tag:blogger.com,1999:blog-90215377566652822812024-03-13T09:50:55.135+02:00Overberg EchoesFresh and unconventional perspectives on topical and business issues by award winning broadcaster and author Jerry SchuitemaJerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.comBlogger271125tag:blogger.com,1999:blog-9021537756665282281.post-89557359398085329392018-07-09T11:57:00.004+02:002018-07-09T11:57:39.244+02:00The toxic trade-off<br />
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<i style="mso-bidi-font-style: normal;">And the stakeholder
war that is destroying the economy.</i></h3>
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From any point of view, it was a sad day to experience
the recent power outages because of an <a href="https://www.moneyweb.co.za/news/south-africa/labour-unions-picket-eskom-office-in-wage-dispute/">Eskom
wage dispute</a>, and to witness angry workers trash Nelson Mandela Bay. Clearly
not on the same scale, there is still some similarity between those actions and
that of using women and children as shields in military conflict, or children
as suicide bombers. Whoever the perpetrators are, they will vehemently defend
the ends as justifying the means. To which Adam Smith would have responded: “Virtue
is more to be feared than vice, because its excesses are not subject to the
regulation of conscience.” <o:p></o:p></div>
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It’s not acceptable to harm, or even inconvenience,
others in the pursuit of self-gain, which in itself seldom qualifies as a noble
cause. In the same vein, there can never be any justification for imposing your
own needs and wants on customers, clients, consumers or users. It’s a moot
point whether modern society has not become too tolerant of this behaviour,
often excusing it in the same way we tend to be lenient on transgressors who
have had a tragic upbringing.<o:p></o:p></div>
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Yet, it is understandable in broader context. For the
most part we have made the pursuit of self-gain the most important, if not
exclusive purpose of our economic endeavours. The term “exploitation” even
features in some organisational theory handbooks as an objective when it comes
to markets and resources. It is that
concept which inevitably spawns the kind of behaviour we witness on many fronts;
of which labour agitation is just one. When these principles are marshalled and
expressed through powerful groupings such as labour Unions, large corporations,
business theory, governments and many other, they often do battle with each
other and the fighting elephants crush the grass. It unleashes a toxic
trade-off between vested interests; an obscene haggle which culminates in
scheming, conniving, colluding, manipulation, theft, corruption, customer
neglect, and even societal harm. <o:p></o:p></div>
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This conflict cannot be settled at a centralised level
such as Nedlac or centralised bargaining. Solutions there often impose
intolerable prescriptions down the line and undermine instead of encourage much
needed flexibility. It has to happen at an individual enterprise level where a
common purpose can unite the stakeholders and reward expectations managed. Do
not blame labour only! Capital interests have been the architects and refiners
of the short term profit maximisation model, and the destructive excesses we
have seen in the last few decades. Labour simply follows the same logic, compounded
by the commodity status it has been given (largely by itself) and in this
country by a fall-back to radical cold war rhetoric. <o:p></o:p></div>
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The self-gain, profit pursuit theory is flawed in many
respects. For one thing, it does not distinguish between purpose and motive.
Purpose applies to the collective; motive more to the individual. Clearly the
more individual motives are aligned to a common purpose, the more powerful that
collective expression will be. But that common purpose will suffer when
individuals or stakeholder groups pursue their own conflicting vested interest.
The second flaw is the assumption that wealth is generated by the pursuit of
those interests. In reality, tangible wealth can only be created by being
useful to others. It is then a huge leap to say this happens automatically when
people exclusively pursue their own maximum material self-gain; that we achieve
the best in us by appealing to the worst – greed or fear. That particular
assumption has been proved wrong time and again.<o:p></o:p></div>
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Despite King IV’s ideal of seeing business as an instrument
of <a href="https://www.inclusiveaccounting.com/">creating value for all</a>;
global emphasis on inclusive economic performance, and the <a href="https://www.inclusiveaccounting.com/big-shift">wave of new economic
thinking</a> that challenges classic economic theory, we still don’t seem to be
near forging new paradigms. The main participating stakeholders of labour,
capital and state seem to be locked in dispute over who should get what. The
focus is still mostly on benefits and distribution, rather than contribution
and wealth creation.<o:p></o:p></div>
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The latest mining charter proposals are a case in point
and this chart based on the <a href="https://www.pwc.co.za/en/assets/pdf/sa-mine-2016.pdf">PWC 2016 survey</a>, shows how
misguided they are.<o:p></o:p></div>
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With state and labour being 75% beneficiaries of mining
wealth creation, the obsession with changing the capital structure seems absurd.
It can be explained only by an assumption that in all things, capital rules
supreme. Nowhere in the charter or in his <a href="https://www.moneyweb.co.za/news/south-africa/new-mining-charter-proposes-30-black-ownership-within-5-years/">comment
on the charter</a>, did Mineral Resources Minister, Gwede Mantashe explain how it
would ensure higher production, mining sustainability and increased wealth
creation. Again, and as always, it’s all about distribution rather than
creation; about taking instead of giving. <o:p></o:p></div>
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If we want to take the “<a href="https://www.inclusiveaccounting.com/">creating value for all</a>” refrain
seriously, not only must we stop the stakeholder trade off, but we must get
them to share an unequivocal <a href="https://www.inclusiveaccounting.com/strategy">common purpose</a> of
maximum wealth creation and a common fate in sensible and flexible distribution. I have written megabytes on this theme, but a
more recent thought struck me that company boards must be re-examined. At
present they represent virtually exclusively shareholder interests but could be
broadened to include the other contributing stakeholders of labour and state. This
will only work if all think entrepreneurially in line with the above common
purpose of serving their markets. Frankly this can be said for shareholder
interests. Perhaps more so!<o:p></o:p></div>
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And let’s not blame “the system”! The constant harping on
“capitalism” or “socialism” has become presumptuous, boring and
counterproductive. Economics is not about systems, constructs, institutions or numbers,
but about an evolution of meaningful and mutually empowering relationships
between people. Systems that we impose on that will always fail if the
perceptions, assumptions and behaviour of people are flawed.<o:p></o:p></div>
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One of the most intriguing issues humanity has always
wrestled with is the deeply profound relationship between contribution and
reward; giving and receiving; empathy and survival. What comes first? Where
must the emphasis lie? I’m more convinced that Newtonian, cause and effect
logic is not appropriate. Not only are the two mutually supportive, they are
one and the same thing. <o:p></o:p></div>
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That principle is reflected in accounting practice in the
value added or wealth created measurement – what I have called “<a href="https://www.inclusiveaccounting.com/accounting">the magnificent metric</a>”.
It is also the oldest, simplest and most powerful economic principle known to
humankind. It captures both contribution and reward in one number – a bit like
those optical illusion drawings where two pictures are contained in one,
depending on how you see it. And if the whole measures both, then the parts of
labour, capital and state reflect both. We can quibble about proportions, but
never to the extent of harming the whole.<o:p></o:p></div>
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So wherein lies the logic of expecting more by giving
less – in withholding one’s labour or contribution? A price will inevitably
have to be paid; somehow, somewhere. The body economic is scarred and those
inflicting the wounds will ultimately pay a price beyond some loss of income.
The bigger damage is loss of trust and tarnished reliability. But let’s not
exonerate those who for too long have viewed labour as a cost, a drag and a
burden to their own slice of the pie.<o:p></o:p></div>
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This thought from American Philosopher, Waldo Emerson: “It
is one of the beautiful compensations in this life that no one can sincerely
try to help another without helping himself.”<o:p></o:p></div>
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Imagine adopting that as the supreme principle of
economics.<o:p></o:p></div>
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<br />Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-76684889524975359842018-06-18T10:15:00.004+02:002018-06-18T10:15:52.067+02:00Government entrepreneurship.<br />
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government is less important than the way it behaves.</i></h3>
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The at times cavalier behaviour of the United States
under Donald Trump’s “America first” refrain, raises a number of issues that
can have a significant impact on the global economy.<o:p></o:p></div>
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The more obvious, and one that can affect South Africa’s
foreign trade, is the global trade war he has unleashed. Barriers to foreign
imports have already triggered the inevitable tit-for-tat response from America’s
main trading partners, including China, Canada, and Europe. There are seldom
outright winners and losers in this game. The initial gains you make in
reducing imports are invariably set-off by a fall in exports, and you find
yourself becoming more and more insular, until you lose your position and
influence as a global trading nation. <o:p></o:p></div>
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It is counter-intuitive to a well-established principle,
backed by years of World Bank research that the success of a nation depends on
having an external focus and developing its people. You can apply those same
principles to a company and even to an individual. It amounts simply to a
desire to make a contribution to the world around you, and developing knowledge
and skills to do so. <o:p></o:p></div>
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More significantly, is how this behaviour impacts on
trust. Commerce has always been a proven counter to conflict, but the moment it
is engineered for exclusive self-gain, it creates an imbalance and distrust.
The U.S’s problem has been compounded significantly by its offhand approach to
treaties, agreements and understandings; going back to its treatment of native
Americans; the more recent scuttling of a highly valued Iran nuclear deal;
reneging on climate change commitments; its propensity for covert involvement
in regime change and many more. Sad to say, America is no longer as trusted a
nation as it used to be. It remains to be seen whether the dramatic
rapprochement with North Korea will improve or further damage that trust. But
as things stand, there is a danger that ultimately trust will also be lost in
its most powerful global instrument, the dollar. <o:p></o:p></div>
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This brings attention to the most significant aspect of
all: the role governments play in our well-being: as individuals, as nations
and as a global species. Governments are big, invasive and more in control of
our destiny than any other single institution. As we saw with Greece and more
recently with Italy, centralised authority can ride rough-shod over the democratically
expressed will of the people. But it is the <a href="http://cms.edelman.com/sites/default/files/2018-02/2018_Edelman_Trust_Barometer_Global_Report_FEB.pdf">least
trusted institution</a> in most societies, below that of business, NGO’s and
the media. <o:p></o:p></div>
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Yet they continue to grow. Not only in size as reflected
in their claim on national resources, but in their regulation of citizen
behaviour through legislation. They are there to stay, perhaps even becoming
more dominant and invasive. With this, the classic ideological debate between capitalism
and socialism is fuelled to hysteria and open conflict. The size of government
is then used as an unsubstantiated premise to prove its role in national
prosperity or poverty. In South Africa, President Ramaphosa has <a href="http://www.polity.org.za/article/size-of-government-under-review-2018-05-25">earned
some kudos</a> for promising to review the size and structure of the
government. Few will take issue with that, especially in the light of the
disastrous performance of state owned enterprises in recent decades and the
high demands on dwindling revenue. There’s no question that we have a bloated,
largely inefficient and wasteful bureaucracy. <o:p></o:p></div>
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But one must caution against a dogmatic approach based
simply on size and metrics. Unbending ideology can often stand in the way of
progress and muddy the path of economic evolvement. Many prosperous nations,
such as Norway and Denmark, contradict the small government premise. Others,
such as South Korea, post war Japanese recovery, and Taiwan have shown what can
be achieved not only through strong collaboration with private initiative but
having a firm government hand on the process.<o:p></o:p></div>
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British economist and author, Professor <a href="http://marianamazzucato.com/">Mariana Mazzucato</a>, of the University
College London, has argued for a partnership of equals between public and
private actors in the innovation economy. She writes: “The state has actively
shaped and created markets, not just fixed them. It has done so by being an
active investor along the whole innovation chain: not only in basic research
but also even in downstream areas like applied research and early stage
financing of companies”. South Africa’s Sasol is a good example of that.<o:p></o:p></div>
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Despite my own early fanatical aversion to state
involvement in the economy and preference for private sector control of
resources, a question that often irks me is what prevents the state or
communities from having their own enterprises if they played to the same rules
as those in the private sector? Of course that is a big “if”, but arguably
those rules are as easily broken by big, centralised economic power-houses and
corporates, as governments. <o:p></o:p></div>
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The answer lies, of course, in intent. The Holy Grail of purpose
– that of serving its market or customers – that should apply to all business,
must equally apply to government. The rules of reward distribution: meeting the
legitimate expectations of the participating stakeholders and encouraging
continued contribution should also be followed. In short, one should follow <a href="https://www.inclusiveaccounting.com/strategy">Common-purpose; Common Fate
principles</a> where government is involved. That would imply, for example,
that civil service pay could be flexibly linked to nominal GDP growth once
guidelines have been established for the appropriate size of the government
wage bill in relation to GDP. Interestingly that would make the current 7%
public sector wage offer close to that norm. <o:p></o:p></div>
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That “appropriate size” is at the core of the debate. In
a <a href="https://www.facebook.com/photo.php?fbid=10156425987158328&set=a.10150276625323328.345029.614743327&type=3&theater">social
media post</a>, Economist Mike Schussler argues that at 13.79%, the S.A. government
wage bill is “very, very high” compared to the average of 6.3% for low income
countries, 7% for middle income and 9.7% for rich countries. The legitimacy of
using averages as benchmarks is open to question – just ask any individual
shopper whether they believe the official inflation rate! But even in the
Schussler table, South Africa is still below countries such as Denmark, Norway
and Finland.<o:p></o:p></div>
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Big government is here to stay. But as Muzzucato argues,
it has to start thinking entrepreneurially. Size matters far less than the way
it behaves.<o:p></o:p></div>
<br />Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-87588905018108040242018-06-04T11:07:00.001+02:002018-06-04T11:07:43.626+02:00From Ashe to Ashwin.<br />
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<i style="font-weight: normal;">Confronting the
thorny issue of merit based appointments in society.</i></h3>
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It may be connecting some very obscure dots, but former
Springbok rugby player, Ashwin Willemse’s walking off the SuperSport set reminded
me of tennis champion Arthur Ashe’s <a href="http://www.tennis.com/pro-game/2015/04/1973-arthur-ashe-breaks-sporting-color-barrier-south-africa/54575/">rebellious
tour of South Africa</a> some 45 years ago. The two events may be on a
completely different scale. Ashe’s defiance of the global sport isolation of
South Africa was a highly significant activist gesture against existing racial
prejudice, while <a href="http://ewn.co.za/2018/05/25/willemse-mallett-and-botha-temporarily-taken-off-air">Willemse’s
walk-out</a> was less clear – at least at the time of writing. It seems to have
had at least some measure of self-indulgent personality cultivation where
one-upmanship is typical of many of these panels. <o:p></o:p></div>
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That the Willemse incident became a loud gnashing of
teeth about sport transformation, racism and quotas, reflects a rather puzzling
paradox – how little and how much we have moved on from the days of Arthur
Ashe. At the centre of it all is that much vaunted, but highly mythical and
misunderstood concept of merit. <o:p></o:p></div>
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Just as strange is the attention it receives in an arena where
it is the least arbitrary: in sport. At the highest level in this field, merit
is simply not an issue – you are either competitive or you fall out and
Willemse is clearly one of the former. If
you don’t select the best by individual track record, you must be prepared to
pay the price at the highest level; which in turn destroys aspirations to reach
that level – at least for your own country. It’s clearly the surest road to
mediocrity, and can only be addressed at grass roots where equal development opportunities
supersede merit.<o:p></o:p></div>
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But the strangest perversion of all is the obsession with
merit in sport, and the near absence of it in many far more important areas of
society. I know this may resonate with some political rhetoric out there, but
that too is based on a good measure of hypocrisy and no full understanding of the
invidious, subtle and sometimes deliberate ways that merit criteria can be
warped. They can as easily be used to entrench assumptions and prejudices as
they can to ensure the best recruit. A self-evident sacrosanct principle of
merit based appointments is that all the criteria have to be relevant to the
task itself and the value that the task adds to society. Any other criteria not
only detract from and dilute the merit principle, but place self-gain above the
needs of society or customers.<o:p></o:p></div>
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<b>But one can only
invoke the merit argument when you have done everything possible to develop the
broadest number of individuals to meet the standards required. Otherwise it
will be unfair and seen to be unfair.</b><o:p></o:p></div>
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This gives some validity to affirmative action, which can
be seen as a socially prescribed merit criterion but has arguably failed
because it has focused virtually exclusively on demographic metrics, rather
than the development of value creators. Mentoring and development demand much
self-sacrifice by the mentors, mostly in first line and middle management. In
my management consulting days, I regularly witnessed how intransigent and
resentful these managers were of the task. Not only are we reaping the fruits
of that behaviour today, but it has weakened the argument for merit based
appointments in many sectors, adding some unnecessary fuel to “legacy”
arguments. It has also largely poisoned the potential benefits of affirmative
action, which is contrary to pure merit deployment in the longer run.<o:p></o:p></div>
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Despite the enormous hurdles in applying merit criteria
to all tasks in society, it is an aspirational imperative that should rank as
high as any of the most important provisions in our constitution. Few can argue
that its opposites: nepotism, cronyism and patronage have become deep-seated
and systemic and have led to disastrous corruption. This has to be rolled back at
all levels. The only way to do so is through a serious rethink of our approach
to merit based appointments, perhaps even a review of affirmative action itself.<o:p></o:p></div>
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To be sure, the most serious rot has been in government,
starting with local government and the strong link between political party
branches and member deployment into local authority executive positions.
Rivalry there has become so intense that contenders will literally kill each
other to secure appointments. How far are we from having political
assassinations at national level? Mature democratic societies counter this
inevitable politically expedient scourge by making a clear and unyielding
distinction between legislative and executive positions, where the latter is drawn
from any source, race or gender purely on merit. Political standards too can be
lifted by applying merit criteria in nominations for positions. <o:p></o:p></div>
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Nepotism spreads like a virus. When one huge sector, such
as government, is infected to the bone, then others respond with their own bias.
We have all been either victims or beneficiaries of some form of nepotism or
cronyism, accepting it as “part of life”. Some are born into privilege; others
into poverty. In turn, inequalities and inequities are entrenched and by their
very nature create a sense of unfairness which is the nemesis of merit based
deployment of human contribution. <o:p></o:p></div>
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The case for merit based appointments in all of the
working environment is self-evident and overwhelming. Yet it has been sadly
neglected as a national principle. Service driven merit criteria will:<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->Substantially counter corruption.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->Vastly improve service delivery, product quality,
standards and competitiveness.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->Optimise value creation, job creation and
prosperity.<o:p></o:p></div>
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</span></span><!--[endif]-->Enhance individual aspirations and
self-development.<o:p></o:p></div>
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</span></span><!--[endif]-->Create greater fair play in appointments.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->Reduce disparaging of appointees.<o:p></o:p></div>
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</span></span><!--[endif]-->Reduce accusations of discrimination in terms of
race, gender and other.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->Give self-confidence to and respect for
incumbents.<o:p></o:p></div>
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Perhaps technology can come to the rescue. It should be
possible with today’s advanced algorithms to design highly sophisticated and
comprehensive aptitude testing, including brain scan imaging to detect the
psychopaths and emotionally unstable. This should eliminate most, if not all,
of the human prejudices in appointments.<o:p></o:p></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 11.0pt; mso-ansi-language: EN-ZA; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Arial; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Of course, if you don’t want to subject yourself
to this dehumanised process, you can always become self-employed and take your
contribution directly to the market, where merit is judged more rigorously. </span>Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-20994026664024153302018-05-21T11:14:00.000+02:002018-05-21T11:14:29.408+02:00Curiosity feeds the cat.<br />
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<i style="mso-bidi-font-style: normal;">The important role
of this basic human trait to our well being.<o:p></o:p></i></div>
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What would you do if you saw a group of people gathered
on a street corner? It was a question often asked of news reporting candidates.
