learned at our peril that trying to ignore market forces, control or manipulate them, comes at a huge price. Demand always remains supreme and the ultimate master. When people want less oil, wells will dry up; when they want fewer commodities, mines will close; when we no longer eat beef, cattle will become displays in a few zoos. And with them will fade into oblivion those thousands of enterprises that rely on them; that serve them. And with them, thousands of jobs.

Stripped of all hypotheses, that is what is confronting our mining, steel and other industries. It makes tragically comical the political and other sideshows of militant arguments either for profit, wage or societal maximum gain. It is sad to see the constant repetition and escalation of labour militancy, falling back on 19th century refrains at a time when faltering demand is causing massive lay-offs.

While some may baulk at the concept of a “war” between labour and capital, there is a stand-off nevertheless. Much of our economic thinking has been based on the supremacy of capital, its revered position as creator of jobs and generator of wealth and prosperity. This thinking expediently ignores the distinction between enterprise and capital, and the important precept that enterprise leads and finance follows. It is in the development of enterprise in response to demand that a partnership can and should be forged between them, moving away from a stance of mutual exploitation.

In a narrow sense of a clash between the titans of capital and labour, the former will always win. It is flexible, mobile and for most part disturbingly aloof to and often individually unaccountable for the consequences of its actions. Organised labour on the other hand is rigid, relatively immobile and enslaved to remuneration or debt. The simple reality is that in a volatile world, inflexible things are the first to break.

In a broader sense, the very battleground that these titans are engaged on are those classic market forces that can quake the earth and reduce them to ashes. When capital has succeeded in reducing labour to a minimum either through financial shenanigans, technology or centralisation of economic power, where will it get the demand from for its products and services? The 21st century monetary aberration of exponentially creating huge amounts of wealth through investment in non-productive assets and into a blocked funnel favouring a few individuals, must also come to an end. May that bubble not burst in my time!

There may be some hope if we toss all of the economic theory that we have clung to over last few decades, especially fanatical adherence to “isms”, and carve a new path that recognises people and individuals and not simply theories and abstracts. Labour and capital have to extricate themselves from self-destructive confrontation; adopt principles of common purpose and common fate at an individual and company level, and prioritise job retention far above job creation and ahead of wage and short term profit maximisation.

Organised labour’s refrain of pointing to the good times and historic profits to support its argument for higher pay is disingenuous at best. If the argument is to have any weight, then they have to accept what is staring them in the face – fortune sharing that adjusts rewards for all to weather storms in bad times and benefit from the good times.

This means linking more directly individual labour rewards to those supreme market forces. Differentiation can be guided by the supply and demand for skills and qualifications, but the rewards themselves have to be linked directly to value added or the wealth created, which is the measured contribution the enterprise has made to others. I have mooted this suggestion on several occasions. (See article here.)

A fundamental principle of free enterprise that will always endure is that tangible wealth can never be sustainably created out of nothing. It has to be based on service to the other.

If all role players can refocus their attention to that, there may be hope for a new economic path in South Africa. If not, it is that principle that will come back to bite us.

Tuesday, August 11, 2015

The faltering middle class

And the rise of the precariat class

It may be one of the more disturbing research findings in a very long time. In a report just released, the Institute of Race Relations not only questions the assumed size of the South Africa middle class, but its potential growth.

The middle class is the backbone of our economy and a faltering in its growth could see the crumbling of an important pillar of economic prospects. It has been a significant force behind the growth of many emerging markets, setting them apart from developed economies until the decline of commodity prices partly blemished these prospects for many countries.

There are many activities that rely on middle class prospects – from an increase in asset values such as shares and property, to prospects for manufacturing, retailing, agriculture and many others. Without a sustained growth in the middle class, the outlook for economic growth generally and employment in particular will be severely dimmed. It will make a complete mockery of any ambitious plans to create jobs or stimulate economic growth.

Assumptions about the size and robustness of the South African middle class are now questioned by the IRR research. There have been estimates that this class could make up some 30% of the South Africa population, but the research paper notes: “perhaps just 1 in 10 South Africans has a solid claim to a middle class standard of living.” And regarding prospects it says “of concern is that South Africa’s weak economic performance is likely to put the brakes on any significant further middle class expansion.”

