At sea without a moral compass.

How long can we continue to tolerate blatant and destructive hypocrisy?

When it comes to our economic destiny, behaviour will always trump rules, systems and plans. Or, as Public Protector Thuli Madonsella told a TV interviewer recently, the ethical will always prevail over the legal.

The beginning of a new year is a time of reflection, a time when most are engaged in some introspection and some resolution to do things better. I started this article with the intention of identifying and conveying a message of hope and inspiration, not in denial as Felicity Duncan’s frog in hot water but to give due recognition to the overwhelming level of goodwill that still exists in the country, and our inherent economic strengths that could be drawn upon to counter inherent and structural weaknesses.

But I was inescapably drawn to one of the first articles I wrote for MONEYWEB, on the importance of behaviour. It left me with a distinct sense of despair. For nothing we do will bear fruit without a strong underpinning of sound human values. We can take all our plans and intentions, our New Growth Path, the National Development Plan now being so loudly championed by President Zuma himself, fiscal and monetary prudence, the laudable efforts of the Public Protector, and even the Constitution itself, and consign it to a landfill of insignificance, if we do not adopt and follow a national moral compass, understood and subscribed to by all.

Identifying such a compass is not all that difficult. Paul Hoffman of the Institute of Accountability has done an excellent article on the subject. It need not be a set of rules or dogma preached from episcopal or hallowed podiums. Its points simply have to reflect sound human values that encompass the overall and fundamental principle of care for each other – the one principle that has made humanity the magnificent creatures that we are, or can be.

If there is one behaviour trait that betrays a lack of a moral compass more than any other both individually and nationally, it is hypocrisy. Hypocrisy is much wider than outright corruption, irregular and illegal behaviour. It reflects too those things we believe we can get away with, perhaps even have sanctioned by a sufficient number of like-minded, morally corrupt or less demanding individuals. Hypocrisy is at the fine edge of a tumble into growing corruption, lawlessness and even violence. It is a subtle trait. Most of us at fairly regular intervals will practice it – from the cordial greeting to someone we intensely dislike to some dubious claims in advertising. It’s when it becomes unashamedly overt in a large cross section of our institutions, leaders and recognised role models, that we have to seriously challenge its facile tolerance.

2012 could certainly go down as the year of rampant hypocrisy.

There have been many comments on the watershed events at Marikana and no doubt the Commission of Inquiry will add many more. For me it underscored the importance of a force that we regularly overlook, but that undoubtedly is a powerful catalyst in all of the frustrations, anger, and unrest that South Africa has experienced in the past decade or so.

Statistics show that we experience some or other public protest every second day. And judging from the latest unrest at Sasolburg and earlier at De Doorns they are following the Marikana precedent in becoming increasingly violent, chaotic and even criminal. That force is formed when hypocrisy and political expediency meet, when promises are made to an electorate that simply cannot be fulfilled.

When those elected to power fail dismally in providing even the basics, let alone the lofty commitments that got them into power they have created an uncontrollable, ever present fuse that will instantly ignite civil disturbance. It’s been shown time and again that an ever increasing gap between expectations and experienced reality creates social ferment.

In researching this article, I came across so many instances of blatant hypocrisy that it would require a fair sized book to cover them all and analyse the harm they have done. I’m going to restrict those examples to only a few.

One is the incongruity of a state president lamenting poverty and wealth disparity while controversy rages around him about his R250m private residence. The other was the ruling party’s Mangaung conference which displayed giant billboards celebrating “100 years of selfless struggle”. Yet inside there were intense debates about the “alien” tendencies of self-serving cadres in all structures of the party. It was an irony that did not escape Ryk van Niekerk, who covered the conference for MONEYWEB.

Another, closer to home and one I have followed quite closely is the hypocritical comedy in the so-called farm workers strike with its epicentre at De Doorns. Enter on that stage a host of comedians including cabinet ministers, union leaders (some with minimal or no representation) a mysterious millionaire union leader whose organisation has had as many name changes as Liz Taylor has had husbands, and mass media reporters who did little more than reinforce confusion and misinformation. In the process we have had strikes called off in areas that were not striking; pay demands by the unemployed; deals made and then trashed; and a bemused farming community that for the most part, excluding pockets like De Doorns, went about their business and produced their normal quotas. Labour correspondent, Terry Bell, has done an excellent expose of the deeper nuances at play.