If they said they would walk away, they stood little chance of being employed
because they lacked one of the basic and important traits of a journalist,
which is passionate curiosity. <o:p></o:p></div>
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Tiring somewhat of all of the heavy stuff in current
affairs, I have been reflecting on the days of my youth and some popular forms
of barter at the time. I thought of my mother’s indignation with a shopkeeper
offering her some Chappies bubble-gum instead of a penny in change. Of course, her
refusal made me angry with <i>her</i>! One
of the attractions of that messy chew was the “Did you know” trivia on the
wrapper, and I used to save them to become a human Google to my friends. <o:p></o:p></div>
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That made me think of the power of curiosity, and my son who
has developed the most irritating of habits. Whenever I ask him a question, he
responds with a refrain: “Google is your friend.” It is a reminder of how much
information is at our disposal, and how easy it is to access it. But beware the
Googler in your midst. You could be having a casual conversation with a group
of friends when one interrupts with: “You are wrong! I’ve just Googled it.” And
a trivial conversation becomes a heated, acrimonious exchange. <o:p></o:p></div>
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In this era of information overload and the IT explosion,
the initial assumption that it would lead to a much more informed society is
now being questioned quite seriously. Some are arguing that much of the media
that people have easy access to, distribute misinformation rather than
authentic content. Even conventional news outlets are not immune. It is also
argued that predilection confirms prejudices rather than challenging them. Still,
one cannot deny that in a functional sense, we are much better off than a few
decades ago. <o:p></o:p></div>
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This all reflects on curiosity itself, which, as it turns
outs, is a serious, albeit badly neglected science. Yet, it is self evidently
one of the most important features of being human. It is the <a href="https://www.weforum.org/agenda/2015/08/why-curiosity-is-the-secret-to-scientific-breakthroughs/">driving
force behind</a> knowledge, discovery, innovation, development and prosperity.
It can be used or abused; encouraged or supressed and manipulated by malevolent
forces that result in an entire nation, society or even a generation losing its
head.<o:p></o:p></div>
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A key assumption of the science of curiosity is that it
has the same framework that we apply to much of human behaviour: nature or
nurture. Astrophysicist and author, <a href="http://knowledge.wharton.upenn.edu/article/makes-us-curious/">Mario Livio
says</a> “Curiosity is a fundamental
human trait. Everyone is curious, but the object and degree of that curiosity
is different depending on the person and the situation.” That
difference is influenced by many factors: culture, gender, and individual
circumstances and preferences. For instance, an unemployed homeless individual
will be curious about very different things from those of a derivatives trader,
or the guru on a mountain contemplating the meaning of life. I’m often appalled
at the extent to which even well-educated and highly functional people simply
avoid exposure to current affairs because they “find it too depressing”.<o:p></o:p></div>
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The key question is whether we understand curiosity
enough, especially how it can be nurtured at the broadest level to encourage
the acquisition of knowledge and discovery. <a href="https://ideas.repec.org/a/kea/keappr/ker-20130630-29-1-02.html">Curiosity
was at the centre</a> of the success of post-war South Korea. I witnessed this
in two Korean participants in a management development programme at the Oxford
Centre for Management Studies in the mid-80’s. They had little understanding of
English, and would record every word of the 6-8 hours lectures daily; play it
back to an interpreter in Seoul; study the material, and join classes the
following day as familiar with the material as any other participant.<o:p></o:p></div>
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Curiosity may be one of the most unappreciated and neglected
attributes that we have in society. It is <a href="https://www.verywellfamily.com/dealing-with-never-ending-questions-1449272">often
discouraged by parents</a> in children, yet one can only imagine how advanced
they would be if you answered all of the more <a href="https://www.independent.co.uk/news/uk/home-news/curious-children-questions-parenting-mum-dad-google-answers-inquisitive-argos-toddlers-chad-valley-a8089821.html">than
70 questions</a> they ask daily. One should never discourage curiosity. Indeed
it may be more appropriate to review not only all those areas where it is
discouraged, but where it can be developed and nurtured. Do the formal
structures and curricula of schools, for example, deliberately encourage
curiosity in the subject being taught or do they simply “impose” learning on
the learner?<o:p></o:p></div>
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I believe one of the most fruitful endeavours companies
themselves can undertake is to encourage curiosity in the workplace. I have
personal experience of how it is suppressed and often destroyed, especially at
first line supervisory level. Knowledge and understanding of their working
environment are the most empowering tools workers can be given – beyond simply
having knowledge of the task itself. We are daily dealing with the toxic fruits
of that neglect. I have witnessed too, how often that light can be switched on
by demonstrating the direct link between the worker, the task and service to
society through service to the customer. And then showing how value creation
affects rewards for all. It is fully captured in the Common Purpose; Common
Fate model and <a href="https://www.inclusiveaccounting.com/">the Contribution
Accounting Methodology</a>.<o:p></o:p></div>
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In a broader sense and at societal level, we clearly have
to become more curious about curiosity. Unless you are a cat, of course.<o:p></o:p></div>
<br />Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-83740045373202277522018-05-07T11:18:00.001+02:002018-05-07T11:18:17.279+02:00The corporate cauldron.<br />
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<b><i style="mso-bidi-font-style: normal;">Reflecting on the
wider issues of the Steinhoff scandal.</i></b></h3>
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If there is one conversation that I would love to hear,
it is that between Milton Friedman and Mervyn King. As a Nobel Prize winning
economist and adviser to American President Ronald Reagan, <a href="https://en.wikipedia.org/wiki/Milton_Friedman">Friedman</a> strongly
influenced the course of economics and the “greed is good” era of the 80’s;
arguing that the sole purpose of enterprise was to create value for
shareholders. South Africa’s governance architect, <a href="https://www.mervynking.co.za/">Mervyn King</a>, on the other hand has
taken a broader view in King IV, arguing that business has to create value for
all. But both would find common ground on the need for regulation, differing
only on what and how.<o:p></o:p></div>
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Regulation alone can never prevent corporate malfeasance.
All it can really do is limit it. But the problem with that is that the larger
the organisation involved, the greater the potential harm. It’s a bit like
having basic rules of the road apply to all drivers, but the mistake of a car
driver will seldom have the same impact as the mistake of a bus driver carrying
many passengers. Our own <a href="https://www.moneyweb.co.za/news/companies-and-deals/steinhoff-now-for-the-restructuring/">Steinhoff
scandal</a> is one example, but globally we have seen misconduct by large
organisations causing havoc with severe socio-economic implications, including
a global meltdown. <o:p></o:p></div>
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There can be little doubt that concentration of economic
power, of which big business is a key feature, is at the centre of a <a href="https://www.inclusiveaccounting.com/big-shift">shift in economic thinking</a>.
I say this not only on the strength of empirical and anecdotal evidence, but
also on intuition based on years of exposure in this field.<span style="mso-spacerun: yes;"> </span>Developments such as the attack on the establishment,
state capture, national isolationism, trade wars, pay and wealth disparities,
our own populist hysteria around “monopoly capital”, exclusivity, increasing
governance regulation, the effects of technology, environmental concerns and
growing <a href="https://hbr.org/2017/07/the-truth-about-globalization">discomfort
with globalisation</a>, can all be traced back to a greater or lesser extent to
financialisation, capital concentration and the size of multi-national
corporations. <o:p></o:p></div>
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It is also at the centre of the evolvement of economic
ideology, captured in this article: <a href="https://www.inclusiveaccounting.com/single-post/2017/09/04/An-age-of-economic-soul-searching"><i style="mso-bidi-font-style: normal;">An age of economic soul-searching</i></a>.
It is perhaps supreme irony that the masters behind the ideological divide
between capitalism and Marxist socialism – <a href="https://aeon.co/essays/we-should-look-closely-at-what-adam-smith-actually-believed">Adam
Smith</a> and <a href="https://www.theguardian.com/news/2018/apr/20/yanis-varoufakis-marx-crisis-communist-manifesto?CMP=Share_iOSApp_Other">Karl
Marx</a> found common ground in the threat of big business and mercantile
interests charting our economic destiny.<span style="mso-spacerun: yes;">
</span><o:p></o:p></div>
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In the end, like the fallible bus driver, these large
corporations are headed by fallible men and women whose task is compounded by
trying to reconcile the broad interests of society with the narrow, often
short-term interests of shareholders rewarding executive greed. They are very
often in conflict, and it is a disingenuous over-simplification to argue that
regulation can bring the two together. We had an inkling of this conundrum in
Christo Wiese’s testimony <a href="https://www.huffingtonpost.co.za/2018/01/31/wiese-cleverer-people-than-steinhoff-board-have-been-duped_a_23348766/">to
the Steinhoff Parliamentary enquiry</a>, in which he highlighted the complexity
of a multi-national corporation; where working in different countries with
different legislative requirements created many loopholes for misconduct. Even
more revealing was the <a href="https://www.moneyweb.co.za/news/companies-and-deals/more-questions-than-answers-at-steinhoff-hearing/">testimony
of JSE CEO</a>, Nicky Newton-King that it was standard business practice for
large corporations to maximise capital and tax efficiencies. I could not tell
whether it was simply a statement of fact or one suggesting censure. But the
two together point to the heart of the problem. <o:p></o:p></div>
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The standard defence of big business, corporates, large
holding companies, and mergers and acquisitions mostly falls back on capital
efficiency and the hunger for capital. In turn that is often distilled into a
simple formula of the cost of capital. That assumption about capital formation
is far too narrow and flawed both in terms of structure and motive. Human
beings are simply not that one dimensional and one of the biggest failings of
economic theory is that it tries to reduce us all to predictable, measureable
abstracts. What has become clear however, is that the “invisible hand” does not
work very well when that hand is very large, powerful and driven primarily by self-gain.<o:p></o:p></div>
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This is a vast subject and difficult to cover in an
article of this nature. The last few decades have seen <a href="https://www.inclusiveaccounting.com/big-shift">a significant shift</a> in
the debate against big business. <span style="mso-spacerun: yes;"> </span>Flying
on the fuel of capital efficiency is no longer seen as valid, and it is difficult
to find many arguments in favour of bigness. <o:p></o:p></div>
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Robert Atkinson, <a href="http://money.cnn.com/2018/04/07/news/economy/big-business-atkinson/index.html">head
of a Washington research group</a>, is one champion of corporate consolidation,
on the grounds that big businesses create more jobs, pay better wages, and — by
some metrics — comply better with environmental and workplace laws. He goes
further in slamming the enthusiasm for small business whose only value, he
argues, is as incubator for large businesses, especially if they do so with
disruptive technology that makes the economy overall more efficient. He does
have a point. Labour, for example, contrary to their trashing of “monopoly
capital”, would find it difficult to extort their demands from a widely
fragmented business sector.<o:p></o:p></div>
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Of the many criticisms of big business, one of the most
coherent and well researched I have read is that of two Johannesburg academics:
<span style="mso-bidi-font-style: italic;">Pamela Mondliwa and Simon Roberts.
They </span>wrote in this <a href="https://www.moneyweb.co.za/moneyweb-opinion/soapbox/sas-economy-is-badly-skewed-to-the-big-guys/">Moneyweb
article</a>: “Economic concentration opens the door to market power being
exercised in a way that undermines productivity. This can be seen, for
instance, in value chains where downstream players have to pay high prices for
inputs, with dire consequences for their competitiveness. The knock on effect
is that economic growth slows down and employment creation is affected if
downstream industries are labour absorbing.”<o:p></o:p></div>
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We too often seek answers in laws and coercion – until we
are buried in police and have overflowing jails. And then the miscreants always
seem to be one step ahead. We have to construct a different understanding of
and relationship with capital in the economy. While Friedman’s shareholder-value
creed may have been the “<a href="https://www.forbes.com/sites/stevedenning/2017/07/17/making-sense-of-shareholder-value-the-worlds-dumbest-idea/#69c0840c2a7e">dumbest
idea ever</a>”, King’s “<a href="https://www.inclusiveaccounting.com/">creating
value for all</a>” may become the “smartest idea ever.”<span style="mso-spacerun: yes;"> </span>All that is needed is for the three
contributors to wealth creation -- labour, capital and state – to think and
behave entrepreneurially and become customer driven in <a href="https://www.amazon.com/Common-Purpose-Fate-business-empathy-ebook/dp/B00O293TWG">a
common purpose and common fate context</a>.<span style="mso-spacerun: yes;">
</span><o:p></o:p></div>
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It’s not going to <a href="https://www.inclusiveaccounting.com/big-shift">require a huge shift</a>,
but it certainly will create one. <o:p></o:p></div>
<br />Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-41321927949593435352018-04-23T10:40:00.001+02:002018-04-23T10:40:06.909+02:00The land madness.<br />
<h3>
<i style="mso-bidi-font-style: normal;">Our most divisive
issue is also the most misunderstood and incoherent.</i></h3>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifD-iRpp9fY9asVSrRouNgU4mRGChFJ0ii4J7fBHSXvZrYj5pPPIZ1GK62nuBT2mrZvZuz9Lommu5qIBwVudEUAnv1g3gn96Zo_MWXrI1xG9MI9ZhcPkKhP37zkGfzBr_vXMaFzm-i6HM/s1600/Farmers-march-2.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="466" data-original-width="700" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifD-iRpp9fY9asVSrRouNgU4mRGChFJ0ii4J7fBHSXvZrYj5pPPIZ1GK62nuBT2mrZvZuz9Lommu5qIBwVudEUAnv1g3gn96Zo_MWXrI1xG9MI9ZhcPkKhP37zkGfzBr_vXMaFzm-i6HM/s320/Farmers-march-2.jpg" width="320" /></a></div>
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As a young boy, I would often take long, lonely walks in the
veld of the Free State Gold Fields: barefoot with hardened soles impervious to
sharp pebbles and blades of dry grass; but still intuitively sensitive to the
energy and magnetism of the virgin earth; the large promise of nature; flat and
wide open spaces; of freedom and the mystery of what lay beyond the horizon. My
fantasy would often expand to owning all of what I could see, giving me a sense
of power, status, security and wealth. <o:p></o:p></div>
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Those two dimensions: the nomad and the settler; the
romantic and the mercenary; and the communal and the territorial, are powerful
primal forces in our relationship with land. They are often contradictory. They
are also, for the most part, mythical, emotive and irrational. Yet they
strongly influence our discourse about land, plunging it into an incoherent
mess. A greater, and more explosive dimension is added by a wider territorial
framing, embellished by the concepts of people and their homeland; tribe and
territory; <i>volk</i> and <i>vaderland</i>; a place and a home; of flags
and anthems; ancestry; culture; tradition; belonging and connection. These are
strong enough to awaken the warrior in pacifist chests, adding volume to calls
to action, and creating a powerful drug to be peddled by populist politicians.<o:p></o:p></div>
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It is small wonder that our debate about land, perhaps the
most divisive issue in South Africa today, is trapped in an echo chamber of
contradictions, conflicting statistics, confusing rhetoric and ideological
warfare. For this column I’m not going to confront the issue some have raised
that the proposed amendments to the Constitution have a much broader and more
invidious implication of expropriation of all property: from your child’s
favourite teddy bear to intellectual property. I don’t think that it is
remotely possible and will bring down the entire economic system. In any case,
the government is quite welcome to nationalise my tortured imperfect thoughts. <o:p></o:p></div>
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Our understanding and hence our whole policy approach to
land transformation could be way off the mark. It has mostly been distilled
into two ill-fitting themes – transfer of agricultural land and transfer of
wealth. The first dominates the discourse and is perhaps the most incoherent of
all, based not only on poor statistics and false assumptions around who owns
what (see <a href="https://irr.org.za/reports-and-publications/articles-authored-by-the-institute/evidence-based-approach-to-land-redistribution-is-not-a-numbers-game/">this
article by the IRR</a> challenging the 4% black land ownership), but also
whether agricultural land is the real issue at all among the impoverished and
disadvantaged. <o:p></o:p></div>
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All empirical evidence shows differently. Most of the land
invasions and unrest have not been on farms, but in urban areas – people
wanting homes and escaping cramped, poorly serviced living conditions in
exploding townships and settlements. Their inability to achieve that is far
more inflammable, pitching red berets against Red Ants in a fervour fuelled by
anger, hopelessness and despair. I’m convinced that addressing that in land
restitution will defuse most of the emotions far quicker and easier than the
complicated transfer of farms. <o:p></o:p></div>
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It also makes much more sense in the distribution of wealth.
Far more wealth is tied up in residential property than in farming or commerce
and industry. It gives individuals an asset foothold and promotes inclusiveness
in the economy. But that in turn needs a clear approach to private ownership
and title. The Freedom Front Plus may have valid concerns that the government
seems intent on expropriating land for the state and not for private ownership.