There has been an increase of about 13% in the last ten years in households spending R10 000 pm or more, but the report cautions that this has not been adjusted for inflation. Even if one accepts that the spending benchmark qualifies for middle class status, and not adjusting for inflation, the size of the South African middle class cannot be more than 20%. The Institute uses a number of other measurements to conclude that this figure is probably 10% or even less. What is also relevant is that there has been a notable shift in the changing balance of income between black and white people. Black South Africans earned just under 122% of the total disposable income earned by whites in 1996. By 2013 this had grown to just under 170%.

In the last 20 years, the growth of the middle class has been strongly supported by public sector employment. More than three out of ten employed South Africans work for the public sector. Between 2006 and 2013, public sector employment rose by nearly 25%, while private sector employment was virtually unchanged. Last year alone public sector employment grew by more than 4%, while private sector employment declined by 1%.

In its comment on the 2015 budget, accounting firm Delloite noted: “one is twice as likely to be employed in the public sector today, as 40 years ago – with little perceived improvement in service delivery, law and order and administration. Our BRICS partners spend on average 25% of their total government expenditure on salaries, by contrast South Africa spends approximately 40% of its budget on salaries, or R450 billion annually. Over the next three years government will spend R4.4 trillion, and approximately R1.8 trillion representing 40%, will be spent on the Public Sector wage bill.”

It’s an orgy that simply has to end and as the IRR report notes: “Government finances are under pressure, meaning the civil service cannot be extended further as a black middle class incubator.”

There’s a far more ominous dimension to a faltering middle class. It is an essential rung in individual progress. It is largely made up of relatively skilled, experienced and educated individuals and is an important catalyst for self-improvement, nurturing aspirations and encouraging the attainment of skills and qualifications. It gives hope of a better tomorrow for the youth, for young adults wanting to start and support a family in the comfort of their own home. There’s an absolute limit to which this rung can be reached through simply demanding increased wages, especially at a time when blue collar (and red overall) work is under siege.

The middle class globally is on the decline, leaving the world with widening income disparities and a polarised society between haves and have-nots. It has given rise to what international labour economist, Guy Standing has termed the “precariat”.

He says: “it is a class in the making, approaching a consciousness of common vulnerability. It consists not just of everybody in insecure jobs – though many are temps, part-timers, in call centres or in outsourced arrangements. The precariat consists of those who feel their lives and identities are made up of disjointed bits, in which they cannot construct a desirable narrative or build a career, combining forms of work and labour, play and leisure in a sustainable way.”

Standing believes the protests spreading across the world are manifestations of the precariat taking shape.

We clearly already have a substantial precariat class in South Africa.


Monday, August 3, 2015

Not letting go

Things we should stay outraged about.

So Nkandla is in the news again (or still!), with politicians across the board joining the longstanding chorus of outrage at the exorbitant cost involved. In an earlier indirectly linked expression of anger, South Africa’s biggest trade union, Numsa, announced plans for a one day national strike against corruption. (See report here). The call came in the same month as the country celebrated the legacy of Nelson Mandela in a widespread outpouring of goodwill and reflects the contrast we often face between active disapproval and tolerance.

There is an indescribable mystical power in the ability to let go. You witness it when you are in the presence of death; when a terminal condition in its final act extinguishes the remaining embers of conscientiousness. There is a near imperceptible moment when that person simply lets go; in an instant ending years of torture and anguish in exchange for deep peace and serenity. Those last hours are the sum total of our lives; the culmination of countless snapshots of the mind’s camera and the last decisive entry into life’s ledger. Embracing them without struggle is the final conquest.

We have been taught over millennia that the ability to let go when faced with something out of our control is strength and not weakness; wisdom, not folly. But at what point does that mean resignation? At what point does it represent premature defeat? At what point does it open the door to needless misfortune? Above all, at what point does it allow the miscreants in our lives, the malevolent actors, to continue to sow their destructive seeds in our passive field of goodwill and indifference?

We have been taught that anger and outrage are poisons that we prepare and swallow ourselves. But they are also weapons of action and resistance and could be the difference between doing something and standing idly by as predators tear our lives apart. This is not about a debilitating obsession with the past, but about confronting a persistent and deliberate repetition of improper behaviour. There are those who have either never possessed or have thrown away their moral compass; have long since learned the art of aloofness; of waiting for things to blow over; of rhino-skinned immunity to the disgust and disdain of their fellow beings, and simply wait for the “robust debate” to calm down before continuing as if nothing had happened.