A call for the adoption of a moral compass goes much deeper than moralising. We have allowed self-serving expediency and hypocrisy to grow like a cancer in our public and business lives, eating away at every fibre of our society, yet soliciting responses that seldom go further than satirical comment in the mainstream media or becoming the subject of the cartoonist pen.

As a nation we should be outraged.

Emulating great entrepreneurial minds.

And reconciling shareholder and customer interests in the process.

Donald Gordon could be quite irascible at times. The founder of the insurance giant Liberty Life was never more so than when facing some annoying shareholders at an annual general meeting. One that a colleague shared with me many years ago was when an “activist” challenged Gordon on the company’s rather conservative dividend policy.

“Mr ‘activist,’” Gordon reportedly responded, “I know better what to do with your money than you do! And if you disagree there are many in this audience who will be just too keen to buy your shares from you!”

If ever there was proof that entrepreneurial genius attracts capital then Gordon was it. He is by no means the only creator/builder/entrepreneur that has been at loggerheads with shareholders. In 1988 Richard Branson delisted the Virgin Group after he became “frustrated with the demands of public shareholders”. Another was the demotion/firing of Steve Jobs from Apple and his subsequent triumphant return. At home we have also had Raymond Ackerman’s determination in the earlier years to retain family control of Pick ‘n Pay. Perhaps John Sculley sums up the shortcomings of shareholder paramountcy best in explaining his misreading of Steve Jobs. He confessed that he did not then understand the entrepreneurial mind-set, and wishes he had.

With entrepreneurial genius comes the courage, if not the right, to dictate to shareholders how the company should be run, and shareholders who expect to replicate or recruit that kind of genius through self-serving scorecards, incentives, whistles and bells are misguided beyond belief. Even more misguided is the notion that that kind of genius can be spawned, nurtured and developed from a barren bed of shareholder-value soil. It certainly is not surprising that the shareholder-value focus since the mid 70’s has indeed led to a decline in overall shareholder value.

In short, capital does not attract genius; genius attracts capital. Until we re-arrange this cart and horse, we will continue to experience the phenomenon I wrote about recently, and that is a growing rift between shareholder interests and customer interests. That preordained and guaranteed link between the two, vehemently promoted by Friedman followers since the late seventies, is fallacious, especially in a world that has found many methods of making money other than adding tangible value to people’s lives -- even more so when the motive is profit rather than service.

We have sufficient proof that shareholder value does not always equal customer service. And we certainly have more proof that a customer focus creates shareholder value – unless you are inept, imprudent, and do not follow the rules of legitimate transaction. This was the real insight of all great entrepreneurs. What distinguishing them from many a professional manager is their deep understanding of and passion for their markets and customers; for their products and services. Gordon’s genius for example may have been partly due to his actuarial flair, but what really made Liberty successful in the early days was innovative life products competing against the giant and bloated mutual life assurers.

The fanatical followers of shareholder value also learn quickly that when that fails, it is back to the old rules of customer care. This is certainly the experience of Barclays which said after the LIBOR scandal that “banks need to revisit fundamentally the basis on which they operate and how they add value to society”. The challenge then is to have faith that “adding value to society” is the only valid and sure way of adding value for shareholders. The qualities that distinguish real entrepreneurs such as understanding their products, services and customers should also be the qualities that boards seek in executive appointments. In turn executives should be held accountable for and be rewarded according to “how they add value to society”.

You cannot replicate the entrepreneurial spirit. What drives those real heroes of business is unique to them and is something that economic laws simply cannot explain. Yet over hundreds of thousands of case studies and centuries of business history, the way they thought, behaved and acted has been very well documented. What is surprising is that instead of relying on their knowledge and experience to design a general template for a business model, we have relied on theorists, academics, accountants and consultants to do so. Some even receive a Nobel Prize for their efforts.