The latter would certainly be at odds with the EFF’s “socialist” stance, which then
implies opportunism on their part in using individual aspirations for home
ownership to enrich the state. Surprising to many perhaps, blacks own far more
first homes in South Africa than whites. According to an observation by
economist Mike Schussler recently posted on social media: “Africans own 7,66
million houses (1st houses only) and Whites own 730 000. In total 56% of the
value of 1st houses belong to Africans. Only 33% belong to the white population
group”.<o:p></o:p></div>
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One cannot be dogmatic about state and communal ownership
versus private ownership. There are too many permutations of ownership in
different countries that invalidate ideological prescription. What is useful,
however, is to understand that state ownership (ownership by all) is equal to
ownership by none (not one.) It is then also imperative to have a clear
understanding that government in its various forms: national, local and SOE’s are
not the state per se but agents of the state. In that they cannot represent
“all” and indeed too often act on behalf of a few, including themselves. <o:p></o:p></div>
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Compounding the entire discourse further and much deeper, is
the macroeconomic positioning of land as a “factor of production” next to
labour and capital. It’s perhaps the most essential perspective of all, but it
is rife with complexity. Land for
commercial and industrial use, for example, is more appropriately classified as
capital as a factor of production. Land has virtually disappeared from economic
theory although undeniably still impacts on GDP. (<a href="http://evonomics.com/josh-ryan-collins-land-economic-theory/">See article
here</a>.) The constantly changing structure of macroeconomics through
technology and human evolvement has meant that the role of land as a factor of
production has become highly flexible and incalculable; in some cases even
irrelevant. A reflection of this is the many small countries with little or no natural
resources that are highly prosperous; and conversely, the many countries with abundant
land and minerals, who are relatively poor. <o:p></o:p></div>
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I am aware that this article may well have raised far more
questions than answers. Perhaps that’s the point. But what should be obvious to
all is that our discourse on land is juvenile, irrational and tragically behind
the times. It is anchored in falsehoods, flawed assumptions, and volatile
emotionalism.<o:p></o:p></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 11.0pt; mso-ansi-language: EN-ZA; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Arial; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">What madness would allow it to tear us apart?</span><br />
<br />Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-20008912111479192932018-04-09T10:44:00.001+02:002018-04-09T10:44:14.892+02:00Stakeholder capitalism.<br />
<h3>
<i style="mso-bidi-font-style: normal;"><span style="font-family: "arial" , "sans-serif"; font-size: 12.0pt;">Can South Africa
create a fresh economic approach to growth and inclusivity?</span></i></h3>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi368dxPMqrX8GbD7n1A6ugeN0BH-pJMwRojS8RvOcEqmi9bNgrI756Xlwhamr6Nh96fgiRsV4qdRsyrYzuXHttKQRBYzMxSS_NYVUGceEblsM5E8Bd6P0EjQYdBpA98dIFs-k9dR1B0yU/s1600/capcrisis.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="409" data-original-width="620" height="211" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi368dxPMqrX8GbD7n1A6ugeN0BH-pJMwRojS8RvOcEqmi9bNgrI756Xlwhamr6Nh96fgiRsV4qdRsyrYzuXHttKQRBYzMxSS_NYVUGceEblsM5E8Bd6P0EjQYdBpA98dIFs-k9dR1B0yU/s320/capcrisis.jpg" width="320" /></a></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">Part
of the enthusiasm of a “new dawn” in South Africa is the belief that a closer
partnership can be established between labour, capital and state. It has a firm
Ramaphosa stamp to it and is key to the President’s desire to galvanise the
nation on a different business friendly path of cohesion, inclusivity and
growth. <o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">In
this he has put renewed emphasis on the CEO initiative and the National
Economic Development and Labour Council (NEDLAC) as “unique institutions” in
bringing the three economic estates together and that are envied by many other
nations. Sceptics could argue that most nations do not need them and have long
since evolved beyond 19<sup>th</sup> century ideological divisions captured in
theories of “capitalism” and “socialism” that still mesmerise many in this
country. (See article: </span><a href="https://www.inclusiveaccounting.com/single-post/2017/09/04/An-age-of-economic-soul-searching"><i><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">An age of economic soul searching</span></i><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;"> here</span></a><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">.)<o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">Only
a political or organisational theorist could come up with a term such as
“stakeholder capitalism”. It’s counter-intuitive to the very definition of
capitalism and borders on being an oxymoron. The classic definition of capitalism
assumes the supremacy of ownership over “stakeholders”. Perhaps it is time to
move beyond the debilitating semantics of capitalism and socialism. There are
so many permutations of both in different settings that neither exists in its
pure form. Yet the words themselves ignite knee jerk responses based on stubbornly
nurtured prejudices. <o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">Associative
meaning has a subtle way of creating unshakeable intuitive prejudice – to the
extent that many </span><a href="http://mentalfloss.com/article/68768/22-outlawed-baby-names-around-world"><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">baby names are banned</span></a><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;"> in some countries
with some nations even having a pre-approved list. Have the words “capitalism
and socialism” not reached that point? And perhaps with them other concoctions
such as “communism”, “neo-liberalism”, “social capitalism” and “stakeholder
capitalism”. There is, of course, much value in the inclusive stakeholder
approach, but to achieve that, one simply has to let go of much of what is
conventional capitalism – including the purpose of business and the accounting
formats -- in favour of a </span><a href="https://www.inclusiveaccounting.com/"><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">common purpose;
common fate approach</span></a><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">.<o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">It
will also need a clearer distinction between capitalism and other concepts such
as “free enterprise”, “free markets” and even notions such as innovation,
entrepreneurship, and prosperity. Without that distinction, those laudable,
more palatable and easily defended concepts become tainted with many negative
connotations associated with the name of capitalism. It is said to be in a
crisis. Its face has been called </span><a href="http://news.bbc.co.uk/2/hi/uk_news/139598.stm"><span style="font-family: Arial, sans-serif; font-size: 12pt; text-decoration-line: none;">“unacceptable”</span></a><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">.
It’s been slandered as “ugly”. It’s even been demeaned as </span><a href="http://en.wikipedia.org/wiki/Robert_Runcie"><span style="font-family: Arial, sans-serif; font-size: 12pt; text-decoration-line: none;">having
no face at all</span></a><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">.
It solicits ill-informed responses from populist leaders that inflame without
enlightening: much heat without light. Included in its defence, and entrenched
by the word itself, are questionable assumptions about what accounts for its
success. <o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">The
first is that human beings are singularly driven by their immediate material
self-interest and profit. That is a silly generalisation. Human beings are far
more complex than that. Free enterprise supports a different understanding, as
pronounced by Adam Smith (</span><a href="http://www.econlib.org/library/Smith/smMS1.html"><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">See here</span></a><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">). Without a good
measure of benevolent behaviour we attract the very nemesis of free enterprise:
more rules, regulations, laws, government controls and even coerced empathy in
the form of a system mildly called socialism. Which prompts me to burst another
assumption bubble: because <i>homo
economicus</i> is a social being rather than simply a functional entity in one
or other construct, it does not support the radical socialist argument of ownership
by all – or ownership by none.<o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">Interestingly,
while capitalism is blindly married to the material self-gain driver, free
enterprise does not concern itself with motive: as long as it is led by the
fundamental rule that wealth is the result of creating something of tangible value
for others or being useful to fellow human beings. In that it has a fundamental
benevolent underpinning. Free enterprise is remarkably resilient and
accommodating, and does not attract or even need the fanatical posturing that
advocates either for or against often adopt in an understandable blind prejudice.
Even in its aversion to socialism and the latter’s implication of bigger
government at the expense of private initiative, it can accommodate
permutations that fly in the teeth of many arguments. <o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">Capitalism
vehemently champions my old pet objection: the profit motive and profit
maximisation as the ultimate driver of success and prosperity. I do not intend </span><a href="http://www.moneyweb.co.za/archive/profits-of-doom/"><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">repeating my
challenge</span></a><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">
to this claim as simply being false. What is worth repeating is the outrageous
and demeaning assumption it makes about the motives of entrepreneurial giants
who have made a marked and lasting impact on humankind. The social miracle of
free enterprise is its ability to forge cohesion and a sense of common purpose
between stakeholders. That obviously implies not trying to rank one above the
other, and certainly not encouraging the exploitation by one of the other.<o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">That
is implied in the name “capitalism” itself. It assumes capital supremacy in all
things, and the pursuit of its formation and growth is a precursor to all kinds
of wonderful stuff. Free enterprise accommodates, indeed proposes, a different
view: that enterprise leads and capital follows. Capital is indeed a critical
enabler. But so are skills and labour, and government services and
infra-structure. But the ultimate enabler is demand. <o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">The
results of a narrow and exclusive view on the role of capital formation have
been devastating. We have not seen significant capital formation in organic
growth through multiples of mom-and- pop ventures, small and medium enterprise
growth, and growing middle classes; but in mergers, acquisitions, financial
services, and financial or property assets. Control of capital, not necessarily
ownership, has increasingly been concentrated in the hands of the few, who in
turn, some have argued, have “captured” many free enterprise activities, parts
of government, and the most invidious of all: banking and money creation. <o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">The
term “monopoly capital” may have no logical basis, but it’s simply a reflection
of trying to find, or even create a demon that “will be confronted” by voting
for some populist megalomaniac. The concentration of control over the means of
production, either by government or a few plutocrats is the antithesis of free
enterprise. The term itself is a P.R nightmare. Even in its origins it was </span><a href="http://www.investopedia.com/ask/answers/040615/where-did-term-capitalism-come.asp"><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">demonised by novelist</span></a><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;"> Thackeray to
represent an exploitive landlord. It never featured in Adam Smith’s writings,
but was repeatedly used by Karl Marx. So it was coined by its enemies. <o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">I
have no doubt opened the gates of wrath of many readers. And that is the
essence of the problem, emotive responses linked to a name. You will unlikely
find these observations in economic textbooks. The reason is simple: for the
most part I have been dealing with perceptions, which most textbooks and
academics ignore. At the same time they fail to recognise a fundamental truth:
that perceptions create reality.<o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">The
one thing that globalisation has shown is that there is no one-size-fits all best
economic system. All countries have their own uniqueness that often defy
ideological prescriptions. Each has to evolve in its own way. <o:p></o:p></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt;">If
we want to create something fresh, let’s not muddy it with dogmatic
assumptions.<o:p></o:p></span></div>
<br />Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-33972071576424893042018-03-17T12:51:00.000+02:002018-03-17T12:51:12.187+02:00In the eye of the Tiger<br />
<h3>
<i style="mso-bidi-font-style: normal;">The power and
complexity of sincerity in a corporate crisis.</i></h3>
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It may be early days yet, but Tiger Brands and the listeria
crisis are rapidly shaping up to becoming a case study in corporate crisis management.
<span style="mso-spacerun: yes;"> </span>The South African food giant has had the
deck stacked heavily against it; not the least being the legitimate practical,
insurance and legal constraints in admitting accountability and by implication,
liability at the outset. <o:p></o:p></div>
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In such cases, the only mitigating response is sincerity in
concern for the community and customers without necessarily admitting
culpability. That’s a very difficult tap-dance because it invokes what is
essentially a human quality in an institutional and legal environment. Sincerity
reflects a combination of attributes that ultimately create authenticity and
credibility even at the institutional level. This is not something you can easily
spin or rehearse from a P.R. handbook. It is fed by genuine empathy, intuition,
honesty, humility, integrity and above all consistently demonstrated as a brand
over a number of years. Whether it mitigates the crisis or not is ultimately
not the point. Sincerity is not about purpose or motive; it is simply about
being. <o:p></o:p></div>
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In Tiger’s case, sincerity, coupled with honesty about the
difficulty it faced in admitting responsibility prior to conclusive tests
proving the source of the outbreak, may have tempered some of the hostility. <span style="mso-spacerun: yes;"> </span>I say may, because a hostile media is simply a
given these days and lines have become blurred between direct and leading questioning;
between inquiry and inquisition and between investigation and prosecution. These
were all displayed in the Tiger News conference broadcast live within hours of
the Department of health announcement. <o:p></o:p></div>
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It led to Tiger’s one empathetic gesture virtually being
ignored; that of withdrawing all Enterprise products and not only the three
suspected of contamination. That gesture seems to have been taken out of the
spin-doctor’s manual relating to the <a href="http://iml.jou.ufl.edu/projects/fall02/susi/tylenol.htm">famous Tylenol case</a>
of the early 80’s. <span style="mso-spacerun: yes;"> </span>In that incident, 7
people died after consuming the popular pain-killing capsules that had been
injected with cyanide In Chicago. The producer, Johnson and Johnson,
immediately warned consumers not to take the Tylenol capsules and withdrew all of
them throughout the United States. It later stopped producing capsules
completely. It cost J&J some $100 million at the time and Tylenol’s market
share dropped from 37% to 7%. But within months that had all been regained and
the company’s brand emerged with an enhanced reputation. <o:p></o:p></div>
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In 2003, Pick ‘n Pay had a <a href="https://mg.co.za/article/2003-07-01-pick-n-pay-shoppers-ignore-poison-food-scare">similar
experience</a> in an extortionist threat in Gauteng which claimed that some
products in its stores had been poisoned. It immediately took the public in its
confidence and withdrew the products from the shelves. The threat was shown to
be a hoax, and the company’s brand and share price emerged stronger from the
experience. The significant difference between Tiger and the others is that the
latter were victims whereas Tiger is accused of being a perpetrator. That
immediately tarnishes somewhat C.E.O. <a href="https://www.timeslive.co.za/news/south-africa/2018-03-06-in-his-own-words-tiger-brands-ceo-gets-defensive-amid-listeriosis-outrage/">Lawrence
MacDougall’s emphasis</a> that the company had gone beyond what was expected of
it in mitigating the effect of the listeria outbreak.<o:p></o:p></div>
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But there’s a far greater significance to the comparisons. Johnson
and Johnson’s CEO at the time of the Tylenol crisis was James Burke – a man who
passionately believed in the company’s credo, penned in the 1940’s, that
J&J’s "first responsibility was to its customers and then to
employees, management, communities, and stockholders-in that order”. Six years
before the Tylenol event, Burke felt that the credo had lost its influence and
challenged the board either to recommit to it, or “tear it off the walls.”
Similarly, Pick ‘n Pay had at the time, carefully nurtured “the customer first”
passion of its founder, Raymond Ackerman. Tiger Brands simply does not have the
same “gravitas”, or consistent sincerity. Just over ten years ago, it was
involved in the infamous bread price fixing scandal and had to pay a R100
million fine: one of a number of <a href="https://www.fin24.com/Companies/Retail/4-times-tiger-brands-made-headlines-for-the-wrong-reasons-20180306">brand
tarnishing events</a>. <o:p></o:p></div>
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Yet, one has to have some sympathy for MacDougall and Tiger
Brands. Largely through its own doing, business generally has created a mostly
hostile public, whose anger is tempered only by even lower trust in government.
Big business is reaping what it has sown for the past three to four decades in
the form of a particular interpretation of free enterprise that places
exclusive emphasis on capital supremacy, shareholder-value, profit maximisation
and short termism. It has been “de-humanised”, preferring to cower behind an institutional
shield that often exonerates individual malfeasance and accountability. <o:p></o:p></div>
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In that process it has muted and ignored the most important
perspective of all: that business is not about institutional standing and
performance, but about personal relationships and individual meaning. As I
argued in an earlier article titled “<a href="https://www.inclusiveaccounting.com/single-post/2017/10/02/Follow-the-meaning">Follow
the meaning</a>”, relationships are far more important to a company’s health
than metrics or structures. This is particularly true of relationships with
customers and the community at large. In that, institutions per se cannot be
sincere. They need a Burke or a MacDougall to convincingly reflect that and
individual behaviour to demonstrate it. <o:p></o:p></div>
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The way Johnson and Johnson lived out its credo is an
important reflection of pre-80’s corporate thinking. Over the years I have
cited many others who have benefitted and continue to benefit from the <a href="https://www.inclusiveaccounting.com/">customer driven, “creating value for
all” perspective</a>. Today Governance prescriptions are trying to coerce
companies into doing that, but it will always remain insincere, prescriptive
and onerous until it becomes the understood purpose of business. <o:p></o:p></div>
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Then caring becomes sincere, and trust a given.<o:p></o:p></div>
<br />Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-70469540077212680562018-03-03T10:44:00.000+02:002018-03-03T10:44:14.688+02:00Popular or populist?<br />
<h3>
<i>President
Ramaphosa’s difficult choice.</i></h3>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjtGqQEF6GYI1NRPaho-1Fi9jCLe8HNC6YE5v2nqGxc8_zqYQ8jXTVdBdTZB2Fn6cWg4CUAsohEHnuyM0nr7SWkigQR0-qHmZlduzLzCYiAACbZhtknMtqy_vSJCY5SqFW-jWyAiFo-R70/s1600/populist.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="333" data-original-width="500" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjtGqQEF6GYI1NRPaho-1Fi9jCLe8HNC6YE5v2nqGxc8_zqYQ8jXTVdBdTZB2Fn6cWg4CUAsohEHnuyM0nr7SWkigQR0-qHmZlduzLzCYiAACbZhtknMtqy_vSJCY5SqFW-jWyAiFo-R70/s400/populist.jpg" width="400" /></a></div>
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Not all popular leaders are good; and not all good
leaders are popular. Sometimes the right thing is not the popular thing, and
often the popular thing is not the right thing. It’s often been said that one
of the flaws of democracy is that it blurs that logic, giving rise to a
political structure that thrives on false promises and wild rhetoric
disconnected from reality and creating a dangerous gap between it and expectations.
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We call that populism and it is routinely used by
opposition parties to gain power. It’s a highly questionable technique which
does little more than inflame expectations and help sow public discord. Populism
globally in recent times has helped strengthen opposing parties, in some cases
putting them in power where they not only have to backtrack on populist
rhetoric but are “recaptured” by the establishment. The U.S. and France are
examples.<o:p></o:p></div>
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“Cometh the hour; cometh the man” is a biblical saying
that can be applied to Cyril Ramaphosa and while he has all the right
attributes to exploit that to its fullest, he has <a href="https://www.news24.com/SouthAfrica/News/ramaphosa-charms-at-presidential-golf-day-20180222">openly
conceded</a> that “we must ride this wave” (<i>while
we can</i>); and has strengthened it through promenade jogs and township walks.
Charismatic, charming, accessible, affable and somewhat inspiring are mantles
that fit him well. But one would be less than candid if one did not concede
that in no small measure his popularity has been given a massive boost by
simply being an alternative to his much maligned predecessor. <o:p></o:p></div>
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When that honeymoon fades, and when the fear of a revival
of Zuma factional support starts to diminish, he will have to find a way of
steering the ship between remaining popular without being populist. That will confront
him soon in an election year where opposition parties are hell-bent on ensuring
that the governing party does not regain what it lost during the Zuma era. It’s
already happening, forcing Ramaphosa to look beyond the low hanging fruit that
Zuma left him such as unleashing enforcement watchdogs on the corrupt, stabilising
the fiscus; shaking up SOE leadership; and committing to a reconfiguration of
the executive which most interpret as meaning a substantial cut in the size of
cabinet in future. Most of these may lose him some factional support, but will
certainly gain him popular support.<o:p></o:p></div>
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The more difficult path lies in the deeper, ideological
issues that divide the country and where populist exploitation is at its
strongest. These include land reform and concentration of capital. They are at
the root of key issues such as Radical Economic Transformation, monopoly
capital, WMC, state capture, inequality, cadre deployment, empowerment,
inclusivity and in turn many other related issues. <o:p></o:p></div>
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Populism thrives on ignorance and incoherence. Having
followed these debates intensely for decades, I am of the firm belief that the
most important thing that has to be done before weighing in with legislation
and execution is to create a much higher level of coherence and comprehension.
