Monday, August 7, 2017

Symphonies of endeavour.

A different view of the context for a stable and sustainable company.

There’s been quite a change in my little space in paradise. What was once largely untouched natural habitat between my home and the creviced Langeberg Mountains, has been replaced with regimented vines and a wine cellar a bit further on. Apart from having a serene space invaded, there was that tug of outrage again at man’s encroachment of nature – the inexorable march of plantation over forest as commerce sweeps it sickle.

One mellows somewhat with the thought that even regimented vines have their beauty. I’m by no means a wine connoisseur and my knowledge of wine did not progress much further than a brief unhappy get together with Lieberstein. But I can appreciate that very few products unlock in such a fine multitude of styles, the mysteries and complexities of nature. But of course it is still man that plays the dominant role: largely responding to the call of commerce and controlling and manipulating inputs and outcomes to achieve maximum returns.

But Olivedale Wine farms is different. Here the enigmatic founder and architect, Carl van Wyk, is allowing indigenous weeds to grow between the rows of different cultivars planted in different selected types of naturally enriched but virgin soil. It’s just one of the many different ways he allows nature to dictate the outcome to produce a symphony of its own. Weather changes or other elements do not concern him, but rather prompt curiosity at what difference it will make to the wine. It’s totally counter-intuitive to conventional winemaking, where markets dictate most of the process; and even differs from organic or “green” wines which adhere mostly only to an avoidance of chemicals in the various stages of wine production.

In this, Carl reflects those creative virtuoso’s in society that are aloof to, yet respectful of market whims and commercial constraints. They seem to operate in a world of their own and follow a code unique to them. It is the one thing that economic theory can neither capture nor explain, yet they represent not only the true spirit of free enterprise but are essential to its success and very often create huge shifts in its destiny. There have been many throughout history, more recently the late Steve Jobs and currently Elon Musk, who has been described as someone “destined to change the course of humanity.” While Carl’s efforts on a much smaller scale can be called symphonies of nature, they create unique symphonies of endeavour.

I view them with some pique. They tend to challenge my perhaps dogmatic view that economies are nothing more than an unwritten contract in which people serve people, and great companies are those that respond to the needs and wants of others. But if the latter thought irritates those who champion the profit motive and self-gain as the true driver of success in business, then the virtuoso’s outright disprove them. Indeed, one could argue that many, if not most of humanity’s ground-breaking achievements have emanated from them. I simply cannot imagine Elon Musk pondering over Harvard’s reverse income statement to justify his promise to take two tourists to the moon next year.  Not understanding true entrepreneurial genius caused former Apple CEO, John Sculley considerable discomfort after firing Steve Jobs. 

That points to a critical element of survival and sustainability for companies in these times of high volatility and uncertainty: the extent to which they can explore and nurture those attributes within their ranks, not always present in one person, but sometimes found in groups and teams. The modern company is beginning to look very different from its predecessors, or, as the Economist once put it: “disrupters are reinventing how the business works”. Organisational theory is not catching up with this trend, and for the most part company systems and structures are not only outdated but tend to strangle those very attributes that will keep them relevant and sustainable.

In a recent essay, Eric Lieu, founder of Citizen University in the US, and Nick Hanauer, venture capitalist wrote: “Markets are a type of ecosystem that is complex, adaptive, and subject to the same evolutionary forces as nature.” This perspective, in the view of a growing body of experts from different disciplines, can be applied to economics as a whole, and challenges most conventional theories and ideologies.

The emergence of “disruptor” and “insurgent” company models reflects this and means that companies are not simply legal entities with structures, prescriptions and procedures, but that they are human eco-systems that constantly evolve as humanity itself evolves. It’s both an intriguing and inspiring thought because it allows a refreshing relationship between companies and their external environment: being shaped by it, but also contributing to it. It also gives a new and refreshing context for company analyses and investment advisors – the kind that can tap seriously into Beta potential. 

Companies today have to cope and interact with an unprecedented multitude of complexities and variables, and stability can no longer be found simply in structures, systems, procedures and planning. Their survival and sustainability lies in the paradox of finding stability through flexibility.

Tuesday, July 25, 2017

Debunking “monopoly capital”.

Refocusing on the essence of creating wealth and value for all.

