Is the focus on the role of capital too singular and misplaced?
You have to hand it to the capital supremacists. They have convinced many, including a good number of naïve political policy makers, that capital creates jobs, economic growth and prosperity – in its availability, accumulation, concentration, control and deployment.
Small wonder then that those same policy makers will see control of capital as the quick and easy instrument to uplifting the masses, not only feeding into populist misconceptions, but indeed labelling those who do own, control and manage capital assets as enemies of economic freedom. And if you can put a label to it like “white monopoly capital” you have created a convenient personified demon to become the scapegoat for all kinds of ills. We’ve seen much of that recently, revived under the “radical social and economic transformation” slogan. But it’s a subject rife with alternative facts and misconceptions that have to be challenged and unpacked in all three dimensions – ownership, control and management – and the relationship between them, before embarking on remedial policies.
More worrisome is the persistent notion that redistribution of assets and income is a superior remedy to disparities to economic growth itself. But blame that notion on the success of the capital supremacy spin. To be sure capital is vital to economic growth. It is the air that economies breathe. But economies do not live merely to breathe, and air is simply one enabler for a full economic life. That spin has disingenuously ignored a long standing intuitive truth: “Enterprise leads; capital follows”. And so do skills and other factors without which enterprise will be as hamstrung as it would be without capital.
Enterprise itself responds to the needs and wants of fellow human beings that makes up demand. In meeting those needs and wants it becomes supply, giving rise to another existential truth that supply exists because it serves demand. All I have done in my own writing, is to change the phrase from “supply exists because it serves demand” to “supply exists to serve demand”. That bit of impudence immediately raises the hackles of capital supremacists because it implies that customers rank above shareholders in an enterprise.
Their hysteria then drowns out important appendices:
· That all transaction has to be guided by the three free-market pillars of supply, demand and price, and invariably problems arise not because the principles fail, but because they are severely warped by behaviour; and
· That sensible wealth distribution has to meet the legitimate expectations of all of the stakeholders and encourage further contribution.
The ultimate reality is that tangible value, or wealth, can only be created when something useful is made for others – when it makes a contribution to other people’s lives. Wealth creation is indeed a reflection of service to another, and the source is customers, not capital, labour or even government. You can ascribe as many motives to the process as you like, but that existential truth will remain. Customers create jobs. Motives are irrelevant.
Rarely does one see a showdown between customers and shareholders. We witnessed one recently when the big bad builders joined an on fire Economics Minister Ebrahim Patel to announce the ownership and control transformation in the construction industry. Despite soothing platitudes of state/private sector co-operation in doing “the right thing”, which frankly it was, the handful of industry representatives were clearly uncomfortable – more like school-boys in the principal’s office. Patel held all the aces. Not that of judge and adjudicator of their collusive misbehaviour and not even as lawmaker. The ultimate power that he unleashed was that of being by far the industry’s biggest customer and the FOMO on a slice of huge infra-structure spending.
Of course Patel represents a single powerful customer. The power of ordinary individual customers is deeply and widely fragmented. When that comes face to face with large corporate entities driven primarily by shareholder interests, it crumbles and has recourse only to Consumer Protection bodies or courts. South African consumers seldom bother. But occasionally, perhaps not frequently enough, these entities are called to account, and shareholder-value arrogance is challenged.
We had the perfect case study in the Ford Kuga incident. Those lengthy “procedures-to-be-followed” recourse on car recalls, and the view that recalls themselves are an admission of guilt, are clearly moulded by “cost/benefit” analyses that are such an integral part of maximising shareholder benefit. In the process, a model brand has been destroyed forever, and the outcome can still be hugely costly to the company. We’ve seen much of that globally recently. As clichéd as this may sound, you can never go wrong by doing the right thing. And the right thing is always to act in the customer’s interest first.
And then enter Rand rigging banks. Not a completely new story, and certainly not surprising to someone who has regularly cautioned about the power and potential parasitic behaviour of the financial services industry. But a puzzling, if not bizarre outcome all of these events is the surprising allegiance from the ruling party and even the E.F.F to the protection of free market integrity. Terms such as “break up cartels and collusions”; and “price fixing will not be tolerated”; and “price fixing creates distortions in the economy”, at best indicate some greater appreciation of working with markets rather than trying to control or ignore them. Hopefully it also reflects appreciation of an essential role of government in designing and enforcing the rules of fair play in free and open transactions.
To be sure, all markets are highly contaminated, especially those three essential pillars of supply, demand and price. But here’s the supreme irony: the biggest contaminators of these pillars, especially of price, are governments themselves. In South many critical prices such as energy, rail and road tariffs are arbitrary to say the least. And of course one of the biggest and most important prices in the economy – tax, or the cost of government – is completely removed from individual choice. The real question is whether this seemingly new and modest appreciation of the merits of free enterprise will temper its own behaviour as an important actor in the economy.
Emphasis on wealth distribution or redistribution will always be divisive. Emphasis on wealth creation, which translates into always putting the customer first, creates a common, unifying purpose.