On the land issue, the line has not been drawn clearly enough between food
security and black economic empowerment. The vague assumption that they are not
mutually exclusive may have some substance, but ultimately a single priority
has to be defined. This can only be done when we stop thinking of land as
political territory and more as a means of feeding the masses. That priority then
has to become the ultimate purpose of land ownership – one that can be shared
by all. (<a href="https://www.inclusiveaccounting.com/single-post/2017/05/29/Grabbing-land-in-La-la-Land">See
article Grabbing land in La-la-land here</a>.)<o:p></o:p></div>
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A greater degree of coherence in and understanding of the
issue of capital concentration offers much promise of finding a middle ground
where we are currently divided the most. Stripped of all its ideological,
racial, and populist claptrap, many may be surprised to find common cause on a
global scale of the distaste of what the concentration of capital ownership,
control and management has created. (<a href="https://www.inclusiveaccounting.com/single-post/2017/07/25/Debunking-%E2%80%9Cmonopoly-capital%E2%80%9D">See
article here</a>.) <o:p></o:p></div>
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The argument of maximising capital efficiencies has worn
very thin against other outcomes such as inequality, state capture, declining
innovation and competition, and tax evasion to name just a few. Market forces
work at their best when they are fragmented, decentralised and free. Coupled
with the rampant growth of financialisation and debt, the global economy itself
has been placed on a knife edge where it can easily tumble into recession or
even extended depression. Corporate malfeasance or fraud can destroy the wealth
of many; collusion between one or two big players can warp price discovery, and
large corporate lobby groups have inordinate power in swaying the state to
serve their vested interests.<o:p></o:p></div>
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E.F.F. Commander-in-chief, Julius Malema may find it
strange to discover some resonance between his views and that of Adam Smith,
the father of capitalism, to be <a href="https://aeon.co/essays/we-should-look-closely-at-what-adam-smith-actually-believed">found
here in a recent article</a> by Smith scholar, Paul Sagar. Capital
concentration virtually guarantees some form of state capture, while true
defenders of free enterprise find it difficult to reconcile capital
concentration with free markets. It has become Capitalism’s Achilles heel.<o:p></o:p></div>
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Ramaphosa does not have to fall into a populist trap. His
experience in labour, business and politics equips him well to create clarity,
coherence and comprehension and define a productive middle ground that is far
less divisive than what we have. He can indeed chart a new course for the
nation.<o:p></o:p></div>
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Time will tell. <o:p></o:p></div>
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<br />Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-17242024156297180782018-02-19T10:04:00.000+02:002018-02-19T10:04:26.410+02:00Stopping the train.<br />
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<i style="mso-bidi-font-style: normal;">Things that really
matter in keeping it together for South Africa’s future.</i></h3>
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Love them or hate them, but current events have
demonstrated how deeply ingrained the ANC has become in South African society.
In many respects we are like a one party state, and the trauma that that party
experiences, reverberates through all walks of life. Its leadership transition
has created as much uncertainty and anticipation as the country experienced in
the heady days of the early 90’s.<o:p></o:p></div>
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But these events have shown something else: <o:p></o:p></div>
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</span></span></span><!--[endif]-->How easily power corrupts;<o:p></o:p></div>
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</span></span></span><!--[endif]-->how fickle and fragile it is when it is based on
patronage and loyalties shift from a weakened patron;<o:p></o:p></div>
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</span></span></span><!--[endif]-->how effective opposition can be even without
parliamentary power;<o:p></o:p></div>
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</span></span></span><!--[endif]-->how political opponents can unite against a
common threat;<o:p></o:p></div>
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</span></span></span><!--[endif]-->how strong civil society can be when it says “so
far and no further”, and<o:p></o:p></div>
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</span></span></span><!--[endif]-->the supreme value of being guided by a
Constitution supported by an independent judiciary and law enforcement.<o:p></o:p></div>
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The Jacob Zuma gravy train has been derailed. It may take
a while for the carnage and broken corrupt carriages to be cleared, but history
will reflect on these times as a painful evolutionary hiccup and stark
cautionary case study. For that alone, 2018 has become a turning point and a
year to celebrate even in its infancy. <o:p></o:p></div>
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As many commentators have opined, there’s certainly a lot
more hope for a better future. But that does not mean there’s more trust.
Indeed, the political uncertainty; corporate scandals; a still unacceptably
high crime rate; increasing revelations of corruption, arrests and charges
being laid, and the economic quagmire we find ourselves in, have all
contributed to deepening distrust. We already have one of the world’s lowest
levels of trust in institutions such as government; business; NGO’s and the
Media; as ranked by the 2018 <a href="http://cms.edelman.com/sites/default/files/2018-01/2018_Edelman_Trust_Barometer_Global_Report_Jan.PDF">Global
trust Barometer</a>. <o:p></o:p></div>
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One could also argue that with none of these institutions
being fully trusted, and because trust is one of the most significant factors
holding a society together, we should be a dysfunctional society. Yet we are
not. Only ultra-cynics, or some disgruntled ex-pats who lose touch with the day
to day lives of ordinary folk, will argue otherwise. I fully appreciate that
there are many of us, including myself, who have been affected, even traumatised
by crime, betrayal, poor service, and of course the daily headlines that constantly
highlight our capacity to do others harm. <span style="mso-spacerun: yes;"> </span>But we go on, sustained I believe, by the
number of benevolent acts that we experience more often than malevolence, and a
pool of goodwill that despite everything, still exists between us.<o:p></o:p></div>
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Perhaps it’s the metaphor, but I am drawn to reflecting
on another train. <o:p></o:p></div>
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Let’s go back a month or so, and to the maize farming
town of Hennenman, where a full passenger train <a href="https://www.news24.com/SouthAfrica/News/kroonstad-train-crash-screams-echoed-from-the-carriages-20180105">was
derailed after crashing</a> into a truck at a level crossing. More than 20
people died and about 200 were injured. Within minutes a handful of local folk
rushed to help, saving many lives amid anguished screams from passengers trapped
in carriages. Among the rescuers <a href="https://www.enca.com/south-africa/two-boys-help-train-victims">were two
pre-teen boys</a> – Mokoni Chaka and Evert du Preez – who have a firm
friendship oblivious to racial differences, and who helped evacuate the
injured, including quite a few infants. They created the perfect cameo not only
of humanity’s instinctive empathy at an early age, but how what is most
important to our survival bridges any differences between us.<o:p></o:p></div>
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A few weeks earlier, I too was hit by a train. It happened
at a level crossing next to a settlement called Dutoitsrus in Buffeljagsriver
near Swellendam. I had stopped at the crossing, but edged closer because of an
obstructed view of the track. Then there was a deafening hoot just before I saw
hundreds of tons of steel hurtling towards me. <o:p></o:p></div>
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Nothing I have experienced comes close to that
split-second of paralysing terror. Fortunately I was not too far into the goods-train’s
path and it hit the front left fender, spinning the car out of its way to end
on an embankment next to a huge blue-gum tree. The train had stopped and I got
out of the car. I was not hurt and within seconds was surrounded by many
residents – mostly teens and youngsters. I sensed only genuine concern in their
curiosity, and had no thoughts that I could be harmed. It’s strange how we
often legitimately trust a moment, and then only later question the wisdom of
it, mostly on the prompting of others. <o:p></o:p></div>
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Confusion! What does one do when you’ve stopped a train?
Get details. Of what I don’t know, but I found a scrap of paper. One young man
offered to testify on my behalf that the train had not hooted until it was upon
me. But I could not write down his name, having committed a journalist’s
cardinal sin of not having a pen. Then I felt a tug on the leg of my pants, and
a boy not much older than four offered me his prized possession of a pencil
stub. I wrote down the number of the train and name of the “witness” before
putting the pencil stub back in my shirt pocket. There was another tug – and an
outstretched tiny hand asking for the return of the pencil-stub.<o:p></o:p></div>
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Soon I was surrounded by railway forensic staff and I
suspect most of the police contingent at Swellendam. The crowd too had swelled,
while crime scene tape was stretched for hundreds of meters around the train
and surrounding area. An elderly lady offered me some mineral water, and soon
thereafter another on crutches offered me half a bottle of coke. “For the
sugar,” she said. I can’t remember how many people approached me with offers of
help. I can only remember the genuine warmth and concern around me, including
police and railway staff. <o:p></o:p></div>
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There are many things that made the event memorable,
apart from the rarity of being hit by a train on a scarcely used line. Among
them was the fact that the car had minor damage and I could drive it away,
while the train was stuck for 5 hours to undergo repairs to its steel sweeper.
For a while, friends and close acquaintances called me the “train stopper”.
Fortunately that passed before some village joker was tempted to ask: “Did he
really need a car to do that?” But what will linger for the rest of my life is
how those folk at Dutoitsrus confirmed my deep faith in humanity and its
capacity to care. <span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
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In the larger scheme of things and the current turmoil,
these reflections may appear counter-intuitive and perhaps even trivial. Not so
when one considers how many thousands of times they are repeated in different ways
throughout society. As long as we have that and continue to demonstrate it, it
outweighs all else in holding our society together.<o:p></o:p></div>
<br />Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-75019131642526764682018-02-05T10:39:00.001+02:002018-02-05T10:39:22.109+02:00Hope and Trust<div class="MsoNoSpacing">
<i><span lang="EN-US"><b>Will increased hope improve the low level of
trust?</b></span></i><span lang="EN-US"><o:p></o:p></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFK5_LLhyYJq9lRrNz9yNED3EDYWXGODvvGzM0-fMqjHY6VXbLDFk_bGqFnYNSykbZSntwbAL75UA7oO0yf7894OSZuqgpmvT2UGGofIvOD9P1ftNIXYbEuYLrSj1SbD3ViBNZfjnxB54/s1600/empic.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="390" data-original-width="563" height="221" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFK5_LLhyYJq9lRrNz9yNED3EDYWXGODvvGzM0-fMqjHY6VXbLDFk_bGqFnYNSykbZSntwbAL75UA7oO0yf7894OSZuqgpmvT2UGGofIvOD9P1ftNIXYbEuYLrSj1SbD3ViBNZfjnxB54/s320/empic.jpg" width="320" /></a></div>
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<span lang="EN-US">Few
states are more important in society than happiness and trust. All of the other
indicators and measurements we use to gauge societal and economic health pale
into insignificance compared with these two. Not only are they codependent but
ultimately they will also affect all others things that we think are
important. <o:p></o:p></span></div>
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<span lang="EN-US">I
remember some years ago there was a significant global debate on incorporating
levels of public happiness and life satisfaction not only as important metrics,
but also as significant components of official policy. There’s no point, it can
be argued, in having growth, income and employment targets as the primary
policy goals, while people are disgruntled. That debate seems to have died
down, most likely because of the extreme difficulty in measuring them, but
perhaps too because it’s a fair assumption that a large part of humanity
remains miserable, angry and for the most part in rebellion </span><a href="https://www.inclusiveaccounting.com/single-post/2017/01/23/The-Establishment-under-attack"><span lang="EN-US">against the establishment</span></a><span lang="EN-US">. <o:p></o:p></span></div>
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<span lang="EN-US">Trust is
largely created by personal experiences but can also be significantly
influenced by external factors such as improvements in the economic and
political climates which engender hope in the future. Globally there has been a
marked improvement in economic growth prospects and domestically there has been
a complete shift in prospects in a few short months, so adequately outlined by
Hilton Tarrant in </span><a href="https://www.moneyweb.co.za/moneyweb-opinion/columnists/six-reasons-south-africas-future-is-suddenly-a-lot-brighter/"><span lang="EN-US">this Moneyweb Article</span></a><span lang="EN-US"> that further treatment here is
unnecessary. Indeed, South Africa’s economic prospects are suddenly a lot
brighter.<o:p></o:p></span></div>
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<span lang="EN-US">But will
this translate into greater trust? That will take a lot more time and depend
not only on economic and political factors. On the global front, economic
prospects are very fractured and come with a growing fear of national
isolationism and protectionism. There is growing concern also of the financial
nature of this growth and the prospect of a repeat of the 2007 great recession.
Domestically, much has to happen to restore trust in both government and
private sector institutions. The apparent collapse of a corrupt cabal in the
wake of some incredible expos</span><span lang="EN-US">é</span><span lang="EN-US"> work last year by the media and
many others, has to be followed up by rigorous accountability, law enforcement
and retribution; as covered in </span><a href="https://www.inclusiveaccounting.com/single-post/2017/11/27/Immunity-breeds-impunity"><span lang="EN-US">my last article last year</span></a><span lang="EN-US">. This seems to be happening and
could make 2018 one of the most significant life changing years in South
Africa, should some of the criminals, including those in the private sector,
end up behind bars.<o:p></o:p></span></div>
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<span lang="EN-US">For
quite a number of years, one of the most credible global trust reports, the
Edelman Trust Barometer, has consistently shown disturbing declines in levels
of trust. Its 2018 report is not much different, but could be overtaken by
recent events, especially in South Africa. Yet, it is useful to reflect on how
it saw 2017 compared to the previous year which it described as “trust in
crisis”. The global report, tables and graphics are available </span><a href="http://cms.edelman.com/sites/default/files/2018-01/2018_Edelman_Trust_Barometer_Global_Report_Jan.PDF"><span lang="EN-US">at this link</span></a><span lang="EN-US">.<o:p></o:p></span></div>
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<span lang="EN-US">The
Trust index of all of the 28 countries measured has improved by only 1% – from
47 to 48 – in trust in the main institutions of Government, Business, NGO’s and
media. However, that means that we are still living in a world where these institutions
are mostly distrusted, and hides the fact that one more country has moved from
neutral to mostly distrusted. Trust in all South African institutions declined:
government by 1% to 14%; business by 3% to 53%; NGO’s by 8% to 50% and the
media by 4% to 35%. <o:p></o:p></span></div>
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<b><span lang="EN-US">What this is saying is that no institutional
sector in South Africa is fully trusted any more, with 2 having neutral scores
and 2 being outright distrusted</span></b><span lang="EN-US">. <o:p></o:p></span></div>
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<span lang="EN-US">Some of
the global highlights include<o:p></o:p></span></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span lang="EN-US">The
rise of experts in trustworthiness. <o:p></o:p></span></div>
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<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->Respondents saying they want CEOs to take the
lead on policy change instead of waiting for government, which now ranks
significantly below business in trust in 20 markets. (A point I have repeatedly
raised in my own articles.)<span lang="EN-US"><o:p></o:p></span></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span lang="EN-US">A
highly significant plunge in trust in social media, due to the occurrence of
fake news. This in turn has raised trust in journalists themselves,
particularly in reports where sources are named. There is a swing from trusting
platforms to sources, but even here, as we have seen with the reckless </span><a href="https://www.moneyweb.co.za/news/companies-and-deals/short-seller-leaves-capitec-rattled-and-sa-confused/"><span lang="EN-US">Viceroy reports</span></a><span lang="EN-US">, sources themselves can be highly
suspect. Excessive hyperbole and hysterical panic mongering in their work bear
testimony to dubious motives and are never seen in serious company analyses.<o:p></o:p></span></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: Symbol; mso-ansi-language: EN-US; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]--><span lang="EN-US">The
global polarization of trust where some countries like China have had massive
trust gains, and others like the U.S record breaking declines.<o:p></o:p></span></div>
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<span lang="EN-US">The last
bullet perhaps answers a question many South Africans were asking after Donald
Trump was elected President of the U.S.: “Who had the worst leader: Americans
or South Africans?” <o:p></o:p></span></div>
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<span lang="EN-US">This may
be a hint </span>because trust in the U.S. has suffered the
largest-ever-recorded drop in the survey’s history among the general
population. Trust by that group fell nine points to 43, placing it in the lower
quarter of the 28-country Trust Index. Trust among <u>the informed public</u>
in the U.S. imploded, plunging 23 points to 45, making it now the lowest of the
28 countries surveyed, below Russia and South Africa. But mischief aside, this
refers to trust in all four institutions, and not government alone, and by an
informed group and not the general population where the U.S.’s 43% is still
significantly higher than South Africa’s 38%.<o:p></o:p></div>
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2018 is certainly going to be a very interesting year.
Let the games begin. In many respects they already have.<o:p></o:p></div>
Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-72874327465150411932017-11-27T11:15:00.003+02:002017-11-27T11:15:39.088+02:00Immunity breeds impunityAccountability's missing link -- jail time!<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-iQKbM7FL6n9WI4WbdeNgwQutWMfi4WKtNeRuYCX62PMa997asA7xf5v8SMv8-f12f0i_dxAoArHPR9aAurbYYgjVSCVl4CUcIEimjveOj21VexcUNn1HIDzGtJYbPrF8pQqZaB64wNY/s1600/man-behind-bars-prison-19236005.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="160" data-original-width="253" height="202" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-iQKbM7FL6n9WI4WbdeNgwQutWMfi4WKtNeRuYCX62PMa997asA7xf5v8SMv8-f12f0i_dxAoArHPR9aAurbYYgjVSCVl4CUcIEimjveOj21VexcUNn1HIDzGtJYbPrF8pQqZaB64wNY/s320/man-behind-bars-prison-19236005.jpg" width="320" /></a></div>
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As VIP’s go, you can’t get much higher than a Saudi prince,
specifically billionaire Prince Alwaleed bin Talal al-Saud. With a Forbes net
worth rating of $16,5bn he is one of the richest men in the world and has large
holdings in some of the biggest global companies. I wrote about him some years
back (see <a href="https://www.moneyweb.co.za/archive/when-billionaires-pout/"><i>When Billionaires pout</i></a>) when the
prince threw some of his golden toys out of the cot at not being ranked higher
in the Forbes listing of richest people in the world.<o:p></o:p></div>
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Now he has been arrested among <a href="https://www.iol.co.za/business-report/saudi-billionaire-prince-arrested-for-corruption-11873873">dozens
of princes</a> and former government ministers as part of a sweeping
anti-corruption probe in the country; a difficult thing to fathom in a state
that has been rife with endemic corruption and is one of the most repressive
regimes in the world. In addition, the purge is clearly part of a very tangled
web being weaved around power in the royal family and in the broader context of
Middle East geo-politics. But it is the kind of action that might just lift the
Kingdom from its 62<sup>nd</sup> ranking in Transparency International’s <a href="https://www.transparency.org/news/feature/corruption_perceptions_index_2016">corruption
perception index</a>, which, surprisingly perhaps, is two ranks better than
South Africa. Top spot as the world’s “cleanest” nations is shared by Denmark
and New Zealand.<o:p></o:p></div>
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The global rebellion against corruption has become intense.<o:p></o:p></div>
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“In too many countries, people are deprived of their most
basic needs and go to bed hungry every night because of corruption, while the
powerful and corrupt enjoy lavish lifestyles with impunity,” says José Ugaz,
Chair of Transparency International. <o:p></o:p></div>
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Unemployment, poverty and especially inequality create a passionate
intolerance of brazen corrupt behaviour and of political largesse and nepotism.