One cannot legitimately apply the word “monopoly” to generic concepts such as “capital”. I’ve been guilty myself, and it’s nothing more than sloppy thinking or emotive spin if it is aimed at the multi-dimensional accumulation and deployment of money. That has many forms: governments, central banks, financial services and banks, institutional investors, holding companies, multi-nationals and very large companies. If “monopoly” means being a protected sole supplier, that certainly cannot apply to the above, apart perhaps from the first two. Ownership is even more widely dispersed than control.

The real issue is the increasing concentration of capital control in fewer hands, with most behaving in the same way and to the extent of exacerbating inequality, exclusion and social discord under the pretext of an academic hallucinogen that capital is scarce. (See article here). This has been covered many times. Enough to be confident with the generalisation that in rent seeking and chasing capital gains, many players have diverted efforts away from funding the production of goods and services, or value creation. This has virtually closed the taps of “trickle down” and advancing inclusive economic growth. It has spawned another fanciful folly – that monetary machinations and policies can generate prosperity.

Small wonder then that most believe that if you control capital, you control everything, including the destiny of a country. That reflects a basic misunderstanding of wealth creation itself: that it is about printing money; or the outcome of a lucky strike at a hedge fund casino; cooked in a financial advisor’s brew; or that it is solely embodied in profit. And then we miss the majesty of economics: that wealth is created by usefulness to others and concretised in legitimate commercial transaction.   

We do not need scare tactics and deflections of “radical economic transformation” to reboot our economy. As I wrote in my previous article, a giant leap can be achieved by radical government transformation. But capital concentration certainly also has to be addressed to promote inclusive growth. That’s being interrogated on a global scale, including global finance, fickle capital mobility and tax evasion. It would be wise to tap those experiences before rushing to controls and prescriptions with a giant meat cleaver in the hands of a predator slashing at some personified spook.

In retelling the untold story of the ancient and still benevolent design of the wealth creation process, I have extrapolated a Contribution Account© or Inclusivity Statement© for the mining industry, based on the PWC 2016 survey. I have had to make some assumptions regarding personal income tax and depreciation, and roughly rounded the figures to make indexing to R100 easier. None detract from the essential conclusions. 

Outside supplies
Wealth created
Owners’ dividend
R  4

Mining is volatile but the picture has not changed all that much since the decline in commodity prices. In addition, in my own experience over many years with many companies, as well as the national statistics, the principles can be applied at a national average. The conclusion is quite simple: in most cases owners as a group receive the least cash benefit from an enterprise.

In the above example, 2/3rds of the revenue goes to outside suppliers – creating multiple opportunities for others. Then, for every R4 investors receive in cash, workers (including management) get R53, and the state receives R22. There’s always some ambivalence around “reinvestment” which technically belongs to the owners, but it has a contributory nature in ensuring sustainability.

What is the thinking behind the proposed mining charter in trying to mess with that model? What possesses organised labour to be oblivious to the delicate balance of wealth distribution and its impact on wealth creation? What tempts policy makers, sometimes with the blessing of organised commerce, to hamstring it with invasive transformation surgery and prescriptions? And wherefrom the populist business bashing rhetoric?

By their very nature, private enterprises are the most inclusive of all collectives. They can be made even more so if the participants decide by themselves and for themselves how wealth creation should be distributed. They have more power to do so than they may believe, and where not, should be demanding it.

That’s not to say that within the model itself there are no legitimate concerns about its make-up and behaviour – including pay disparities, people development and empowerment, and demographic representation. But if those concerns threaten the viability, flexibility and sustainability of the model, it will destroy wealth creation itself. Then prosperity and jobs evaporate. It also goes some way in explaining why capital finds more attractive suitors than investment in productive capacity.

But that’s not the whole truth. Business too has failed to subscribe fully to the wisdom of ages that contribution creates reward. It defines and motivates itself by maximum reward, adding insult to injury by narrowing that focus to one stakeholder, the shareholder. In that it has invited a considerable degree of constraining prescriptions; business bashing and declining sympathy of common folk who, at one time or another have experienced the blinkered business view as customer neglect or exploitation. The damage has been substantial – in reputation, unrealistic expectations and flexibility.

But that can be turned around quickly and effortlessly by adopting the principles of a common purpose in service to customers and a common fate in sharing the fortunes that befall it. On the contribution side, the disastrous monster of the 80’s – the agency model, which encouraged executives to “think like owners” and rewarded them excessively for doing so – can be converted into “think like customers”. That supports income or turnover in most non primary producers. If you add a further discipline of prudence in outside purchases, you have created the most powerful dynamic of increasing wealth, and therefore rewards for all. You can see this dynamic work in the first three lines of the above table: increase revenue by 10%; decrease outside costs by 10%, and wealth creation jumps by 50%!