Numsa’s efforts will no doubt culminate in just another disruptive display of censure, of which we have had many in this country on a wide variety of issues. The weakness lies in confronting an issue rather than the villains themselves. It is not always easy to identify them when accountability is vague and often diverted in occurrences and in large systems; unless one subscribes to conspiracy theories and exposes the hooded rascals exchanging malevolent thoughts in whispered tones and in dim-lit corners of secret and remote venues. But where the results of this iniquity are individually displayed and personified, there should be a sufficiently explicit and maintained outrage to make those involved persistently uncomfortable and ashamed – to the extent of confronting them in public toilets to “pay back the money”.

There are some things that we should be outraged about, and stay outraged until they spur us into action or call to account the perpetrators. At the very least they should not be allowed to embrace a place of comfort in passive approval. Nkandla and corruption are certainly worthy causes of anger. But there are many of them, and you are welcome to give vent to your gripes in the comments.

A pet peeve that I cannot let go of falls under the large umbrella of inequality. Whatever else Nkandla represents, the most profound is iniquitous inequality perpetrated by those who themselves have acknowledged it as one of the critical issues of our time. Inequality is a symptom of many underlying ills, including corruption, maladministration, nepotism, unbridled greed, a broken and abused monetary and economic system and above all repugnant social values. It is always difficult to counter the knee jerk response of detractors that it is simply about envy and resentment.

To be clear, this is not a detraction from classic market logic, or refuting income differentiation as a reward system that at least in part plays a significant role in supporting individual aspirations, progress and prosperity beyond those directly rewarded. It is not that principle that should be attacked, but rather the excessively wide wealth gap resulting from broken markets that no longer reflect real and tangible value that has been created for society as a whole, or systemic loopholes that allow the avarice to accumulate obscene levels of riches.

A perfect display of appropriate outrage was the lambasting by American Senator Bernie Sanders last year of 80 CEO’s who dared preach to the government about deficit reduction. We should have more of that at home. I have on various occasions challenged the rock-star myth behind executive pay in this country. The problem is that the media quickly tires of these things and only occasionally do they make the headlines when spotlighted by a “news-maker”, such as billionaire Johan Rupert’s recent confession of what kept him awake at night. Rupert’s wealth can hardly be defined as “ill-gotten”. By my definition he is one of those business builders that should inspire aspirations and not malicious envy; unlike many of the professional managers heading corporates here and abroad.

Our political leaders can hardly justify standing next to the bishop on income disparities and attacking private sector rewards. There simply is no justification for those leaders to be amongst the highest paid in the world. That’s apart from a bloated political executive and the billions squandered on self-gain acts at all levels of government. That’s what makes Nkandla so significant. Here you have more than R¼bn spent on the comfort and security of one man within sight of abject poverty in a surrounding area. In addition it was funded at least in part by those very people through taxes and VAT, even if only through the latter or through less being spent on their own development.

Yes, we should constantly confront those deserving of it with our outrage. But at the same time, we should also not let go of our demonstration of goodwill, our support for the many laudable NGO’s, NPO’s and activist groups, and the benevolence we are generally capable of.

Monday, July 20, 2015

Beyond Greece

Questions around the parasitic nature of financial markets and debt.

It’s not just about Greece. At one time or another the focus will have to include serious reflection on financial markets, austerity and debt. There are already signs of a significant change in global response to what is the most critical financial issue of our time.

It was fascinating to follow the media and the hysterical zeal in trying to cover and dissect the latest Greek events while offering all kinds of interpretations, views and even advice. It gave birth to a number of new financial opinionistas, especially on social media. This is a good thing in spreading the debate about financial concerns to a much wider participation, even though most followed the partly justifiable yet oversimplified euro refrain of blaming the Greeks for chronic overspending and indolence, not fully acknowledging the fact that there was an explosion of sovereign debt globally, including Europe since the 2008 crisis. Not even the podium occupying and now seemingly victorious neo-coloniser Germany was immune, far exceeding the accepted guidelines of 60% of GDP.

In all the discussion, there has been a failure to recognise fully the shift after the 2008 crisis, of private debt to sovereign debt in the form of banking bail-outs. A substantial part of government debt has not been because of citizens “living beyond their means”, but simply loading on tax-payers the fruits of reckless lending by those institutions deemed “too big to fail”.

Creditors adopt an audaciously sanctimonious posture when they face a debtor in default, forgetting their eagerness to harvest as many IOU’s as they could, and their responsibility to fully assess the risk in the first place. We know the story all too well in South Africa with the African Bank debacle and the cavalier behaviour of some micro-lenders.