It has been a key factor in the global <a href="https://www.moneyweb.co.za/moneyweb-opinion/the-establishment-under-attack/">assault
on the establishment</a> and the rise of populism. One may be tempted to use
events in Zimbabwe as an example, but that has been more about political power
mongering than a popular uprising against corruption. This in itself shows how
corruption fuels political instability and factional conflict.<o:p></o:p></div>
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We are seeing much of that in South Africa too, but South
Africans themselves cannot be accused of indifference towards corruption. These
past few months in particular have seen an unprecedented public outcry against
the behaviour of some of the political and business elite, including household
names in institutional finance. Opposition parties have been active in
parliament, the streets and courts; parliamentary committee meetings have become
courtrooms with members of all parties practising their prosecuting skills;
investigative journalists are writing best sellers with new revelations each
day, and civic organisations have adopted law enforcement roles in various
ways. We salute them all. We should support them all. These are the good men
and women who do NOT allow evil to flourish by standing by and doing nothing<o:p></o:p></div>
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But what is needed now is for one or a few of our own
untouchable princes, including some of those in private sector institutions, to
be handcuffed in his or her office, marched to jail and subjected to robust prosecution.
We have named them. We have shamed them. They should now go to prison. <o:p></o:p></div>
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<b>One can name, but one
cannot shame the shameless. <o:p></o:p></b></div>
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There is enough evidence to institute a high level
prosecution. Perversely, the public parading of all of this evidence is
aggravating perceptions both here and abroad, of the depth of corruption. We
have shown the world our dirty linen. We have not shown that we are prepared to
wash it. It’s a moot point whether there aren’t countries that are more corrupt
than South Africa, but rank better simply because of media and public
repression.<o:p></o:p></div>
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Perceptions drive trust and the biggest price we are paying
for both the levels of corruption and the uproar around it, is a widening of
the trust deficit. That has become an important factor in holding back economic
growth. Imprison one or a few high profile miscreants and trust will gain a
substantial boost. Legal retribution is now no longer only about fair play and
justice; but also about economic growth, credit ratings, jobs and prosperity.<o:p></o:p></div>
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Judicial commissions, parliamentary committees and
enquiries, may add to the heat, but will do little to burn the criminals. Like
the enquiry into tax morality, which is a ludicrous oxymoron. How can you can
expect tax morality when you have immoral tax spending? <o:p></o:p></div>
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There are many who are hoping that the much talked about
ANC’s elective conference next month will be some kind of watershed in the
fight against corruption. At least all candidates have included it in their
personal manifestos. It’s little more
than typical political incoherence and hypocrisy. It is doubtful whether this
fish has rotted only from the head, and that a different head will stop the
rot. <o:p></o:p></div>
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What was once viewed as the ruling party’s greatest strength,
has become its greatest weakness -- its strong decentralised power structure
and the power vested in its branches. From the early 90’s, elections in these
branches had become little more than job-hunting by unemployed cadres. Political
position was made convertible into employment in all forms of government, S.O.E.’s
and supply chain patronage. It was even a good credential to have in seeking
employment in the private sector. The extent to which this qualification
influenced appointments in executive and administrative positions has
undoubtedly aggravated poor service delivery, but its effects on the branches
themselves are now obvious in sometimes violent contestation for branch posts and
the degree to which branches, regions and even provinces are often in disarray.
<o:p></o:p></div>
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Corruption has become systemic, not only in party
structures, but in the broad government and related bureaucracies. That is not
counter-intuitive to the need for prosecution at the top. It may not make a clean
sweep throughout political, government and private sector institutions, but
will certainly dramatically change foreign and domestic perceptions about
corruption in South Africa.<o:p></o:p></div>
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<span style="font-family: "Arial","sans-serif"; font-size: 11.0pt; mso-ansi-language: EN-ZA; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Arial; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">Wouldn’t that be a nice Christmas gift for the nation?</span>Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-82111313616777911142017-11-13T11:24:00.001+02:002017-11-13T11:26:58.200+02:00What the ancients knew.<h3>
<i><span lang="EN-US">An enduring principle that can help rescue the
economy.</span></i></h3>
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<span lang="EN-US">From a
distance it looked like an ordinary broken stone. But when farm manager, Adrian
Sutton, got closer, he realised that the piece of rock surrounded by cobbles of
different sizes, was not shaped by accident. Its symmetrical design formed an
axe-head that could fit into a large hand. It was later identified by experts
as having been </span><span lang="EN-GB">made
during the earlier Stone Age between about 400,000 and a million years ago. They
are often found in old river gravels, in this case between the Breede River and
the Langeberg Mountains to the north; where the cobbles that were rounded by
the natural tumbling action of water over millions of years were left on
terraces above the river as it cut deeper into the valley. <o:p></o:p></span></div>
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<span lang="EN-GB">The
prehistoric creature that shaped that axe-head so long ago was one of the earliest
manifestations of a social principle that has endured for millennia – that of
adding value. The difference between the original rounded stone and the
axe-head, and the time, effort and purpose it took to make it, represents value
added for his or her particular circumstance. That principle has shaped the
destiny of our species and remains the key underlying force that accounts for
progress and the difference we make to others lives. It was only a small, but
highly significant leap for those ancient creatures to start making such
implements for each other, creating a powerful force of social co-operation and
cohesion. Exchange and barter was a natural consequence of that, and soon a
means of exchange, or money, was developed to ensure smooth transaction. <o:p></o:p></span></div>
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<span lang="EN-GB">And so we
can draw a direct line between that axe head and everything that underpins all
of the complexities of our modern co-existence. <o:p></o:p></span></div>
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It is no
coincidence that the more we have moved away from adding value as the supreme
principle of creating wealth and generating prosperity, the more we have
created distortions and arguably many of the critical problems modern economies
are facing. These include over-financialisation and the ability to accumulate
wealth through rental income; contamination of price discovery through
overwhelming speculative and derivative markets; critical levels of inequality
and the growing displacement of labour as a significant contributor to and
beneficiary of wealth distribution, which in turn feeds market demand.</div>
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<span lang="EN-US">The
supremacy of the value-added driver over any other such as profit-maximisation;
shareholder value or even standard productivity measurements is its three
dimensional nature and broad inclusivity. These are: transformation;
measurement and intent.<o:p></o:p></span></div>
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<b><span lang="EN-US">TRANSFORMATION</span></b><span lang="EN-US">: Common understanding of value-added is
restricted largely to its physical transformative nature – in other words
changing one item into another that is more useful – like a stone into an
axe-head, or gold into jewelry. But of course it applies to changing situations
or circumstances a well, such as retail, distribution and entertainment. What
is mostly lost sight of is that value is always determined by the end user, and
without a very determined focus on making that the purpose of transformation,
value creation is restricted – in some cases even destroyed. One could apply
the same argument to South Africa’s Radical Economic Transformation policy. <o:p></o:p></span></div>
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<span lang="EN-US">The
transformation dimension of value-added is a far superior and robust
productivity enhancement tool than the standard cost accounting approach. This
is because it embraces not only scientific measurements but also subjective
criteria that speak to meaning, or the meaningfulness of the transformation
itself. Everything has to be tested against usefulness to the end-user, not
merely to the agent or provider. That approach keenly questions much of
wasteful assets and actions. A conservative
and intense interrogation of any expenditure or action that asks “what
difference will this make to our customers?” quickly shows red-flags of unnecessary
and wasteful activities. The less clear the usefulness can be defined, the
bigger and brighter the flag should be. <o:p></o:p></span></div>
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<span lang="EN-US">Long
held assumptions, such as ostentatious head-offices, huge ad-spending, lavish
executive benefits, and even many of the employee fringe benefits should not
remain holy cows. I have for some time held a rather contentious view that the
adage that “happy employees make for happy customers” is demonstrable nonsense.
It should be reversed to say: “happy customers make for happy employees”,
especially if customer satisfaction is linked to employee benefits triggered by
improvements in the value-added measurement. <o:p></o:p></span></div>
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<b><span lang="EN-US">MEASUREMENT</span></b><span lang="EN-US">. I have </span><a href="https://www.inclusiveaccounting.com/accounting"><span lang="EN-US">dealt with this</span></a><span lang="EN-US"> at length in previous articles covering the
Contribution Account, which is a purified version of the value-added statement
or cash-VAS, such as this one extrapolated for the mining industry.<o:p></o:p></span></div>
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<span lang="EN-US">It
should be noted that benchmarks such as market pricing for labour and capital,
or meeting the legitimate expectations of those constituents, are important in
assessing the appropriateness of their share of wealth. This is especially
useful in identifying trends over a certain time. What is perhaps less
appreciated is the significance of using value-creation as a productivity test,
especially in teams and divisions, sometimes even at individual level. This is
becoming easier with enhanced data gathering and sensible norms of transferring
costs. Techniques such as </span><a href="https://en.wikipedia.org/wiki/Throughput_accounting"><span lang="EN-US">throughput accounting</span></a><span lang="EN-US">, are also useful.<o:p></o:p></span></div>
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<span lang="EN-US">Beyond
measuring, the subjective assessment of usefulness to the end user should
always be a key concern. This focus is by far the best method of engaging
employees and other stakeholders in the destiny of the enterprise. It may be a
useless exercise, but at every turn, companies should make this dimension of
value added known to government, and perhaps do their own calculations on the
bang for tax buck they are getting. It’s a good conversation to keep alive.
Shareholders too, should become more acutely aware that profitability and
sustainability go hand in hand with creating maximum value. This, and the role
they can play, should be a key focus at shareholder meetings and in executive
remits.<o:p></o:p></span></div>
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<b><span lang="EN-US">INTENT. </span></b><span lang="EN-US">The intention to create something useful for
others is the whole purpose of adding value. Championing motives such as
profit, wages, taxes, or any other self-gain as key drivers of wealth creation
are counter-intuitive and detract from that essence. It’s an argument I have
repeated many times over the years, and fits in with my understanding of
humanity as being essentially empathetic creatures, and not the predatory
cannibals often mistakenly attributed to Adam Smith’s view of humanity and
depiction of the invisible hand.<o:p></o:p></span></div>
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<span lang="EN-US">Value-adding
is at the heart of trade, innovation, evolution, competitiveness, social cohesion,
progress and prosperity. It is powerful and simple. Adopting it in everything
we do; as a life-style and purpose, is a near guarantee for success – at a
personal, company and country level. If ancient creatures with limited
cognitive capacity could understand that, then so can the modern child at a
very early age.<o:p></o:p></span></div>
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<span lang="EN-US">And so
they should. Because it is a principle that will add meaning to their adult
lives.<b><o:p></o:p></b></span></div>
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Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-7227634017180010592017-10-30T10:42:00.001+02:002017-10-30T10:42:20.799+02:00Beyond share empowerment schemes.<h3>
<i><span lang="EN-US">Lessons from the failed SASOL Inzalo share
empowerment scheme.</span></i></h3>
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<span lang="EN-US">In their
heyday, employee share option schemes, or ESOPS, were nothing more than an
extension of the agency system: that much vaunted snake oil of the 80’s which
enticed executives to “think like shareholders” and pursue the narrow dictates
of shareholder value growth.<o:p></o:p></span></div>
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<span lang="EN-US">“The
world’s dumbest idea”, declared American Industrialist, Jack Welch back in
2009. Adam Smith, if he were alive today, would no doubt concur. Perhaps even
Milton Friedman, the ultimate champion of shareholders, would agree. One can’t blame shareholders only. They are
such a divergent at times perhaps even naïve group with varying interests that
to attribute to them clearly defined expectations in the form of abstracts
concocted in business schools, is misplaced at best.<o:p></o:p></span></div>
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<span lang="EN-US">At the
same time it made them easy prey for a new mercenary breed of executives who
understood those theoretical concoctions enough to create smoke, mirrors and myths
around their exceptionality and exclusiveness and extract maximum short term
gain from that body. Finally along came King and regulations. It is not appreciated
enough that governance prescriptions were not triggered by a social rebellion
against executive misbehavior, but by shareholder wrath. It’s a moot point
whether the executive mercenaries have been curtailed by the outcry. They are
by no means defeated and despite the mounting body of evidence against them,
shareholder-value criteria, according to </span><a href="https://www.forbes.com/sites/stevedenning/2017/07/17/making-sense-of-shareholder-value-the-worlds-dumbest-idea/#24c039242a7e"><span lang="EN-US">an article in Forbes</span></a><span lang="EN-US"> Magazine, still predominates most
of executive thinking. <o:p></o:p></span></div>
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<span lang="EN-US">The key
lesson from </span><a href="https://www.moneyweb.co.za/news/companies-and-deals/sasol-inzalo-what-went-wrong/"><span lang="EN-US">Sasol’s Inzalo scheme </span></a><span lang="EN-US">is the limitations these programmes
have in broad based black economic empowerment. The costly and complex nature
of a massive multi-billion rand exercise such as the Sasol scheme must surely
beg the question whether they can really deliver on their large promise, even
if market conditions did not turn against them. From a labour perspective in
particular, no one can still seriously consider ESOP’s as a method of enhancing
employee involvement in the destiny of the enterprise. </span><span lang="EN-GB">If you view a company as a feedlot; as a means
of extraction then you will focus on where you can extract the most. As a
worker the more you extract through wages, the less you can extract through
profits. That creates an inherent conflict of interest. <o:p></o:p></span></div>
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<span lang="EN-GB">But one
could use the same argument against all of the three estates of labour, capital
and government – all viewing enterprise as a means of self-gain rather than an
opportunity for contribution. This has naturally swung economic emphasis
globally from tangible wealth creation to wealth accumulation and ownership. It
is value-adding, or wealth creation, and not wealth accumulation that
encourages inclusivity and broader empowerment. Because the latter naturally
encourages concentration, it will always end up in the hands of the few and
exacerbate inequality. It’s a disastrous formula for a country like South
Africa, where even wealth creation itself fosters huge disparities through
skills shortages, unemployment and barriers to opportunity. <o:p></o:p></span></div>
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In a world obsessed
with possession it may sound counter-intuitive to argue that possession on its
own does not represent power. Ownership that exists purely for self-gain and
self-gratification becomes barren as an economic factor, especially so when
they are productive assets. Responsible major shareholders know this. And
private owners of small and medium enterprises even more so. <o:p></o:p></div>
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<span lang="EN-GB">Asset
ownership, whether in the form of capital, land, property, equity, or companies
themselves is a highly flawed cornerstone of populist rhetoric and regulatory
thinking. I have often argued that business itself has invited this response
through its own championing of shareholder supremacy, of profit maximization
and of a narrow definition of purpose. But now politicians themselves seem to
understand that power, or empowerment, cannot be narrowly confined to
ownership, and have added “control” and “management” in their latest Radical
Economic Transformation framework.<o:p></o:p></span></div>
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<span lang="EN-GB">That
does not make the framework better, but indeed even more flawed. It’s a classic
case of where macro theory simply clashes, or is destroyed by the micro
reality. And I’m not even talking about the obvious of the shortage of skills,
experience, and expertise to change the current racial composition of
“management and control”. The entire empowerment framework has to change or be
redefined to embrace tasks, operations and ownership: and in that order.<o:p></o:p></span></div>
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It starts with
the individual taking ownership and responsibility of his or her own destiny
and at the very least be willing to make a meaningful contribution to their
social and economic environment. That willingness is reflected in their daily tasks,
mainly at work, which are part of operations that have a common purpose in
adding value to society, or customers. Such a commitment removes any barrier to
being part of “management and control” and it is a small and valid leap to
being given equity in the company itself. Only then will share option schemes
make sense. To summarise then, the progression of empowerment is from self-accountability;
to ownership of task; to operations and then to assets. A lot of this
presupposes the existence of means and abilities to pursue that process, but
the most important is individual willingness and a shift from expectations to
aspirations. Achieving this in society starts with parenting, then schooling
and then proper skills development. In companies themselves, individual
ownership can be much enhanced through appropriate strategic, transparent, and
governance models such as the <a href="https://www.inclusiveaccounting.com/">Contribution Accounting methodology</a>.<o:p></o:p></div>
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<span lang="EN-GB">Self-worth is not
simply about self-gain</span>. The ownership-equals-power assumption rests on a shallow understanding
of power itself. Authentic and legitimate power is earned by its contribution
to others. When it does not do that it is simply control, which relies either
on seduction or coercion<span lang="EN-GB">.</span><span lang="EN-GB"> </span>Ultimate empowerment is that which enables
one to make a positive difference to people’s lives. It’s based on the simple
premise that our true value lies in our capacity to make a contribution to
others. <o:p></o:p></div>
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That’s how we judge
others. That’s how we should judge ourselves.<o:p></o:p></div>
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Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-87061018075135509942017-10-16T12:16:00.001+02:002017-10-16T12:16:25.395+02:00The wealth distribution obsession.<h3>
<b><i>To the point of
Incapacitating wealth creation itself</i>.</b></h3>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-zrVlXW17y0RGzI7T_d4-mqLmM_FYrfCwnYdzZqdGH6Q5d3cpgN4gPOZKCCQbUjrW30YXbuCUjcWXVni0YHbjmvCeHr-hVc1k2zULt5_ASEjXeohV7VtMBTLUAQlnC1R2iwLaxWIwNcM/s1600/greed2.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1300" data-original-width="957" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-zrVlXW17y0RGzI7T_d4-mqLmM_FYrfCwnYdzZqdGH6Q5d3cpgN4gPOZKCCQbUjrW30YXbuCUjcWXVni0YHbjmvCeHr-hVc1k2zULt5_ASEjXeohV7VtMBTLUAQlnC1R2iwLaxWIwNcM/s320/greed2.jpg" width="235" /></a></div>
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It’s a cliché, I know, but one can only imagine the
positive change that is possible if South Africa, or any economy for that
matter, switches focus from wealth distribution to wealth creation. No matter
which way one looks at it, one cannot share what has not been created.