What we all have within us is the potential for adopting a key entrepreneurial behaviour – the ability to look beyond immediate and guaranteed self-gain and focus on making a meaningful difference to other’s lives. This is the attribute that should be sought in any executive. This is the behaviour that should be encouraged, nurtured, recognised and rewarded.

Obviously, the only way to do this is to marry qualitative expectations with quantitative criteria and, at the risk of sounding unbearably clichéd again; the ideal target is the value-added or wealth created measurement itself. It is the only one that reconciles accurately contribution to customers with wealth generated for oneself or the company. It should be the primary focal point for all involved, including being a common fate trigger for flexible reward systems.

Wealth created, as opposed to profit, has the potential of shaping company behaviour through two self-evident and important strategic objectives: maximum wealth creation and optimum wealth distribution: in other words creating maximum value for all of the contributors involved, and sharing it in such a way that it encourages continued contribution. Unpacking each component of the value added statement or contribution account creates a template for all of the elements of strategic planning. Prescribing measurable accountabilities in each of these components will in turn ensure the shift in behaviour that companies such as Barclays, and indeed society in general are trying to inspire. I will come back to these in a future article.

We have tried a different method for a number of decades and it has failed us. If the equation that customer service creates shareholder value is true, then what harm can there be in changing the numbers and accountability focus?

Not only does it have the potential of reconciling shareholder and customer interests, but it most likely will be to the benefit of both.

A hostile takeover.

How one man gained and lost control of South Africa’s third oldest town before it burned.

Some very old Swellendam residents upon rare occasions recount ancestral tales in much subdued tones about a giant snake that sporadically crawls over the Langeberg to whisper hypnotic prophecies to a chosen few. That, they claim, explains the curious behaviour of some of their fellow citizens. Another folktale has it that the mist that occasionally drifts into town from the towering “Twaalfuurkop” (Noon-peak) is from the breath of a dragon, that likewise has some hypnotic, brain-neuron scrambling effect on those who inhale it.

But a fable that has greater following is that somewhere under “Die Groote-Kerk” (built in 1802) in Voortrek Street is a confluence of the most ley-lines in the Southern Hemisphere. And this is why Swellendam has so many creative people like potters, artists, musicians and writers. I’m still waiting for that magical effect to kick in!

So perhaps it is the ley-lines that have realigned the brain-cells of our local politicians. If it is, then we have proof that politics and creativity are a highly toxic mix. A creative politician is a far greater affliction to humankind than a creative accountant.

I have before me a pile of local and provincial newspapers going back more than a month to try and fathom the cause for the panic a few weeks ago that Swellendam had yielded to a “hostile takeover.” The alarm came from no less an authority than Anton Bredell, Western Cape Minister of Local Government. Not familiar with a hostile takeover in anything else but a company context, I, and I imagine many of my fellow residents, had visions of the town being overrun by alien hostiles charging down the southern slopes of the Langeberg, forcing us to flee across the Breede River and seek refuge in the vast desolate Karoo-like Ruens between here and Cape Agulhas.

But it soon became clear that there was only one alleged hostile – home boy Julian Matthysen. To explain this man of God’s Goliath-like status over a cowering Swellendam, I have to try and condense into a manageable sound-bite many episodes of the surreal serial in the local weeklies.

Last year’s elections left the Greater Swellendam local authority hopelessly hung between the ANC and DA. That deadlock was broken by the ACDP deciding to support the DA. Its one seat in the election went to Julian, who earlier seemed to have had his own little Damascus experience prompting him to defect from his ANC nest and to pursue a much holier cause in the ACDP. This, whether motivated by soul, heart or wallet, left him as kingmaker in the council – a true Gulliver in Lilliput.

But Julian forgot one thing: kingmakers cannot make themselves king, and his discomfort with being a mere Deputy Mayor soon prompted him to kiss and make up with the ANC opposition, and to make the council hopelessly hung again.