The article related to the above chart underscores the self-evident folly of imposing a one-size-fits-all currency system on nations with divergent economies. Outspoken economist Stephen Keen at Kingston University calls it “an insanely badly designed currency system”. An exchange rate is a country’s ultimate “international price” and removing its cushioning and balancing role completely eliminates the capacity for smooth adjustments to circumstances.

But by far the more ominous message of Greece is one that is confronting the globe. It’s a moot point how many other advanced economies are heading that way. According to Keen: “It is ignorance about money creation that has led to this catastrophe.” (For a video series on money creation follow this link)

It is this ignorance too that seriously questions austerity where economies can simply no longer grow out of debt through creating tangible value, trade and production; where faltering growth strangles the incomes of debt ridden ordinary folk; where money gets increasingly diverted into non-productive capital assets profiting a select few; and where huge injections of debt are neutered by decelerating money velocity or broad mobility.

With this in mind, it is perhaps not all that surprising that one of the biggest global lenders, the International Monetary Fund, has broken ranks with the Europeans in the “troika” in condemning the austerity proposals and demanding that at least part of the Greek debt must be written off. With all of its extensive and often bad experience with austerity programmes over decades, the IMF stance represents a significant shift in authoritative global institutional thinking on current levels of sovereign debt. It certainly goes much deeper than the geo-political reasons conspiracy theorists are now offering. There clearly is a point at which austerity simply becomes devastatingly counter-productive.

The failure of increasing debt levels to encourage economic growth, indeed perhaps even stifle it, has led to French Economist, Thomas Piketty calling for a global conference on debt. In a Moneyweb article earlier this year, I noted (on the strength of a McKinsey Analysis) that a 40% or $57-trillion increase in global debt to $200 trillion had largely failed to significantly revive economic growth since 2008. Total global debt (government and private) is approaching 300% of global GDP.

A discussion on the state of global finances cannot be complete without an examination of the financial services industry itself. Have we not created a huge parasitic monster? It is no longer “fringe” or outrageous to question not only whether the sector adds value, but whether it may indeed be destroying it.

Adding value has three dimensions: transforming something or a situation; the measurable difference in value before and after transformation and, above all, the underlying behaviour or contribution to society as a whole. We too often forget the latter. If it had no significance, drug pushers or extortionists could argue that they add value. (Britain not so long ago added proceeds from drug deals and prostitution to their GDP figure, boosting it by 0.7 %.)

Most of us readily accept the value of the financial sector on the conventional understanding that it mobilises savings, promotes greater information sharing, improves resource allocation, facilitates diversification and management of risk, and promotes financial stability. But a recent International Monetary fund staff paper has questioned whether this is always so. They point out that “there are costs as well, particularly at high levels of financial development. In fact, there can be instances where there is ‘too much finance’, that is, instances where the costs outweigh the benefits.”

The authors have distinguished between a broadening of financial services and a deepening of it. The former relates to expanding services to a growing market, innovation, technology and improved efficiencies of those factors mentioned. The latter, however refers to the growth of complex trading instruments and (my addition) debt expansion.

On the strength of this they have developed a Financial Development index which shows a tipping point at which financial services no longer contribute to economic growth, but can start being counter-productive. This largely corresponds with the state of the economy itself, where the trends are negative in advanced economies but mostly positive in emerging economies. This may be a source of comfort for countries like South Africa, which by and large has a well-regulated and still “broadening” financial sector. But the sheer size and impact of financial services on a global scale make no-one immune to its destructive effects.


The nature of the industry and technology means that it is not a large source of employment, especially in its deepening. Yet it forms a significant share of GDP (20% globally). Financial trading itself can add to a country’s measured Gross Domestic product, but it clearly has very little impact on employment, production and a multiplier effect.

It’s long been an accepted hypothesis that “where enterprise leads, finance follows”.

Much like the real driver of sustainable business is (or should be) customers’ needs and not profit, financial services and debt should be facilitators of economic development, not the driver; the slave and not the master.

The last three or so decades have seen a significant shift in this position. We may look back in time and recognise its devastatingly parasitic nature.

Saturday, July 11, 2015

Entrepreneurship as a silver bullet

Is it about being or doing?

If someone gave you a business card that said simply “Joe Blogs: Entrepreneur”, you would most likely either be impressed or a bit skeptical – a bit like a card that read “Joe Blogs: Leader”.