But the real problem lies in wealth distribution. Obsession with reward turns the model on its head, and invites all kinds of external and powerful prescriptions from government, organised labour and capital.  It then becomes inflexible and often parasitic.  There are two simple conditions for optimal wealth distribution – meet the legitimate expectations of all of the stakeholders and ensure continued contribution. (See graphic example here). These can be managed and indeed, in my experience, are quite malleable if the decisions are left to the stakeholders themselves. Emphasis on wealth creation before distribution, and making the latter as flexible and sustainable as possible, is the most promising inclusive solution to job creation and retention.

At the very least, it will detract from the misguided notion that owning or controlling capital creates wealth.

Monday, July 10, 2017

The hole in the jobs bucket.

And the three dimensions of radical government transformation.

If you promised the Government that you could create 48-thousand new jobs in a few months they would dance at your feet. Yet, that is the number of jobs that were lost in the formal non-agricultural sector in the first quarter of this year, according to the latest Quarterly Employment Survey.

What it reflects is that counteracting all the efforts to create jobs, are those being lost where they exist – like filling a bucket that has a big hole. It underscores the fallacy of focusing on job creation rather than job retention and being caught in an endless spiral of creation and destruction. If you understand why jobs are being lost, you will know what prevents you from creating more. Job retention demands a shift in policies, approach, attitudes and behaviour at many levels – all of which imply sacrificing some vested interests and political capital. The main causes behind job losses are systemic and behavioural in both the public and private sectors, as well as a volatile external environment. In responding to this environment, the two indispensable, mutually supportive keys are flexibility and tempered expectations. 

Global financial headlines remind us daily of a world undergoing radical economic transformation. The anti-establishment uprising seen in many countries is challenging the legitimacy of both government and economic power and has blurred ideological divisions as well as theoretical prescriptions for the role of the state and the private sector, particularly capital concentration. For a long time, it seemed to have been a stunning omission of the ruling party, not to have connected these dots to its own radical economic transformation agenda, and instead made it a spectre and divisive project.

But that may have changed. The strategic outline delivered by ANC NEC member, Nathi Mthethwa at the policy conference, clearly reflected that insight and will hopefully transform the narrative to reflect:
·        The gravity and complexity of a global struggle for inclusivity and fragmentation of economic power; (see previous article here.)
·        The role South Africa can play in being an innovator, contributor and beneficiary of global experiences, which includes inputs from international economic thought leaders.
·        Eliminating race or gender as a contributing factor, albeit a feature (or as Mthethwa put it “form”) in South Africa. Burying the term “white monopoly capital” is a good start.
·        And above all – the need for power fragmentation in both government and the private sector as a key factor for flexibility.

The last point is the difficult one for governments not only to recognise, but willingness to return power to the people in a real and tangible form. The concept that governments represent all of the people, all of the time, is patent nonsense -- even more so in a state where bureaucracy is often driven by self-gratification and power. If fragmentation of economic power simply means transferring power from private hands to government, then on the evidence of both historic and current experience, it will be the greater of two evils.

It is the outcome of that debate that will profoundly affect inclusivity, flexibility and expectations, and the ability to both retain and create new jobs. Although mutually linked, the approaches are different for government and the private sector. This article deals with the former, and a future column will examine the latter.

I am more convinced than ever that radical government transformation has to go hand in hand with RET and can do far more in changing the economic destiny of the country. The fact that we are suffering from economic pneumonia because the ruling party has a Gupta virus, points to a self-evident truth: the inordinate influence, invasiveness and power of bureaucracy. It is excessive even for a developmental state and because of that one can reach another simple conclusion: its bears a large share of responsibility for whatever ails the country. This power has three dimensions:

Physical size and share of the economy. Globally, governments have become “fat and lazy”, according to Economist, Dawie Roodt. With our government expenditure at about one third of GDP we are not amongst the most obese (see World Bank statistics here), and not totally out of line with the world average. Ultimately, size does not matter. It is about affordability and action. We are worse than lazy. There is deeply rooted and debilitating patronage; an oversized cabinet and employee contingent; poor and incoherent leadership; scandals; inefficiencies; flawed service delivery; wasteful expenditure, and corruption. The belief that government must be as small as possible to avoid crowding out private initiative is an oversimplification and not a universal truth. What really counts is whether its actions support private initiative, while still countering social imbalances.