Eventually all the intangible vapour that has been created through debt,
financialisation and asset appreciation, will have to find some anchor in the
production of goods and services. <o:p></o:p></div>
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That means being market driven, serving customers and
creating a link between meaning and money. In my first article (<a href="https://www.moneyweb.co.za/moneyweb-opinion/columnists/follow-the-meaning/">see
here</a>) on following meaning in wealth creation, I argued that our customer focus is in an appalling state
as shown by poor service delivery, customer neglect, streams of cases before
the <a href="http://www.comptrib.co.za/">Competition Tribunal</a>, lack of <a href="http://reports.weforum.org/global-competitiveness-index/country-profiles/#economy=ZAF">competitiveness</a>,
and poor <a href="http://www.worldbank.org/en/country/southafrica/publication/south-africa-economic-update-more-innovation-could-improve-productivity-create-jobs-and-reduce-poverty">levels
of innovation</a>. <o:p></o:p></div>
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One could argue further that all of that is due to a very
narrow focus on wealth distribution; on reward rather than contribution, which
translates into exploitive behaviour by the key “internal stakeholders” of
labour, capital and state in the form of wages, profits and taxes. It spawns a
relationship between them that is inherently antagonistic. That is highly
counter-intuitive to wealth creation: detracting from the only common purpose
that those stakeholders can have and which gives not only meaning to their
involvement but fosters the source of all rewards. <o:p></o:p></div>
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<b>No amount of
stakeholder management, concessions and tolerance will be effective if each
maintains a narrow self-gain purpose without swearing full allegiance to a
common serving purpose. That will only happen when each appreciates that they
all also have a common fate in the enterprise</b>. <o:p></o:p></div>
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Given the <a href="https://www.inclusiveaccounting.com/single-post/2017/09/04/An-age-of-economic-soul-searching">unprecedented
re-examination</a> of macro-economic theory, the time has never been better to
extend that to the micro; to companies and organisational theory itself. That
world has been changing even more profoundly since the early 80’s, with South
Africa in some respects ahead of the pack, and in others trapped in outdated
theories and ideologies as well as onerous demands for transformation. When
these externally driven forces translate into a tug of war between the main
internal stakeholders of labour, capital and state trying to maximise their own
benefit, the biggest loser is service delivery and customer focus. That has a
far bigger impact on wealth creation than global economic conditions or the
external economic environment.<o:p></o:p></div>
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There are <a href="https://www.facebook.com/BusinessLeadershipSouthAfrica/videos/2013752272181335/">laudable
attempts</a> at a national level, through organisations such as BLSA, Nedlac
and others, to create greater economic cohesion between the three economic
estates. But this is mostly in the form of a haggle around trade-offs, and
often gets derailed by political rhetoric, distrust and exaggerated demands.
Stalemating can only be broken by facing an existential reality: all have a
common purpose in serving markets and creating maximum wealth, and all are
dependent upon the value added for their respective rewards. That distribution
can at the very least be pegged to some broad principles: it has to meet
legitimate expectations and it has to encourage continued contribution. <o:p></o:p></div>
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That, in a nutshell, is the base of meaningful
relationships between the contributors or beneficiaries of wealth creation in
business. Those critical relationships, as I <a href="https://www.inclusiveaccounting.com/single-post/2017/08/21/Destroying-company-relationships">have
argued before</a>, are destroyed by having absurd theories, abstracts, metrics and
aggregates define them. That demeans the entire venture to a mechanical money
making process, away from its true nature as an eco-system of people serving
people. <o:p></o:p></div>
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Largely through its own doing, labour has commoditised
itself as an institutional abstract, priced according to supply and demand for
skills and qualifications, and accommodated as a “cost to production”. That
crass understanding simply disappears when one argues that labour has made a
contribution to the market through the company structures and processes, and
then receives a legitimate share of the value that has been added. In my <a href="http://jerryschuitema.wixsite.com/training">consulting and training days</a>,
I was constantly struck by the extent to which the true meaning of all work,
that of creating something of value for others, is simply lost in conventional
expression. But more encouragingly, attitudes become far more flexible when the
link between task and contribution is made, incumbents are involved in customer
and productivity improvement processes, information is shared more openly and
fortune sharing incentives are introduced. <o:p></o:p></div>
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The hard nut to crack, is the dogmatic approach to capital
interests, and the absolute holy cow of shareholder supremacy. A good example
of this can be found in an attempt by BLSA research (<a href="https://www.blsa.org.za/news-and-articles/news/new-research-finds-that-corporate-cash-hoarding-in-south-africa-is-a-myth/?utm_source=facebook&utm_medium=social&utm_campaign=social_blsa_cash_hoarding">see
here</a>) to debunk the corporate cash hoarding “myth”. Apart from some magic
with metrics that can be challenged, the key trap that the researchers fell
into is the assumption of a “generic capital model” that applies to all
investment in business and that has unshakeable and invariable expectations.
Even if that were true, the whole construct of investment in business has
changed dramatically in the past few decades. It is simply impossible for
normal ventures with even acceptable risk profiles to compete in financial
markets with quadrillions of dollars incestuously looping around for quick and
lucrative returns. American author and columnist, Rana Foroohar <a href="https://www.youtube.com/watch?v=4d4gmWKuli4&feature=youtu.be&list=WL">estimates
that only</a> 15% of the money in the financial sector is invested in business.
<o:p></o:p></div>
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That demands a review of old paradigms around enterprise
funding and even some of the dogmatic expectations captured in key measurements
such as EVA, ROI, ROCE and the plethora of others. It may even need a new
approach to capital formation in productive capacity generally, including more
partnerships between capital and state, like we have seen in Asia and
specifically <a href="https://www.nytimes.com/2017/02/17/business/south-korea-chaebol-samsung.html?mcubz=0">the
South Korean Chaebols</a>. But let’s be clear: no-one can accuse these nations
and their companies of not being truly market- and customer driven. That is a
non-negotiable and it virtually rules out the South African government with its
SOE track record as a trustworthy partner.<o:p></o:p></div>
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Most psychologists and life skills experts argue that
meaning is to be found in having an external focus and making a difference to
others. Business is the ideal and most inclusive platform to do that. But, if
business is simply about making profits, it has little true meaning. If work is
simply about earning a living, it has little true meaning. And if government
sees companies simply as a means of generating revenue, that too has little
meaning.<o:p></o:p></div>
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And because enterprise and work is such a significant
part of most of our daily lives, it renders a significant part of those lives
meaningless.<o:p></o:p></div>
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<o:p></o:p></div>
Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-54848783993987395182017-10-02T11:35:00.004+02:002017-10-02T11:35:59.246+02:00Follow the meaning.<h3>
<i>And get a better idea
of company health than following the money.</i></h3>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6vKVaWZmA61XBKA0Jroj9EOzQNRnzRl66QTv5KW4qBtCiXfpobR3C6C3vosu8jGykBXWR9ajONLajV2uOYEQycNXL0PYUyPZ2iqFfgoU2QjgRkO5ArprAg8nWiJuEzkB1L0g-HsJgHjM/s1600/smith.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="478" data-original-width="422" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6vKVaWZmA61XBKA0Jroj9EOzQNRnzRl66QTv5KW4qBtCiXfpobR3C6C3vosu8jGykBXWR9ajONLajV2uOYEQycNXL0PYUyPZ2iqFfgoU2QjgRkO5ArprAg8nWiJuEzkB1L0g-HsJgHjM/s320/smith.jpg" width="282" /></a></div>
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“Follow the money”, they say, “and you will get to the
essence.” <o:p></o:p></div>
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Do that with any company or business and you will confirm a
self-evident truth: it comes from the customer.
But here’s a more relevant proposition: follow the meaning! Do that and
you are most likely going to arrive at the same point – the customer. Imagine,
if you will, what an honest response would be if you asked any business leader:
“what’s the meaning of your business?” or “what difference does your business
make?”, and “what value do you add?” Will that not reflection their real
calibre? Compare the possible answers of <a href="https://www.forbes.com/profile/elon-musk/">Tesla’s Elon Musk</a> and <a href="http://www.nydailynews.com/news/national/glimpse-turbulent-fall-enron-15-years-article-1.2957658">Enron’s
Jeff Skilling</a>. It was a similar question to Skilling that brought the Enron
empire down.<o:p></o:p></div>
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It’s a question I regret not asking enough on the Business <a href="https://www.youtube.com/watch?v=hN5smbCsbf0">programme Diagonal Street</a>
many years ago. But it’s certainly a question that’s become far more relevant
today against the background of <a href="http://www.iodsa.co.za/?page=KingIV">King
IV,</a> and going back further to Ed Freeman’s <a href="http://stakeholdertheory.org/team/r-ed-freeman/">“stakeholder theory”</a>;
John Elkington’s <a href="http://www.investopedia.com/terms/t/triple-bottom-line.asp">Triple Bottom
line</a>; and Kaplan and Norton’s <a href="http://www.investopedia.com/terms/b/balancedscorecard.asp">Balanced
Scorecard</a>. And in their wake: clutter, clutter, clutter: sheets of brown
paper with endless bulleted scribbles plastered floor to ceiling on walls of
conference rooms, offices and barely missing the office loo. I was present at
one of those sessions, when Martin Rosen of Pick ‘n Pay exclaimed: “For
heaven’s sake; we are not trying to invade Spain!” The clutter clearly has some
value, but all can be distilled into one powerful postulate: <o:p></o:p></div>
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<b>The health and
success of a company depends on the meaningfulness of its relationships.<o:p></o:p></b></div>
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They include the mutually empowering relationship between
meaning and money; meaning and means; and meaning and form. The above theories
don’t do that very well. Indeed in some cases they create huge volumes of work,
resentment, conflicting positions, inappropriate definitions, activities and
targets that are difficult to reconcile, especially with the final shareholder
accounts that drive the organisation. The Contribution Account<sup>©</sup> (<a href="https://www.inclusiveaccounting.com/accounting">see format examples here</a>)
is the closest you will get to the shareholder accounts; is absolutely
reconcilable with them and condenses all of the volumes of information crammed
into an integrated report into 6 or seven lines: <u>income</u>; (less) <u>outside
costs</u>; (gives) <u>value-added</u>; (shared with) l<u>abour</u>; <u>capital</u>,
and <u>state</u>. The abstracts take human form in: customers, suppliers,
employees, government and shareholders. <o:p></o:p></div>
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<b>Customers</b>. Hierarchical
rankings are mostly juvenile and silly, but if psychologist are right in
arguing that meaning is found in the contribution we make to others, then following
meaning and following money both lead to customers. That makes them the most
important relationship of all. MBA schooling that often defines the market as
an “exploitable resource” in profit pursuit is crassly inappropriate, and simply
untrue. Perhaps equally inappropriate is to relegate customers to
“stakeholders” under Freeman’s theory, or one of the beneficiaries in “creating
value for all” under King IV. Being market driven means being driven by
customers’ needs and wants within the rules of ethical, mutually fair and
legitimate transaction. That is subject to only one higher order, and that is
the interest of society as a whole as expressed in its values, norms and laws.<o:p></o:p></div>
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Those rules do not detract from business’s natural external
focus and being the most inclusive institution we have devised. Indeed, those
who see the service driver as a “mushy”, soft and ill-disciplined act of
charity, fail to recognise that it actually supports sound business principles
of prudence, sustainability, productivity and maximum efficiencies. That’s
rooted in the understanding that going out of business is the ultimate customer
let-down and inefficiencies are mostly paid for by the customer. <o:p></o:p></div>
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There can be no tougher test of any action, behaviour, asset
or measurement than simply asking: “does it add any value and is it in the
customers’ best long term interest?” The perfect order is when the interests of
society, customers, and the company are aligned.<o:p></o:p></div>
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Customers’ interests should also inform any regulator,
policy maker, lobby group, trade union and outside supplier or even a
competitor whose actions may impact on a company that is providing a product or
service to their society. Including competitors may seem to be a paradox. But
only an insecure, immature, inwardly focused organisation will view competition
as an enemy, and not as offering customers a choice while creating benchmarks
for excellence and innovation. Enlightened business practice distinguishes
between competitor co-operation and collusion, with the former in the interest
of customers, and the latter for self-gain.<o:p></o:p></div>
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<b>Outside suppliers: </b>A
meaningful<b> </b>relationship with
suppliers goes beyond text book theories of being supportive and empowering.
Ultimately they have to be subjected to the same customer interest lens, which,
if taken seriously enough, will preclude questionable practices such as
nepotism, bribery and corruption. (As an aside, I include environmental care in
this section, albeit not always quantifiable.)<o:p></o:p></div>
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Here’s an example of how being service driven supports sound
business practice: because outside suppliers are mostly the biggest cost to
value added or wealth creation (income less outside supplies = value added) it
is tempting to follow the trade union call to eliminate outside contractors or
outsourcing and do everything internally. Taken to extreme, you could also
argue that all companies should generate their own electricity, make their own
paper, build their own computers, etc. None of this would make sense in
ensuring the customer gets the best product or service at the best price. It
would also not make business sense. Suppliers have become a favourite
instrument in economic transformation policy. The question seldom, if ever
asked is whether it’s in the customer’s interest. <o:p></o:p></div>
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In this article I have dealt only with the two main
categories of wealth creation: customers and outside suppliers. There’s even a
bigger problem of dysfunctional relationships in wealth distribution, which I
will cover in a future article. But we don’t need more evidence to demonstrate
that most companies, and even the country as a whole, simply do not get it. Our
customer focus is in an appalling state as shown by poor service delivery,
customer neglect, streams of cases before the <a href="http://www.comptrib.co.za/">Competition Tribunal</a>, lack of <a href="http://reports.weforum.org/global-competitiveness-index/country-profiles/#economy=ZAF">competitiveness</a>,
and poor <a href="http://www.worldbank.org/en/country/southafrica/publication/south-africa-economic-update-more-innovation-could-improve-productivity-create-jobs-and-reduce-poverty">levels
of innovation</a>. <o:p></o:p></div>
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Some may argue that we are essentially a free market
economy. But that’s a very far cry from being market driven or even market
orientated. It is the latter that gives meaning … and money.<o:p></o:p></div>
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Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-55520471075405440452017-09-18T11:21:00.001+02:002017-09-18T11:27:04.246+02:00Gold, BitCoin and the Dollar.<h3>
<i>Connecting some scary
dots in the undercurrent of market turmoil.</i></h3>
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Are we seeing signs of a return to gold backed currencies?
It’s a valid question in the light of a deal <a href="https://asia.nikkei.com/Markets/Commodities/China-sees-new-world-order-with-oil-benchmark-backed-by-gold?page=1">now
being implemented</a> between China and Russia. China, the world’s biggest oil
importer is de-dollarizing its oil bill with its biggest supplier, Russia, by
paying in Yuan that can be converted into gold. That, in effect, means gold
backing for a major currency in a highly significant international transaction
and which will be extended to cover the total $116 billion p.a. Chinese oil
bill.<o:p></o:p></div>
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China is expected to buy 1000 tons of gold this year, India
a further 900 tons, and Russia has been consistently topping up its gold reserves
from an average 715 tons to more than 1700 tons in the last quarter. Together,
these three countries have been absorbing gold nearly equal to <a href="http://www.miningmx.com/news/gold/29369-gold-not-woods-average-1259oz-2017-gfms/">annual
newly mined gold</a>. In addition, China has launched Yuan denominated gold
contracts in exchanges in Shanghai and Hong Kong.<o:p></o:p></div>
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<span style="font-family: "arial" , "sans-serif"; font-size: 11.0pt;">These developments have hardly featured in
explaining gold’s 11-month high in past weeks, focusing rather on geo-political
tensions. It’s another reflection of the short term perspective of derivatives
and paper trading which now set a global gold price totally removed from
physical supply and demand. This graphic by the London Bullion Market
Association <a href="http://www.zerohedge.com/news/2017-03-29/what-sets-gold-price-%E2%80%93-it-paper-market-or-physical-market">published
by Zero Hedge</a> and the <a href="https://www.bullionstar.com/">Bullion Star</a>
shows that 15 000 times more unallocated gold is traded than there are
reserves. </span></div>
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Following derivative short-term thinking, gold seems for the
most part to be viewed as a palliative for paranoia, ignoring its significant monetary
potential as an alternative to paper currencies, especially the United States
Dollar. Yet, how strong is the mighty
greenback? And can deliberate de-dollarization by large countries be ignored?<o:p></o:p></div>
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Recent market trends reflect again a simple link between
Dollar strength and the performance of the American Economy. GDP growth is the ultimate
rain-maker and statistical indicators move markets in short term bursts. Largely
ignored is the most important ultimate health of an economy and strength of its
currency – the national debt. In the wake of hurricane havoc, $15 billion in
victim relief gave good cause to <a href="https://www.thebalance.com/u-s-debt-ceiling-why-it-matters-past-crises-3305868">waive
the United States government</a> $20 trillion debt ceiling until December. The
fact that U.S. Federal government debt has nearly tripled in about 10 years,
with little prospect of a slowing down in the next five, must pose a threat to
the country’s long term health. <o:p></o:p></div>
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Debt creation is contained by raising interest rates. But
that means a substantial proportion of government revenue has to go to debt
servicing. (A 1% increase in rates adds $200 billion to interest payment.) It
also curtails consumer demand and therefore economic growth. Until recently the
Federal Reserve Board has been acting completely counter-intuitively to that
but when you approach zero interest rates and keep on adding more debt, you
have clearly reached a cross road. The hesitant and modest Fed rate hikes
reflect the difficulty in reversing that trajectory.<o:p></o:p></div>
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And then there’s the diminutive bitcoin, <a href="https://www.coindesk.com/correction-not-crash-bitcoin-price-eyes-3000-traders-take-profits/">now
in its third bubble</a> deflation/burst/correction in as many years and
punching way above its weight in terms of public attention. It’s a bit sad,
really, because it detracts from its still promising potential of
revolutionising money. Paul Donovan of UBS Wealth Management believes that it
never had and never will have that potential (<a href="https://www.moneyweb.co.za/investing/what-bitcoin-isnt/">See Moneyweb Article
here</a>). Others, such as J.P. Morgan’s <a href="https://www.moneyweb.co.za/news/markets/jpmorgans-ceo-slams-bitcoin-as-a-fraud/">Jamie
Dimon</a> and our own <a href="https://www.facebook.com/mike.schussler.7?hc_ref=ARTP7rAVUOIna6BI80AybzokzLQwyBtvjLEzU8RHZkxjumFb0mKniAXQsFYyWczk940&fref=nf">Mike
Schussler</a>, have weighed in on its alleged fraudulent nature. <o:p></o:p></div>
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Howard Marks, The Oaktree Capital co-chairman shared that
view until a few days ago <a href="https://www.oaktreecapital.com/docs/default-source/memos/yet-again.pdf">when
he wrote</a>: <i>"Bitcoin fans argue that it qualifies as a currency under
these criteria: most importantly, it's something that parties can agree to
accept as legal tender and a store of value. That actually seems right."</i> <o:p></o:p></div>
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But then he comes
to the crunch: “… <i>I found myself admitting that much of the criticism I had
levelled at bitcoin is applicable to the dollar as well</i>.”<o:p></o:p></div>
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<span lang="EN-US">The two main functions of money, a stable means of exchange and store
of value are flawed even in existing fiat currencies, and crypto has already
shown that an alternative is possible. The current rush reflects, at least in
part, growing distrust in alternatives. People confuse “store of value” with
“appreciating investment”. Store of value simply means being able to store and
preserve the value of your cow, chicken, or labour in a safe way. Only then
does it live comfortably with means of exchange. When it is subjected to
speculative investment its M.O.E status is disturbed, but not necessarily lost.