Important municipal decisions ground to a halt, including senior appointments such as that of Municipal Manager (town clerk to us oldies.) Bredell steps in from his august provincial halls to appoint an acting manager. And then Richard Baloyi steps in from his even loftier national offices of Cooperative Government and Traditional affairs to overrule Bredell. Bredell instructs his squabbling Swellendammers that no meeting should be held until after he had further talks with Baloyi. But Julian and his ANC followers hold a meeting on October the 8-th and appoint their own acting municipal manager.

The DA squeals to the high court in Cape Town, and the learned judge, perhaps not fully grasping that the urgency is much greater than a mere bladder call, “reserves judgment”. Then Julian and his reconciled ANC pals decide this is their moment and call for a meeting on the 15^th for their own putsch.

But the week-end before the 15^th, the DA again cried foul to the courts, obtaining an interim ruling that the proposed meeting was illegal. The ACDP fires Julian, but like true righteous crusaders Julian & Co persevere with the meeting, postponing it from 10 a.m. to 4 p.m. By this time the interim ruling on its illegality is set aside by none other than Judge President John Hlophe. The meeting goes ahead and the sitting DA speaker, Matthys Koch adjourns it. After the DA councillors had left, Julian and his followers replace the entire hierarchy with Julian as Mayor.

So, depending which way you look at it, Swellendam for about a month until early November either had no leadership at all or it must have been the only town in history to have had two mayors, two speakers, two deputy mayors and two acting managers – but no finance manager and other senior managers crucial to its functions. On Tuesday the 13^th, the court ruled in the DA’s favour demoting Julian to ordinary citizen, and with the new ACDP member having been sworn in as Deputy Mayor, the DA believed Julian had finally been defanged.

I had my doubts. If Julian Matthysen proved one thing it is that he is quite indomitable. Indeed, after the ACDP appointed their new councillor, Julian and a few friends gate-crashed his celebration at the town hall. Punches were thrown and a 73 year old lady was upended, swinging her crutches to keep her attackers at bay.

Then, on Wednesday the 14^th all hell broke loose and, as most of you know, parts of the town burned. Now, I’m not for one minute implying that Julian was behind it. Word has it that even his allies are done with him. Perhaps they don’t need him because their problem of reconciling Swellendam unrest with rebellious farm labour, all of whom here had no idea that they were supposed to take up arms against minimum wage “slave drivers”, was solved when from the high offices of cabinet the grievance was miraculously converted into service delivery.

If the purpose was ungovernability it must have dawned on the promoters that minimum wages was a government matter, and they had unwittingly unleashed unrest against their own leaders.

So service delivery became the new refrain, but unfortunately one that does not quite fit Swellendam. The township of Railton resembles your average lower middle income suburb with tarred and paved roads, running water and electricity with subsidised tariffs. It also has some of the best views of the town and mountain. I could live there myself if someone guaranteed that I would not have Julian as a neighbour. True, it does have an informal settlement on the extreme South, but no Railtoner sees that as part of their suburb and it is populated mostly by “foreigners”.

A ministerial mantle of “heroism” for the farm protestors with guaranteed immunity from prosecution is too good an opportunity to miss. Inspired no doubt by Hitler’s perfection of the concept that if you lose at the polls and in courts, a few hundred thugs in the street will get you what you want, they looted and burned at will. If service delivery did not quite fit, there was always unemployment, alleged corruption, racism, xenophobia and of course, the vilified anti-corruption warrior and municipal manager Nico Nel.

And just in case the intoxicating effects of dragon breath wore off, there were the spoils of a looted and burnt bottle store to fortify the ferment and mete out vengeance on a populace that failed to give unambiguous power last year.

Perhaps not as violently as in Kwazulu-Natal, the slow town citizens of Swellendam have also learned that politics in South Africa has more sour grapes than a neglected De Doorns vineyard and certainly does not have the maturity to be governed at any level by a coalition.

And Julian? Perhaps he will return to meditate above the ley-lines at the Groote Kerk; or inhale deeply when next the mist drifts down from the Langeberg.

The thorns of De Doorns.