Prescriptions and regulations. These have far greater impact than can be measured in standard statistics. Even a superficial analysis of all bureaucratic impediments is beyond the scope of this article. Even less so, and perhaps more futile, is challenging some of the regulatory holy cows to “correct past imbalances”, and the counter-productive effect they have had on inclusivity and employment. It simply makes no sense to focus on inclusion of one group and discourage others that may have skills, experience and capital and whose deployment encourages further job creation. One recent example is the proposed new mining charter which the industry estimates could see as many as 100 000 job losses.

Political posturing and populist rhetoric. When you have become as powerful and invasive as the South African government has, you simply have to watch your mouth and actions. I would argue that this now overshadows all of the above. You will find the footprint of rhetoric and irrational decisions in most of our recent economic setbacks, including an undervalued currency, disinvestment and ratings downgrades. They are triggered by a loose cannon in the President who does not distinguish between a parliamentary democracy and constitutionalism; a ruling party in meltdown; threatening and divisive interpretations of land reform and expropriation, and constant deflective racial innuendo. Even the more comical kite fliers such as the Public Protector on monetary policy, have a serious impact on economic prosperity. Ill informed Market response to an ill-informed policy discussion about Reserve Bank ownership is another example. The burying of the term “white monopoly capital” may be a reflection of growing sensitivity towards this third dimension. Clearly much more has to be done to change the mood.

A huge, ominous and potentially overwhelming cloud remains. Despite all the arguably good intentions of ANC policy, and a fall back to the more palatable National Development Plan, there is still a massive lack of trust. Trustworthiness is an imperative even for autocratic governments; not only from its supporters but also from its opponents, critics and society at large. The government’s critically large trust deficit (see graphic here) is now at centre stage. It is perhaps even beyond redemption. Opponents may hail this as an opportunity for regime change, but distrust is contagious and not easily restored even after a change in leadership or government. It is also a significant contributor to the hole in the jobs bucket.

It is that which needs radical attention.

Monday, June 12, 2017

Contract and conscience.

What happens when the social contract and laws cannot guarantee protection?

That memorable aphorism: “Man is born free, and everywhere he is in chains”, penned by the 18th century French philosopher Jean-Jacques Rousseau, relates to another creation of the Age of Enlightenment – the Social Contract. That concept has survived centuries and still remains the cornerstone of our understanding of the relationship between people and power; between citizens and government, and between the populace and the establishment.

At a practical level the social contract is enforced through institutions, laws and regulations, or, at a superordinate level, by a Constitution. Yet, there is a far larger dimension that goes beyond a contract and without which the social fabric would simply fall apart. It is that dimension which enables you to trust a stranger in a mall and a handshake on an agreement. It’s a dimension only marginally guaranteed in written law, and explains why even in a high crime country like South Africa, where criminals have an 80% chance of getting away with a reported crime, you have a much lower chance of being affected by a crime.

That dimension is conscience. It may be reinforced through values, religion, and enlightenment, but it is that intuitive, perhaps even instinctive thing that sparks an automated action overriding first thoughts and even feelings. Even psychopaths for the most part pay heed to it, albeit in a rehearsed way. As social beings, by far the majority of people do not want to poop on their stoep. And the more they do, the more laws, regulations and prescriptions pour out of parliament or from the Governance office of Mervyn King. But never will they come near to replacing the vital role of individual conscience, or self-accountability.

Even people accountable only to themselves mostly have it. But you could argue that those entrusted by others to have their interest at heart and to be the custodians of their welfare, have to be subjected to a much higher order of accountability than can be captured in a contract. They include business leaders who can no longer behave as if they are accountable only to shareholders.

As Serge Belamant of NET1 discovered when expressing a callous disregard for the problems of his biggest customer and millions of grant recipients; arguably acting purely on conventional business principles and shareholder interest. He not only unleashed a PR nightmare for himself and the company, but invited the pique of one of his biggest shareholders. And now his departure pay-out raises the critical question: can good governance be served when people are rewarded handsomely for non-compliance? (See Moneyweb article here.)

That applies to the unfortunate, much maligned figure of Brian Molefe, former retired/AWOL/fired GCEO of Eskom. For a moment he seemed to have done the right thing back in November of last year when he “stepped down in the interest of good governance.” Until, of course, it became clear that conscience can be considerably eased by a R30 million pay-out and then later that the stepping down was none such. He could have reinforced his “good governance” act if he refused the pay-out (or most of it) and any invitation to return, but now scuttles any interpretation of noble intent by running to the labour court.