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<span lang="EN-US">Crypto is such a new, complicated phenomenon that any speculation about
transaction costs, booms and busts, bubbles and bursts, usage, security, ultimate
winners and losers, regulatory framework, taxation and indeed the real value of
the crypto itself is premature, albeit valuable to its development. With its widely
trusted block-chain technology, bitcoin may well morph into something
different, or even be replaced. But it will be difficult to replace the
decentralized nature of bitcoin. Control of money through central banks, banks
and governments is simply no longer trusted. Likewise, central control of a
crypto currency will suffer the same fate. <o:p></o:p></span></div>
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<span lang="EN-US">Despite extreme volatility, bitcoin’s price has clearly shown explosive
demand. Until one can clearly determine where that demand is coming from, how
long it will be sustained and at what price, can one start predicting and
charting its course. The same goes for the plethora of other cryptos, some good
and some absolutely rotten, that enter this space and dilute the offering. <o:p></o:p></span></div>
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<span lang="EN-US">But it’s a huge playground, as shown in this table of investment and
speculative deployment of money. It was extrapolated from a graphic </span><a href="http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization/"><span lang="EN-US">worth
looking at here</span></a><span lang="EN-US">, and published by the Visual Capitalist. The
figures are not fully comparable with each other because I updated some of them.<o:p></o:p></span></div>
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One simply cannot begin to calculate crypto-currencies’
share or potential share of the total and much of the criticism levelled at
crypto currencies can be levelled at many of the instruments shown. But
connecting some less apparent dots creates a much more disturbing picture: the
overwhelming weight of finance over the real economy, which is GDP and key influencing
factors such as debt. Clearly finance is no longer being informed and driven by
GDP, but is driving it! And in the worst possible way of trying to extract
maximum short term, speculative gains! It reverses an old and wise economic law
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Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com1tag:blogger.com,1999:blog-9021537756665282281.post-33680241912497279092017-09-04T11:22:00.000+02:002017-09-04T11:22:14.732+02:00An age of economic soul-searching.<h3>
<i><b>Was the great
recession a bigger game changer than we realise?</b></i></h3>
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In women’s month, on a cold Sunday night in the
farm-workers’ compound, cheap wine-fuelled joviality again turns to discord. A
stone is thrown in drunken fury. A skull is crushed. A young women dies. A
young man ends in jail. One life is ended, another destroyed. Neighbours and
co-workers become sworn enemies. Tranquillity in the small community is shattered.
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A few more decibels are added to the clamour about gender
violence. Another line is written in the tome of hazy hopelessness that is the
life of a very large part of a young generation. And just as many in the final
generation, those whose formative years were marked by much post-war deprivation
but large promise of “never again”, reflect sadly on what has been done to that
promise. It’s a global story. The content may differ, but the context is the
same: a fractured, disconnected, economically malfunctioning world. Is the new normal, as Dutch economist, <a href="http://evonomics.com/new-normal-rising-inequality-steep-levels-indebtedness-mounting-uncertainty-jobs-incomes/">Servaas
Storm says</a>: “radical inequality, suffocating debt, job uncertainty, secular
stagnation and a vanishing middle-class”? Theories abound. Purists argue that
their elixirs were never purely administered. Solutions exceed the problems
themselves, but none has proved to be a lasting absolute truth. Some hope that
the current few green shoots in the desert will still the dissent.<o:p></o:p></div>
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We are not too afraid of “unchartered waters”, drawing
some comfort from history that we have been in unfamiliar places before, and
somehow emerged with new approaches and discoveries. This time is no different.
But perhaps it is in the scale and depth of questioning all assumptions about
economics and about ourselves as a species. The view increasingly being seen is
through an evolutionary rather than the traditional reactive quantitative lens –
do we evolve or construct on statistical models? This lens is being captured in
research directions and discoveries within evolutionary economics and
complexity economics, and driven by a number of institutions and scholars. <o:p></o:p></div>
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<a href="http://evonomics.com/time-new-economic-thinking-based-best-science-available-not-ideology/">Eric
Beinhocker</a> Executive Director of the Institute for New Economic Thinking at
Oxford University, believes the financial crisis of 2008 and the momentous
global political shifts last year, have heralded a collapse of major
economic-political ideologies that have dominated the 20<sup>th</sup> century. Older
economies in particular are searching for a completely new paradigm that can
show a better way for all. Such as the OECD’s NAEC (<a href="http://www.oecd.org/naec/">New approaches to Economic Challenges</a>)
which says: “We need a full re-vamp of our analytical frameworks and the
assumptions that we make, to better capture the reality. Economic models that
rely only on inputs such as GDP, income per capita, trade flows, resource
allocation, productivity, representative agents, and so on can tell a part of
the story, but they fail to capture the distributional consequences of the
policies we make, and do not address the fact that the growth process has
only benefited a few.” <o:p></o:p></div>
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It will be a mistake to see these <a href="https://www.inclusiveaccounting.com/big-shift">shifts in economic
introspection</a> in an ideological context, and brand them as “socialist” or
“left”. Indeed our sometimes powerfully drawing biases are the biggest barriers
to discovery. According to Beinhocker, it’s time for new economic thinking
based on the best science available, not Ideology. “It should be highly interdisciplinary”
he says, “involving not only economists, but psychologists, anthropologists,
sociologists, historians, physicists, biologists, mathematicians, computer
scientists, and others across the social and physical sciences”. He <a href="http://evonomics.com/time-new-economic-thinking-based-best-science-available-not-ideology/">notes
that</a> over the past several decades a number of Nobel prizes have been given
to researchers working in what today might be called the new economics
tradition.<o:p></o:p></div>
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Beinhocker reflects a common thread followed by economic
evolutionary advocates in developing a view of the economy as an evolutionary
system of cooperative problem solving. Prosperity is seen as “solutions to
human problems” and cooperation is the key to solving more and more complex
problems thus increasing prosperity. <o:p></o:p></div>
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“Economics has painted itself as a detached amoral
science, but humans are moral creatures. We must bring morality back into the
centre of economics in order for people to relate to and trust it,” he says. <o:p></o:p></div>
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Oxford and Cambridge Research Associate, Kate Raworth in
following that thought in her <a href="http://www.chelseagreen.com/doughnut-economics">latest book</a>, suggests
dumping GDP as the holy grail and setting a “far more ambitious and global
economic goal: <i>meeting the needs of all within the means of the
planet”.</i> She then explores a seven
step approach to achieving that.<o:p></o:p></div>
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In <a href="http://evonomics.com/invisible-hand-is-dead/">this article</a>, David
Wilson, renowned biologist and anthropologist at Binghamton University,
suggests not only that Adam Smith’s invisible hand is dead, and always fails,
but that the metaphor itself has caused much harm. “We are different from other
primate species,” he argues, “because we are so cooperative. Why are we so
cooperative? Because it is so easy to regulate each other’s behaviour in small
face-to-face groups.” Wilson’s brave challenge of the “invisible hand” has
another context: <a href="https://www.adamsmith.org/the-theory-of-moral-sentiments/">Smith’s assumption</a> of high moral standards in humanity, which precluded
<a href="https://www.inclusiveaccounting.com/big-shift">seeing “the hand”</a> as an instrument of pure self-gain and
unbridled selfishness.<o:p></o:p></div>
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“Moral systems
evolve in societies because they enhance group cohesion and survival. <o:p></o:p></div>
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Implications of
evolutionary thinking for economics and the social sciences have only partially
been explored.” (<a href="http://evonomics.com/imagine-economics-evolutionary-science/"><i>Geoffrey
M. Hodgson</i></a><i>, research professor at Hertfordshire Business School,
University of Hertfordshire, England.</i>)<o:p></o:p></div>
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One of the more
telling indictments of orthodox economic models is from complexity economics of
which <a href="https://www.blogger.com/null" name="_Hlk491419954"></a><a href="http://evonomics.com/why-economists-have-to-embrace-complexity-steve-keen/">Steve Keen</a>, Kingston University economist and <i>author
of </i><a href="https://www.amazon.com/gp/product/1848139926/ref=as_li_tl?ie=UTF8&tag=evonomics-20&camp=1789&creative=9325&linkCode=as2&creativeASIN=1848139926&linkId=0867f0f12a46bbe1dc3d075fbc86643f"><i>Debunking
Economics</i></a><span class="MsoHyperlink"> </span><span class="MsoHyperlink">is a leading advocate</span>. He believes economists have to embrace
complexity to avoid disaster and the fact that they don’t, explains why most
were caught flatfooted by the speed, depth and length of the great recession.
“Macroeconomic models are painstakingly derived from microeconomic foundations,
in the false belief that it is legitimate to scale the individual up to the
level of society.” Using his own simulations, Keen shows a number of cases (<a href="http://evonomics.com/why-economists-have-to-embrace-complexity-steve-keen/">see essay here</a>) where generally accepted assumptions at a
micro level, including important ones such as price and demand, simply don’t
hold true at a macro level. <o:p></o:p></div>
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It is extremely
difficult to do this important subject justice in a broad sweep such as I have
made here. Essays and articles on the website <a href="http://evonomics.com/">evonomics.com
</a>bear testimony to the
weight, depth and breadth of a perspective that is perhaps <a href="https://en.wikipedia.org/wiki/Thorstein_Veblen">not new</a> but compelling,
profound and refreshing in today’s context. It does offer a framework of
thought for South Africa’s own Radical Economic transformation, but with a huge
caveat – the need for a trustworthy government. I have frequently argued that
radical government transformation is an absolute prerequisite for RET. (<a href="https://www.inclusiveaccounting.com/single-post/2017/07/10/The-hole-in-the-jobs-bucket">See article here.)</a><o:p></o:p></div>
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What remains
unchallenged and perhaps gains significance is that economics itself is built
on the enduring principle of adding value to each other’s lives. This should
put business and companies at the core of any economic construct seen through
any lens. <o:p></o:p></div>
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From a
relationship point of view, they are after all, and irrespective of motive, an
inclusive collective of people serving people. <o:p></o:p></div>
Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-67168189163443367022017-08-21T13:05:00.004+02:002017-08-21T13:05:48.796+02:00Destroying company relationships.<h3>
<i>By having absurd theories,
abstracts and aggregates define them.</i></h3>
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If economic theory holds true, you could have a good
business selling Johannesburg big Mac hamburgers in New York. For the <a href="https://www.economist.com/blogs/graphicdetail/2017/07/daily-chart-7">latest
Economist big Mac</a> Index shows that New Yorkers pay about twice as much than
Jo’burgers, and that’s a healthy margin by any standards. <o:p></o:p></div>
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Of course, even the most ill-informed will protest that
it is much more complex than that. It may not be the best example, but it is
some reflection of how often theories, abstracts and aggregates lose touch with
underlying complexities, when a macro-assumption not only does not fit a micro
situation but its imposition as an absolute can cause more harm than good. The
best examples we have are the dominant drivers of economic policy such as Gross
Domestic Product and the Consumer price index. <o:p></o:p></div>
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Markets are messy. People are messy. They become even
messier when you add to the mix those powerful intangibles and immeasurable
such as hopes, fears, expectations and aspirations. These are the real driving
forces behind human behaviour and simply cannot be captured by an economic
model or economist’s spreadsheet. It has given birth to a recent serious field
in economic study called <a href="http://oecdinsights.org/2016/09/26/complexity-theory-and-evolutionary-economics/">complexity
economics</a>, which is questioning many of the assumptions of neo-classical
economic theory. The driving forces behind human behaviour are not shaped by
these theories, or even the way we try to construct and institutionalise them.
They are shaped by relationships at many different levels and in different
forms and that are seldom, if ever fully recognised in the way we understand
and measure business specifically and economies generally. <o:p></o:p></div>
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Recognising, understanding and shaping the relationship
dynamics in companies could hold much promise in solving many of the issues
confronting them. I can remember in my early days of financial reporting being
troubled by the bland way company figures were presented and the failure to
reflect behaviour and relationships that were the real essence behind the
figures. In the early 80’s I was exposed to the U.K. accounting format, the
Value-added statement, which went quite a way in doing that, but still did not
seem to appropriately reflect the relationship between the main role players or
stakeholders. But a significant conclusion that could be reached was that the
value-added measurement itself not only reflected a figure (income less outside
costs), but a magnificent metric of contributory behaviour. To repeat a
previous postulate: adding value is the oldest activity known to man. It is
also the most powerful business principle.<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; tab-stops: list 36.0pt; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 11.0pt; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->It is behind all positive transformation<o:p></o:p></div>
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</span></span><!--[endif]-->It is the source of wealth<o:p></o:p></div>
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</span></span><!--[endif]-->It measures reward<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 11.0pt; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->It links contribution and reward<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 11.0pt; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->It drives all contributory behaviour<o:p></o:p></div>
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</span></span><!--[endif]-->It is the base of GDP, the nation's wealth<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; tab-stops: list 36.0pt; text-indent: -18.0pt;">
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</span></span><!--[endif]-->It is the source of profits, wages and taxes<o:p></o:p></div>
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</span></span><!--[endif]-->It affects all company measurements<o:p></o:p></div>
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By way of illustration, I’m including the <a href="https://www.inclusiveaccounting.com/">Contribution Account</a><sup>©</sup>
that I extrapolated and indexed for the mining industry. <o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEid2Dfqs_Z5kMlWncwA2UJPKK1QFfPjH5uCHG1VE2gbXMjyaHEyh6TIvmtV9sw_6pURGtRSvJUbrBU1OfayRRa8TEMWS7fS9wElSMXsJMTadAPtvMjfWmWK-gT-0LLRaf7pOvrzHHAeDYA/s1600/minevas.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="300" data-original-width="283" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEid2Dfqs_Z5kMlWncwA2UJPKK1QFfPjH5uCHG1VE2gbXMjyaHEyh6TIvmtV9sw_6pURGtRSvJUbrBU1OfayRRa8TEMWS7fS9wElSMXsJMTadAPtvMjfWmWK-gT-0LLRaf7pOvrzHHAeDYA/s1600/minevas.jpg" /></a></div>
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<o:p><br /></o:p></div>
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</v:shape><![endif]--><!--[if !vml]--><!--[endif]-->The full strength of
this form of accounting is the way it defines relationships – first between the
enterprise and its market, where it creates and receives value, and then
between labour, capital and state, where that value is shared. It is in that
relationship where things can be contaminated and logic lost. I was reminded of
this by a comment to my recent article “<a href="https://www.moneyweb.co.za/moneyweb-opinion/columnists/debunking-monopoly-capital/">Debunking
monopoly capital</a>” where the reader equated debt with equity to satisfy the
conventional abstract of “providers” of capital and, of course, sustain the
myth of the supremacy of capital. To be fair, the UK VAS format does this as
well, but in the European format interest paid was moved to “outside supplies”
in what became known as the Cash value-added statement. <o:p></o:p></div>
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The latter format also moved depreciation and
amortisation to outside supplies. Both not only make technical sense, but even
more so from a contributory relationship point of view. Allocating depreciation
to outside costs is based on the logic that the item being depreciated was
invariably purchased from an outsider, but the cost advanced is set-off over
time through the balance sheet. Regarding debt, no-one can logically see
interest paid as anything but a cost. A lender’s relationship is as a supplier
of a service – the use of money, and seldom, if ever extends beyond that. The
risk of advancing that money is covered in the interest rate. <o:p></o:p></div>
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Equity also cannot be generalised as a single abstract
called capital. It can have many forms such as owner’s money, crowd funding,
inherited funds, use of friends’ and acquaintances’ money, majority and
minority shareholders, holding companies and institutional investors. All have
different relationships with the enterprise. Many will take no heed of esoteric
formulas such as capital or labour productivity. When these are imposed as
rigid benchmarks they often disturb and sour relationships. There’s also a
stark relationship difference between retained income and dividend, with the
former being a commitment, and the latter a cash receipt. As a shareholder, you
don’t get a debit card to draw on the company’s savings. The relationship
between retained earnings and dividends, or dividend cover, speaks volumes
about company intent.<o:p></o:p></div>
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I used the Cash value-added statement as the basis for <a href="https://www.inclusiveaccounting.com/">the Contribution Account</a><sup>©,</sup>
simply to reflect its behavioural qualities. More recently I have moved
personal income tax from labour to state, again as an accurate reflection of
the relationship between state and the enterprise. One could argue that the
state itself should be viewed as an outside supplier, but apart from its variable
share of wealth, the state generally does not (or should not) create wealth in
its own right and relies on that created by others for its income. <o:p></o:p></div>
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But here’s the exciting part – nothing prevents or should
prevent stakeholders or contributors from defining their relationship with the
collective and between themselves. Of course all have a specific context for
their existence, but their validity and ultimate strength lie in a common value
creating purpose and to be as free as possible from external prescriptions and
pressures. Even then, relationships with anything or anyone are still highly
manageable and flexible and are defined by expectations which in turn are
self-defined. Increasingly companies are starting to see that. <o:p></o:p></div>
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What hinders this process are the absurd theories,
abstracts and aggregates that we try impose upon them.<o:p></o:p></div>
</div>
Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-27107827067647081322017-08-07T11:02:00.005+02:002017-08-07T11:02:58.116+02:00Symphonies of endeavour.<div class="MsoNormal">
<i>A different view of
the context for a stable and sustainable company.</i><o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjT1n1dI8S-_j8FWqi5Tfqap0nSst-5ji-nZ8Y1ZX7CP4m7PJSuH1p0cbuAJJ7xJOX4zb3WjepfwQ9VWn3HBsWDKRfNAL1N5om0wrIPmMsk69mUUu5cNhsgj2Tux2UzekMU2gI0so87QdA/s1600/olireduced.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="730" data-original-width="1095" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjT1n1dI8S-_j8FWqi5Tfqap0nSst-5ji-nZ8Y1ZX7CP4m7PJSuH1p0cbuAJJ7xJOX4zb3WjepfwQ9VWn3HBsWDKRfNAL1N5om0wrIPmMsk69mUUu5cNhsgj2Tux2UzekMU2gI0so87QdA/s320/olireduced.jpg" width="320" /></a></div>
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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. <o:p></o:p></div>
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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. <o:p></o:p></div>
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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. <o:p></o:p></div>
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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. <o:p></o:p></div>
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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 <a href="https://hbr.org/1995/07/discovery-driven-planning">reverse income
statement</a> to justify his promise to take two tourists <a href="https://www.theguardian.com/science/2017/feb/27/spacex-moon-private-mission-2018-elon-musk">to
the moon next year</a>. Not
understanding true entrepreneurial genius caused former Apple CEO, John Sculley
considerable discomfort after firing Steve Jobs. <o:p></o:p></div>
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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: “<span style="font-size: 12.0pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;">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.<o:p></o:p></span></div>
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<span style="font-size: 12pt;">In a </span><a href="http://evonomics.com/complexity-economics-shows-us-that-laissez-faire-fail-nickhanauer/"><span style="font-size: 12.0pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;">recent </span></a><span class="MsoHyperlink"><span style="font-size: 12.0pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;">essay</span></span><span style="font-size: 12pt;">, 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.</span></div>