Like leadership, entrepreneurship has many contexts and is subject to a wide variety of different and personal interpretations. To many it implies status, power and wealth – an unreachable star for the masses and achievable by, or the privilege of, only the 1%. Even the definition of entrepreneurship makes of it something special. Investopedia says: “An individual who, rather than working as an employee, runs a small business and assumes all the risk and reward of a given business venture, idea, or good or service offered for sale. The entrepreneur is commonly seen as a business leader and innovator of new ideas and business processes”.

A recent World Economic Forum paper defined it more broadly as “the pursuit of opportunities beyond the resources you currently control.” This fits in with my own understanding of an entrepreneur being one who has the ability to look beyond impediments and immediate guaranteed or even assured self-gain. That is what risk is about.

Clearly, as long as we have a narrow status definition, we will confine entrepreneurship to only a few. It also becomes unlikely that we can recruit large numbers to those highly intimidating positions. At the same time we broadly create a concept of a small number of “givers” (risk-takers and innovators) versus a large number of “takers” (wage earners and social grant recipients).

In the light of recent Moneyweb articles on the issue (see here) it may be of value to rethink our conventional understanding of entrepreneurship. The development of entrepreneurs can undoubtedly play a huge role in our economic well-being although one cannot ignore the systemic and structural impediments to such a project. But the impediments are still not the real issue. On the one hand entrepreneurship won’t necessarily be fostered by their removal, while on the other hand an appropriate psyche will not simply knuckle down to them.

The title “entrepreneur” can be very misleading and is often applied to a number of people who may not deserve it – from the overpaid corporate executive to the beneficiary of inherited wealth. Even the term “risk” is misleading. Risk is always relative and many so-called risk takers can either afford to lose what they risk without denting their personal wealth, or have so hedged, spread or leveraged their positions that in the end someone else pays for their folly. We have seen this particularly in the financial industry where the costs of cavalier behaviour have been paid for by bail-outs and ultimately taxpayers.

I have argued on many occasions that we all have within us the potential for adopting a key entrepreneurial behaviour – the ability to look beyond immediate and assured self-gain and focus on making a meaningful difference to other’s lives. This is the behaviour that should be encouraged, nurtured, recognised and rewarded.

It can be done in the workplace by involving employees more in the decision making process – especially in those areas that directly affect them or where they can make a difference to productive processes. A Cape Town study on early childhood development has shown that advancement is strongly promoted when children are given more autonomy and are involved in decision making.

The nurturing and promotion of this kind of behaviour can form the bedrock of enterprise and entrepreneurship. It will expand the pool of potential entrepreneurs that can progress to bigger things and with greater fortitude tackle the many impediments that undoubtedly are there. But above all, it will automatically underpin prosperity on the self-evident equation that when people by and large are giving more than they are taking they create surpluses and prosperity. When people by and large are taking more than they are giving, they create deficits and poverty.

A broader understanding of entrepreneurial behaviour is the basis from which markets get identified and explored. From there the hurdle of conversion to commercial viability is considerably reduced. In this regard, I believe the profit motive can be an impediment rather than a catalyst. Because a key trait of the entrepreneur is the identification of opportunities, it is better driven by a service motive, which means identifying the needs and wants of others and is the first step from which other considerations can follow.

At the risk of sounding unbearably clich├ęd again, the ideal initial target is the value-added or wealth created measurement, rather than profit. It is the only one that reconciles accurately contribution to others with wealth generated for oneself or the company. As long as value is being created one is already assured of basic viability, from which one can examine other requirements of sensible wealth distribution such wages and profits. The initial value-added measurement and the requirements to meet expectations in wealth distribution will inform the kind of venture needed – from a full commercial venture to an NGO, NPO or social enterprise. Conversion to commercial viability is the desired ultimate outcome because only then is full recognition given to legitimate transaction and allocation of resources through supply, demand and price.

A psyche that constantly explores making a meaningful difference to other’s lives is a natural stepping stone to developing enterprises that give concrete expression to individual aspirations. Without it, entrepreneurship will always be confined to the exceptional, the fortunate and those with a golden spoon. Others will vainly try to discover it in a plethora of books, biographies and motivational paraphernalia.

Even where it fails to create an Elon Musk or Richard Branson, the shift in behaviour alone will make a huge difference to society as a whole. Then indeed it can be a silver bullet that changes the country for the better.

With apologies to JFK, it means simply: “ask not what you can expect out of life, ask rather what life can expect out of you.”