The overriding role of conscience over contract was movingly championed by former Finance Minister Pravin Gordhan, when he spoke at the parliamentary enquiry into Eskom and accused some leaders of not only acting out of blatant self-gain, but simply not caring whether they were seen to be doing so. Few could not have been stirred by his appealing to their conscience, an appeal he has repeated since then.

There is a point at which a position held and influence it has on others, have to stand far above the incumbent’s interests or rights. So SOE minister Lynne Brown was at best expedient by defending Molefe on the basis of “innocent until proven guilty.” When a position itself is tarnished or brought into disrepute, then in the interest not of the incumbent but of the position itself, it simply has to be vacated by that incumbent. A subsequent enquiry can at best clear his or her name, and even ensure some compensation, but a return to that position cannot be automatic.

Such a protocol will ensure a very high regard for positions of authority and a no-nonsense approach to governance and accountability. We simply cannot deny that our tolerance of political and business leadership misbehaviour is extraordinarily high compared with many other countries. Without some form of uplifting the self-accountability expectations from positions of authority, and some real pain in non-compliance, the fight against corruption is going to be extremely difficult.

Zero tolerance and an appeal to the higher order of conscience over contract have to apply equally, if not more so to accusers, investigators and social prosecutors. There is a blatant and astonishing level of hypocrisy and expediency in much of what we are witnessing, including the inordinate, often one sided petty political correctness in public discussion and social media. In the end, it does little to create effective accountability and governance, and simply creates opportunities for deflection by those scrutinised and scrutinising.

While we are witnessing a sterling job by the 4-th estate in the Gupta e-mail revelations, the information explosion and chaotic state of media has aggravated the problem. I dealt with this in my recent Moneyweb article “Believe it or not” which need not be repeated, save to say that it is a proverbial Wild West out there, proliferated with intoxicated, trigger happy gunslingers; spreading more rumour and innuendo than fact.

All of this boils down a key essence, the very glue that holds societies together, and without which they descend into anarchy. That is trust – of outsiders in the country; of people in power, and of individuals in each other. 

As long as we continue to trust our neighbours, there is still hope. We saw the power of that manifest in mutual community support during the ravaging fires of the Southern Cape.

Monday, May 29, 2017

Grabbing land in La-la Land.

A groundswell of clearheaded action to counter populist hysteria in the land issue.

If there is one thing that the economic gods will not forgive, it is the consistent plundering of resources without value being added. It may take years, decades, or even centuries, but inexorable forces will manifest in imbalances, disconnects, shortages, discord and conflict.

Adding value means creating wealth and is the most fundamental justification for any commercial endeavour or use of resources. It means simply judging that endeavour on the tangible and measurable value it has it added to other’s lives; the extent to which it has served the community at large. In practice this means serving demand or customers. It is that condition that justifies and sustains jobs, profits, and taxes. (See article: “Customers create Jobs”).

Look around you: at global finance that has largely failed to flow to productive enterprise on the back of a speculative market system; feverish pursuit of short-term rental and capital gain; customer neglect; lack of inclusivity; paltry performances of state owned enterprises, and government failure to promote and support value-creation by free individuals and collectives. All of this can be traced back to one single thought: that these endeavours and ownership of assets exist primarily and perhaps even singularly for self-gain. It is that thought that makes a populist cry for redistribution of assets and wealth facile and tempting, yet severely flawed.

It cannot be allowed to happen in agriculture. Here the customer must be king, albeit even in pauper’s clothes. Nothing can justify a threat to the maximum production of best quality food at the lowest possible cost. This is critical in a country of malnourished millions, and the voices of those that champion the opposite simply have to be silenced.  

We cannot deny that it is an emotionally charged issue. Comments on my previous article on inclusivity latched on to a peripheral reference to land grabs and bore testimony to just how blinkered our thinking can become on all sides. Property ownership, especially farmland can do that. It evokes in many a sense of security and permanence; of an anchor; of self-sufficiency; of a nest and a nest egg; of power and control. Some feel the pull of a genetic nostalgia drawing them back to the days of distant forebears; before red- or khaki-coated colonialism and land-acts; bare feet on virgin soil absorbing nature’s energy; of wide open spaces and peace and serenity. It is in that romantic pool that political preachers punt their false gods and gospels and prospects of paradise. Even rational swimmers are drawn to it.