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<span style="font-size: 12.0pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;">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. <o:p></o:p></span></div>
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<span style="font-size: 12.0pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;">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.<o:p></o:p></span></div>
Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-58812051630418387092017-07-25T12:11:00.001+02:002017-07-25T12:11:13.657+02:00Debunking “monopoly capital”.<div class="MsoNoSpacing">
<i><b>Refocusing on the
essence of creating wealth and value for all.</b></i><o:p></o:p></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhL6qO3Maxn_aK9HhIIzq-Li-FiEswpxCwi18dcw8UpWHqcKxVr7DfnhAFGo35iJa855zgrsSfo3XqqdBVuiS8a8L0bg9xCuXMfvKl2g_V3iUnL8dfIIqgEA2mfbUApZ8ofHSnwra71Y70/s1600/nse_551620247.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="194" data-original-width="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhL6qO3Maxn_aK9HhIIzq-Li-FiEswpxCwi18dcw8UpWHqcKxVr7DfnhAFGo35iJa855zgrsSfo3XqqdBVuiS8a8L0bg9xCuXMfvKl2g_V3iUnL8dfIIqgEA2mfbUApZ8ofHSnwra71Y70/s1600/nse_551620247.jpg" /></a></div>
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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.<o:p></o:p></div>
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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. (<a href="https://www.moneyweb.co.za/moneyweb-opinion/capital-scarcity-and-other-myths/">See
article here</a>). 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.<o:p></o:p></div>
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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. <o:p></o:p></div>
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We do not need scare tactics and deflections of “radical
economic transformation” to reboot our economy. As I wrote <a href="https://www.moneyweb.co.za/moneyweb-opinion/columnists/the-hole-in-the-jobs-bucket/">in
my previous article</a>, 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.<o:p></o:p></div>
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In retelling <a href="https://www.moneyweb.co.za/news/economy/the-untold-story/">the untold story</a>
of the ancient and still benevolent design of the wealth creation process, I
have extrapolated a <a href="http://www.inclusiveaccounting.com/">Contribution
Account</a><sup><span style="font-family: "Trebuchet MS","sans-serif"; font-size: 12.0pt;">©</span></sup><sup><span style="font-family: "Trebuchet MS","sans-serif"; font-size: 9.0pt;"> </span></sup>or Inclusivity Statement<sup><span style="font-family: "Trebuchet MS","sans-serif"; font-size: 12.0pt;">©</span></sup><span style="font-family: "Trebuchet MS","sans-serif"; font-size: 9.0pt;"> </span>for the mining
industry, based on the <a href="https://www.pwc.co.za/en/assets/pdf/sa-mine-2016.pdf">PWC 2016 survey</a>. 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. <o:p></o:p></div>
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MINING 2016
(INDEXED)<o:p></o:p></div>
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</tr>
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Revenue<o:p></o:p></div>
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R300<o:p></o:p></div>
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Outside supplies<o:p></o:p></div>
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R200<o:p></o:p></div>
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Wealth created<o:p></o:p></div>
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R100<o:p></o:p></div>
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SHARED<o:p></o:p></div>
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Employees<o:p></o:p></div>
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R53<o:p></o:p></div>
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State<o:p></o:p></div>
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R22<o:p></o:p></div>
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Reinvested<o:p></o:p></div>
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R21<o:p></o:p></div>
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Owners’ dividend<o:p></o:p></div>
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R 4<o:p></o:p></div>
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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. <o:p></o:p></div>
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In the above example, 2/3<sup>rds</sup> 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. <o:p></o:p></div>
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What is the thinking behind the <a href="https://www.moneyweb.co.za/mineweb/mining-companies-investment/gigaba-wants-the-mining-charter-back-at-the-negotiating-table/">proposed mining charter</a> 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?<o:p></o:p></div>
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<b>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. </b><o:p></o:p></div>
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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. <o:p></o:p></div>
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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. <o:p></o:p></div>
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But that can be turned around quickly and
effortlessly by <a href="http://www.inclusiveaccounting.com/strategy">adopting the principles</a> 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%!<o:p></o:p></div>
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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. (<a href="http://www.inclusiveaccounting.com/strategy">See graphic example
here</a>). 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. <o:p></o:p></div>
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At the very least, it will detract from the
misguided notion that owning or controlling capital creates wealth.<o:p></o:p></div>
Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com1tag:blogger.com,1999:blog-9021537756665282281.post-65666512134019691652017-07-10T13:27:00.003+02:002017-07-10T13:27:38.041+02:00The hole in the jobs bucket.<h3>
<i>A<b>nd the three
dimensions of radical government transformation.</b></i></h3>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXT7oeI7flXmYE-WOMb2yFwXnp7EM3KzN2kqamhFVp6ujR87Nf76eO9uNRTAJDkX89RptUVNNTcYvb8npkpiNpQ6pTdjeDQy822byvXA_S_CoD35JelcS5L8CCl_sSfkzxiBO74fKT-ok/s1600/labour03.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="462" data-original-width="617" height="239" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXT7oeI7flXmYE-WOMb2yFwXnp7EM3KzN2kqamhFVp6ujR87Nf76eO9uNRTAJDkX89RptUVNNTcYvb8npkpiNpQ6pTdjeDQy822byvXA_S_CoD35JelcS5L8CCl_sSfkzxiBO74fKT-ok/s320/labour03.jpg" width="320" /></a></div>
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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 <a href="http://www.statssa.gov.za/?p=10145">latest Quarterly Employment Survey</a>.
<o:p></o:p></div>
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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. <o:p></o:p></div>
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Global financial headlines remind us daily of a world
undergoing radical economic transformation. The <a href="https://www.moneyweb.co.za/moneyweb-opinion/the-establishment-under-attack/">anti-establishment
uprising</a> 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. <o:p></o:p></div>
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But that may have changed. The <a href="https://www.enca.com/south-africa/watch-now-nathi-mthethwa-on-anc-strategies-and-tactics">strategic
outline delivered</a> by ANC NEC member, Nathi Mthethwa at the policy
conference, clearly reflected that insight and will hopefully transform the
narrative to reflect:<o:p></o:p></div>
<div class="MsoNoSpacing" style="margin-left: 36.0pt; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->The gravity and complexity of a global struggle for
inclusivity and fragmentation of economic power; (<a href="https://www.moneyweb.co.za/moneyweb-opinion/inclusivity-for-the-people-and-by-the-people/">see
previous article here</a>.)<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->The role South Africa can play in being an
innovator, contributor and beneficiary of global experiences, which includes
inputs from international economic thought leaders.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->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. <o:p></o:p></div>
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<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->And above all – the need for power fragmentation
in <b>both</b> government and the private
sector as a key factor for flexibility. <o:p></o:p></div>
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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.<o:p></o:p></div>
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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.<o:p></o:p></div>
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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:<o:p></o:p></div>
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<b>Physical size and
share of the economy. </b>Globally, governments have become “fat and lazy”, <a href="https://www.moneyweb.co.za/moneyweb-opinion/soapbox/dawie-roodt-on-why-crypto-money-will-change-the-world/">according
to Economist, Dawie Roodt</a>. With our government expenditure at about one
third of GDP we are not amongst the most obese (see <a href="http://data.worldbank.org/indicator/GC.XPN.TOTL.GD.ZS?name_desc=true">World
Bank statistics here</a>), 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.<o:p></o:p></div>
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<b>Prescriptions and
regulations. </b>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 <a href="https://www.moneyweb.co.za/mineweb/mining-companies-investment/new-mining-rules-would-wipe-out-returns-chamber-says/">the
industry estimates</a> could see as many as 100 000 job losses. <o:p></o:p></div>
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<b>Political
posturing and populist rhetoric. </b>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 <a href="https://www.moneyweb.co.za/news/south-africa/anc-said-to-propose-state-owned-central-bank/">Market
response</a> 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. <o:p></o:p></div>
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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 (<a href="https://image.slidesharecdn.com/2017trustbarometerglobalreportfinalwotalktrack-170115180740/95/2017-edelman-trust-barometer-global-results-13-1024.jpg?cb=1485020243">see
graphic here</a>) is now at centre stage. It is perhaps even beyond redemption.
Opponents may hail this as an opportunity for regime change, but <a href="https://www.moneyweb.co.za/moneyweb-opinion/columnists/believe-it-or-not/">distrust
is contagious</a> 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.<o:p></o:p></div>
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It is that which needs radical attention.<o:p></o:p></div>
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Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-37443754785395060982017-06-12T12:28:00.003+02:002017-06-12T12:28:50.752+02:00Contract and conscience.<h3>
<i><span lang="EN-US">What happens when the social contract and laws cannot
guarantee protection?</span></i></h3>
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<span lang="EN-US">That
memorable aphorism: “</span>Man is born
free, and everywhere he
is in chains”, penned by the 18<sup>th</sup>
century French philosopher <a href="https://en.wikipedia.org/wiki/Jean-Jacques_Rousseau">Jean-Jacques Rousseau</a>, relates to another creation of the Age of
Enlightenment – the <a href="https://www.google.co.za/?gws_rd=ssl#q=social+contract">Social Contract</a>. 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. <o:p></o:p></div>
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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 <span lang="EN-US">have a </span><a href="https://businesstech.co.za/news/government/161715/south-africas-latest-crime-stats-everything-you-need-to-know/"><span lang="EN-US">much lower chance</span></a><span lang="EN-US"> of being affected by a crime.</span><o:p></o:p></div>
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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. <o:p></o:p></div>
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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. <o:p></o:p></div>
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As Serge Belamant
of NET1 discovered when <a href="https://www.moneyweb.co.za/moneyweb-opinion/columnists/the-forgotten-value/">expressing a callous disregard</a> 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 <a href="https://www.allangray.co.za/latest-insights/companies/net1-do-the-right-thing/">one of his biggest shareholders</a>. And now his departure pay-out raises the
critical question: can good governance be served when people are rewarded
handsomely for non-compliance? (<a href="https://www.moneyweb.co.za/news/companies-and-deals/net1-says-belamant-pay-justified-as-shareholders-forced-him-out/">See Moneyweb article here</a>.)<o:p></o:p></div>
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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. <o:p></o:p></div>
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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 <a href="https://www.bloomberg.com/news/articles/2017-05-04/conscience-important-in-zuma-vote-south-africa-s-gordhan-says">has repeated since then</a>. <o:p></o:p></div>
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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.<o:p></o:p></div>
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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.<o:p></o:p></div>
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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.<o:p></o:p></div>
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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 “<a href="https://www.moneyweb.co.za/moneyweb-opinion/columnists/believe-it-or-not/">Believe it or not</a>” 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. <o:p></o:p></div>
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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. <o:p></o:p></div>
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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.<o:p></o:p></div>
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Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-79278804064106034512017-05-29T12:37:00.001+02:002017-05-29T12:37:08.956+02:00Grabbing land in La-la Land.<h3>
<i><b>A groundswell of
clearheaded action to counter populist hysteria in the land issue.</b></i></h3>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSqC-sMLmeatewGLeWrjezlm1jq4HdtG19HQMF-SPiow-eJ2WkniS7A5VNylqD0jdPbLeafNCACPN9rq9Dit_xgWnzQkhyphenhyphenLXXWQO5yDfZj5TDuUX5S85fu_0H_2yzESxAW56hQUrKciZY/s1600/landgrab2.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="493" data-original-width="849" height="185" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSqC-sMLmeatewGLeWrjezlm1jq4HdtG19HQMF-SPiow-eJ2WkniS7A5VNylqD0jdPbLeafNCACPN9rq9Dit_xgWnzQkhyphenhyphenLXXWQO5yDfZj5TDuUX5S85fu_0H_2yzESxAW56hQUrKciZY/s320/landgrab2.jpg" width="320" /></a></div>
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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. <o:p></o:p></div>
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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: <a href="https://www.moneyweb.co.za/moneyweb-opinion/columnists/creating-customers-creates-jobs/">“Customers
create Jobs”</a>).<o:p></o:p></div>
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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.<o:p></o:p></div>
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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. <o:p></o:p></div>
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We cannot deny that it is an emotionally charged issue.
Comments on my <a href="https://www.moneyweb.co.za/moneyweb-opinion/inclusivity-for-the-people-and-by-the-people/">previous
article</a> 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.<o:p></o:p></div>
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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.<o:p></o:p></div>
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In the absence of a credible land ownership audit, political
mischief has ensured a vague and highly <a href="http://city-press.news24.com/News/Who-owns-the-land-Ownership-by-numbers-20150503">skewed
picture</a> of the extent to which land reform has already happened, including
the fact that the <a href="http://www.fin24.com/Companies/Agribusiness/govt-sits-on-4-000-farms-yet-hints-at-expropriation-20170522">government
has bought</a> 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.<o:p></o:p></div>
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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 <a href="https://www.moneyweb.co.za/moneyweb-radio/nampo-partnering-with-black-small-scale-farmers/">this
statemen</a>t to Moneyweb’s SAFM Market Update, by <span style="background: white; color: #333333; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;">Senzeni Zokwana, Minister of Agriculture, Forestry &
Fisheries:<o:p></o:p></span></div>
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<span style="background: white; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;">“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.” </span><o:p></o:p></div>
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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 <a href="http://www.agrisa.co.za/sustainable-growth/?lang=za">here</a> and on the <a href="https://www.nasieingesprek.co.za/">Nation in Conversation website</a>,
which is an agricultural sector initiative and formed part of the NAMPO harvest
festival near Bothaville. <o:p></o:p></div>
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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.<o:p></o:p></div>
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Any discussion, debate or conflict around land reform
that does not constantly and pertinently bring this into reckoning is one-sided
and dangerously disingenuous. <o:p></o:p></div>
Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0tag:blogger.com,1999:blog-9021537756665282281.post-19545177026273529862017-05-21T16:13:00.000+02:002017-05-21T16:13:11.618+02:00Inclusivity: for the people and by the people.<h3>
<i><span style="font-size: 12.0pt;">W<b>resting the initiative from government to prevent
reckless radicalisation.</b></span></i></h3>
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<span style="font-size: 12.0pt;">During those widespread protest
marches recently, I asked my son whether he was going to join one of them. <o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">“It won’t make a difference,”
he replied.<o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">“But it will to you,” I said.<o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">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.<o:p></o:p></span></div>
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<b><span style="font-size: 12.0pt;">Globally</span></b><span style="font-size: 12.0pt;">,
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. <o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">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. <o:p></o:p></span></div>
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<b><span style="font-size: 12.0pt;">Governments’</span></b><span style="font-size: 12.0pt;">
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
(</span><a href="https://www.moneyweb.co.za/moneyweb-opinion/bullhorns-of-discontent/"><span style="font-size: 12.0pt;">see here</span></a><span style="font-size: 12.0pt;">)
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. <o:p></o:p></span></div>
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<b><span style="font-size: 12.0pt;">Business</span></b><span style="font-size: 12.0pt;"> 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. (</span><a href="http://www.inclusiveaccounting.com/communication"><span style="font-size: 12.0pt;">See Contribution Account here</span></a><span class="MsoHyperlink"><span style="font-size: 12.0pt;">.</span></span><span style="font-size: 12.0pt;">)<o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">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. (</span><a href="https://www.moneyweb.co.za/archive/the-manager-myth/"><span style="font-size: 12.0pt;">See here</span></a><span style="font-size: 12.0pt;">).<o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">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. (</span><a href="http://www.inclusiveaccounting.com/"><span style="font-size: 12.0pt;">See inclusive accounting here</span></a><span style="font-size: 12.0pt;">.) Too often this leads to </span><a href="https://www.moneyweb.co.za/moneyweb-opinion/columnists/the-forgotten-value/"><span style="font-size: 12.0pt;">misbehaviour</span></a><span style="font-size: 12pt;">,
customer neglect, </span>noncompetitive<span style="font-size: 12pt;"> activities, and an absence of a moral compass. <o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">It then also discourages </span><a href="https://www.moneyweb.co.za/moneyweb-opinion/a-monstrous-model-exposed/"><span style="font-size: 12.0pt;">Common purpose and Common fate</span></a><span style="font-size: 12.0pt;"> 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. (</span><a href="https://www.moneyweb.co.za/news/economy/the-untold-story/"><span style="font-size: 12.0pt;">See article “The untold story” here</span></a><span style="font-size: 12.0pt;">.) <o:p></o:p></span></div>
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<b><span style="font-size: 12.0pt;">The people</span></b><span style="font-size: 12.0pt;">,
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. <o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">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. <o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">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. (</span><a href="http://www.agrisa.co.za/sustainable-growth/?lang=za"><span style="font-size: 12.0pt;">See project list here</span></a><span style="font-size: 12.0pt;">.) <o:p></o:p></span></div>
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<span style="font-size: 12.0pt;">That more can, and should be
done by all of us is an imperative, and a counter to coercion and autocracy. Inclusivity
</span><span style="font-size: 12.0pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;">is a manifestation and </span><span style="font-size: 12.0pt;">embracing</span><span style="font-size: 12.0pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;"> of our humanity</span><span style="font-size: 12.0pt;">. It is an embrace
of empowerment and enablement.</span><span style="font-size: 12.0pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;"> 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.
<o:p></o:p></span></div>
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<span style="font-size: 12.0pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-hansi-font-family: Arial;">It is the ultimate
human project. It’s when individual hearts become a collective shelter from
despair. <o:p></o:p></span></div>
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Jerry Schuitemahttp://www.blogger.com/profile/11041258516723623189noreply@blogger.com0