And then there is a reality, an inexorable force that will brook no resistance even at the cost of earth soaking up blood or widespread starvation. Urban property ownership may have the same context, but a very different texture. It is more easily dealt with by urban renewal and expanding home ownership (already one of the highest in the world) through transferring state-held title to tenants that number hundreds of thousands. Farmland is subject to another overwhelming force – the nutritional survival of our species. Hungry mouths are multiplying at a frightening pace. The space to accommodate billions of extra bodies is constantly shrinking and it is that very space that has to provide nourishment for the masses. They are the real issue and to cut through the prose: we need a lot more food from a lot less land to feed a lot more people. Every square fertile centimetre has to be used to extract maximum value.

In the absence of a credible land ownership audit, political mischief has ensured a vague and highly skewed picture of the extent to which land reform has already happened, including the fact that the government has bought some 4000 farms, which have not been transferred to claimants. But while politicians dance with the devil, some in a seductive waltz and others in an aggressive tango, it is simply inconceivable that they cannot foresee what will happen when the music stops. Given the Zimbabwe experience next door; our constitutional and judicial fortifications; our young but still strong democracy that is currently openly and dramatically clipping the wings of malevolence, and indeed even the underlying messages coming from both the ruling and many other parties; I simply cannot agree with the prophets of doom.

There is at least some assurance that expropriation without compensation is not official government policy – most likely because they already own a number of dysfunctional farms and don’t quite know how to treat the R145bn farmers’ debt. But more fundamentally, they fully recognise the self-evident reality, reflected amongst others in this statement to Moneyweb’s SAFM Market Update, by Senzeni Zokwana, Minister of Agriculture, Forestry & Fisheries:

“We should present it (land reform) in a way that seeks to preserve the current commercial farming community, which produces the bulk of our food, and get black farmers to a level where they can become commercial farmers very soon.”

And there is another, even more pertinent force at play – a force that should silence the jaundiced and blinkered “talk-talk” sceptics. It is the undeniable fortitude, innovation, expertise and goodwill of the vast majority of South African farmers. Living in a farming area, I am fully aware of the many blemishes in the behaviour of a few; but also the reaching out and inclusive approach of many. Standard journalist practice would require a long list of what they are doing on a national scale: showing that the talk is indeed the walk. It’s not only beyond the scope of this article, but would discourage those who need it from going on their own journey of discovery to witness how this unsung resolute group are dealing with the many crushing variables as well as the challenge of transformation. Those who don’t take the journey have surely lost their relevance in debate, although sadly not their impact. It is reflected convincingly here and on the Nation in Conversation website, which is an agricultural sector initiative and formed part of the NAMPO harvest festival near Bothaville.

After doing that, then picture the NAMPO panels discussing the empowerment of a multitude of small black farmers and the need for land reform; while surrounded by monster farm machinery and mind blowing technological innovation. The marriage between those two is the challenge. The sector is meeting that head-on in many world ground-breaking ways.

Any discussion, debate or conflict around land reform that does not constantly and pertinently bring this into reckoning is one-sided and dangerously disingenuous. 

Sunday, May 21, 2017

Inclusivity: for the people and by the people.

Wresting the initiative from government to prevent reckless radicalisation.

During those widespread protest marches recently, I asked my son whether he was going to join one of them.
“It won’t make a difference,” he replied.
“But it will to you,” I said.

Few things are more powerful than a group of people actively and vigorously pursuing a noble cause. The outcome becomes a secondary issue. In that moment each gets to experience the fulfilment of embracing and being embraced by a community or group. It is the essence of inclusivity in a much broader and more relevant sense. While lofty, often purposeless debates and actions are formulated around structure, systems and policies; the real issue is missed – that it is about human behaviour. We are clearly in an era when the former have lost touch with the latter. That is the most pressing issue of our time.

Globally, inclusivity has been severely impeded by centralised political and economic power; technology increasingly replacing real human connection and productive effort, and a monetary and financial revolution that has deeply widened disparities in wealth and opportunities to the exclusion of many, especially the youth.

More intriguing is the extent to which inclusivity has begun to transcend and indeed overshadow traditional debate around left and right; capitalism and socialism, and other conflicting theories that have preoccupied humanity for centuries. Today it is about the “establishment” versus the “populace”: in itself an expression of whether people feel included or excluded, and ultimately questioning the legitimacy of power.

Governments’ role in enhancing inclusivity -- or perhaps more accurately: rolling back exclusivity -- is a key concern at ballot boxes and in the streets. It is a greater issue in South Africa than elsewhere. It’s a subject I covered in a previous article (see here) and still requires much unpacking. But it could be argued that government itself has been the biggest stumbling block to inclusivity through failures in service delivery, education and of course patronage, corruption and maladministration -- to name just a few. Its current rhetoric is a deflection of blame and indeed counter-inclusive. It has created some dysfunctional paradoxes in promoting inclusivity through implied dispossession or exclusion of certain groups.

Business too has to do some soul-searching. It is by nature the most inclusive activity in free and open societies. With some deplorable exceptions, it serves society as consumers and customers. On average, it pays about half of its income to outside suppliers, creating multiples of opportunities for others. The remainder represents its own added value, or wealth created, and on average 45% goes to labour, 25% to government in the form of company and employee personal income tax, and 30% to profits. Put differently, for every R15 shareholders get, R140 goes to the pockets of employees and government – a ratio of nearly 2½ to 1. (See Contribution Account here.)

Disturbing the delicate composition of that activity could have disastrous consequences. But that does not mean that it should not seriously review racial imbalances, particularly in top management which is only 15% black, and largely attributable to executive exclusivity. (See here).

My criticism of business has always been that it does not fully understand, recognise, promote and act out its inclusive nature. It has defined itself narrowly as an exclusive servant of shareholder interest and, despite King IV prescriptions, expresses itself in a profit/cost rather than a wealth creation/distribution format. Its accounting is not inclusive. (See inclusive accounting here.) Too often this leads to misbehaviour, customer neglect, noncompetitive activities, and an absence of a moral compass.

It then also discourages Common purpose and Common fate principles and full involvement by all stakeholders, especially labour, in the destiny of an enterprise. The net result is a warped public image, broken hearts in the workplace and easy prey to business unfriendly rhetoric including that implied in radical economic transformation. (See article “The untold story” here.)

The people, however, hold ultimate power. Relying on systems, structures, policies and politics discourages and denies the overwhelming role that individual behaviour plays in inclusiveness. Economic growth itself is an unknown, and speaks to only one part of inclusivity: employment. It’s an important part, but ignores the fact that many of the employed still feel excluded and the number that could be rescued from unemployment is questionable. Inclusivity should not be viewed solely as an outcome of economic growth, but rather as a factor contributing to it.

One does not need a message from the pulpit to identify many areas where we can act more inclusively. It brings to mind Edmund Burke’s immortal aphorism: "The only thing necessary for the triumph of evil is for good men to do nothing."  But the message does not mean only confronting evil. It also means simply spreading good as a counter to evil.

Probably more threatening than standing by and doing nothing, is doing something and no-one knowing about it. That creates the darkness where evil flourishes and politicians play their dirty games. There are many, many activities in South Africa (government included) that simply belie the notion that inclusivity is not being actively pursued. Apart from thousands of individuals daily reaching out to others, there are corporate social responsibility projects; many social entrepreneur activities; very active NGO’S, NPO’s and charities; church activities; and private sector projects, that on balance have probably done far more than government itself – apart perhaps from the social grant. One that deserves mention is agriculture, where farming groups have done much to effectively empower people – arguably more than what could be achieved with land grabs. (See project list here.)

That more can, and should be done by all of us is an imperative, and a counter to coercion and autocracy. Inclusivity is a manifestation and embracing of our humanity. It is an embrace of empowerment and enablement. We cannot allow petty politics to contaminate it; ideologues to warp it; megalomaniacs to abuse it; academics to distort it; economists to disparage it and media to ignore it.

It is the ultimate human project. It’s when individual hearts become a collective shelter from despair. 

Tuesday, May 2, 2017

Bullhorns of discontent.

Threatening the unifying potential and benefits of a radical economic overhaul.

Radical economic transformation (RET) has been around for about half a decade although the need for it has been evident for decades more. This time it has come with a fanfare of bullhorns, town criers, aspirant emperors and empresses; and some hysteria in a clear strategic attempt to recapture political initiative; to unify a fractured ruling party and deflect attention from its beleaguered leader.   

The timing is unfortunate. Trust between government and the private sector has broken down and investment confidence is all but shattered. With full co-operation between the state and the private sector, RET could be a unifying force. Instead it is becoming divisive and polarising. It is creating consternation on the one hand and false expectations on the other; unleashing forces that could devour each other in a downward spiral that arguably has already begun with downgrades and investor flight -- until sober minds see through the mist of rhetorical mischief and conclude that it’s not new; it’s not unique and it need not be frightening. Indeed it could be an exciting and galvanising mission that makes South Africa a metaphorical Asian tiger instead of a Venezuela.

We are not exceptional. Blaming it on the past or racial imbalances is creating a false notion of solutions and deflecting effort from where it is most needed. The problems are much bigger and the world is itself facing radical economic transformation. Indeed it has already begun. So let’s tick the boxes in a severely redacted swoop of global concerns. They have all been documented broadly in Moneyweb and other news coverage, obviating the need for detailed substantiation.

·       Concentration of Economic power or monopoly capital. Large corporates domestically and globally have grown to the point where the negative impact of their power and influence now far outweighs the purported advantage of capital efficiency. The financial industry, banks and financial markets in particular have become a force that can virtually dictate the economic destiny of countries and the globe. With their influence on the state they have become “the establishment”, now under attack in many forms, including at the ballot box. (See Moneyweb Article here).

·       State capture. The above clearly leads to inordinate self-serving influence on the state in the form of oligarchs; family wealth; the elite; powerful vested interest lobbies; bribery and corruption. The news is full of it and as oligarchs go, the Guptas are a rather clumsy lot with the beneficiaries in Government being extraordinarily and dangerously naïve; compared to those that have existed in Russia, Ukraine, Latin America and many others. Such is the power of the “establishment” that it has recaptured Donald Trump who became president on an anti-establishment ticket and has now clearly flip-flopped.

And then there are
the Chaebols of South Korea, consisting of old family business empires such as Samsung, LG and Hyundai and controlling some 80% of economic activity with government involvement. Their success in making South Korea one of the most powerful of the Asian tigers was simple: a community and customer focus overriding profit and self-gain.

·       White monopoly capital. This PR concocted phantom has been unpacked many times, but whatever substance there may be it is simply and self-evidently one of the oldest ploys of political expediency: create an enemy, identify and personify it, and blame it for your self-created mess. There is some truth to disproportionate white involvement and ownership in the economy but it cannot be shown to be malevolent in intent, action and effect. Even if it were possible to simply change the “colour” of this “monopoly” overnight, there is no evidence that this will benefit the masses. Indeed, disrupting a fine balance between capital, skills and competitiveness could be devastating in a tough global environment.

·       Black Monopoly capital. If we define “capital” in the broadest sense of deployment of money in an economy, then one can argue that government at all levels is a much bigger player than any other single entity. (Mike Schüssler puts it at about 44% of Gross domestic product.) It is in itself a true monopoly and owns the only real uncompetitive monopolies in the form of state owned enterprises and their trillions of rand in assets; it has the biggest single investment arm through the PIC, and it can dictate and has dictated the rules of the game through regulation.

·       Radical Government transformation (RGT) is the elephant in the room. Radical economic transformation (RET) has to start with RGT first. Can anyone doubt that we would have been in a “radically” different position if government at all levels, did what it was mandated and paid to do: efficiently, effectively, prudently, and devoid of corruption, patronage and self-gain; compounded now by party discord impacting all arms of the state?

·       Inequality and unemployment. Remember the startling Credit Suisse findings amplified by OXFAM that the wealth of world’s richest 1% equals that of the remaining 99%?  Here’s some country comparisons.

Not only do we rank well below those with the biggest disparities, but we are also below the United States. Of course that is arguably still unacceptable, and even more so when one looks at income disparities rather than the above assets gap. This is a metric minefield (see different measurements here) but it cannot be denied that South Africa has one of the highest income differentials in the world. That is largely a function of high unemployment. While the latter is of less concern in some countries, it certainly remains a key concern in many parts of the world – including the stagnant state of the middle class, and the job displacement threat of technology.

·       Inclusivity. All of the above can be captured in this one key issue. “Around the world, no bigger policy challenge preoccupies leaders than expanding social participation in the process and benefits of economic growth”World Economic Forum.

Radical economic transformation is nothing more, and nothing less than promoting inclusiveness and a response to the greatest global challenge of our time. Of course there are some circumstantial differences, but exceptionalising, politicising, radicalising and polarising them is suicidal and way beyond reckless. It needs a partnership of all interests. The principles of having a common purpose and sharing a common fate that I have advocated in companies (see here) can stand outside political and ideological rhetoric. It means holding hands in the good times and the bad. Those that rely solely on economic growth as a magic wand are too readily discounting some very ominous storm clouds gathering on the global horizon.

The real question is how flexible, united and prepared we will be when that storm breaks?