How a labour issue has been hi-jacked by a myriad of motives.

Late on Wednesday night a friend and neighbour came charging on his quad into the driveway of our remote rented farmhouse to warn us to keep the main gate locked and to stay behind bolted security gates and doors.

It was confirmation that Swellendam had become the latest town to fall victim to “labour unrest” that had swept across the Western Cape – surprisingly so, because hours earlier the government had announced that an agreement had been reached to call off the strike. By late Thursday morning it was apparent that this message had also gone unheeded in many other areas, prompting Agriculture, Forestry and Fisheries Minister Tina Joemat-Pettersson to remark that it had become largely about service delivery. Others are left wondering whether it isn’t the outcome of constant reckless opposition threats to “make the Western Cape ungovernable”.

So what may have started out as labour agitation in the traditional Western Cape hotspot of De Doorns, has gained momentum largely on the back of a myriad of motives, including political, local issues and organised labour manoeuvring. For example, increasing membership in the largely unrepresented agricultural sector will give a significant boost to Cosatu’s waning influence elsewhere.

Western Cape politicians were quick to jump onto the bandwagon with the usual emotive slogans, but none came remotely close to that of Agriculture Minister Tina Joemat-Pettersson herself in praising looters, intimidators and arsonists as heroes and guaranteeing immunity from prosecution. That has certainly set a completely new tone for future labour negotiations. Worse still, it further promotes an easy resorting to public disruption, violence and intimidation on the smallest of pretexts and on the understanding that as long as you make things bad enough, you’ll get away with it.

Swellendam has been the perfect example. Up to Wednesday night, there was no talk among local workers of imminent protests, adding some credence to Agri-SA’s view that volunteers of unemployed and seasonal workers were being bussed to targeted areas.

To show just how dangerous and exploitable this new violent brand of political expression has become, the town now appears to have been held hostage by a few local politicians. Tuesday saw the end of weeks of nothing less than political comedy, when the DA through a court ruling wrested control of the town council back from the ANC. It was going to be my article for this week, but will have to stand over to show that hell hath no fury like a politician scorned.

On the labour front, it has now become clear that if things do settle down, it will be with the undertaking to review the minimum wage in agriculture. This could set off a number of unpredictable and unintended consequences by disturbing employment where it is at its most vulnerable.

Minimum wage employment was, is and always will be a contentious issue for most societies. It is there that free-market fundamentalism and social conscience collide. It is there that the fine dividing line between employment and unemployment can be found. It is the line that for a number of people represents a last resort and a small stepping stone into a semblance of dignity and some form of income – a line between some sustenance and abject poverty and starvation.

As a reflection of social conscience, it mostly has to be enforced by government. So when the beneficiaries of the law take to the streets in spontaneous, unheralded and violent protests it can mean a few things -- the legislators have lost touch with their constituents; they have been unable to manage their expectations; they have irresponsibly inflated these expectations, or have allowed others to do so.

But ultimately the employers, in this case the farmers, have to accept some responsibility for the care and development of their employees. This is basic modern leadership practice and if they are unaware of or indifferent to grievances or do not reduce susceptibility to outside influences, then they have failed themselves, their workers and the industry itself.

Minimum wages are also the line that is vulnerable to opportunism and exploitation – both political and economic – and subject to emotive slogans such as “slave wages” or “wage slaves”. But at the same time, it is a line where employment itself is at its most vulnerable. The fact that it has to be legislated for shows that normal market forces of supply and demand cannot suffice; that the sector involved is very disparate and unstable and that central collective bargaining is difficult, perhaps even counter-productive – all factors that make employment itself insecure.

In South Africa the most exposed line can affect up to 3 million people mostly in agriculture and private households. Together, these sectors make up the biggest employers in the country, and while Agri-Western Cape has argued that nearly 80% of farmers pay their employees above the minimum wage, the sectors include a large number of what is defined as “informal labour”, people who for a number of economic reasons cannot be placed in steady 8-hours per day work with standard benefits such as structured leave, medical aid and pensions.

The agricultural sector alone constitutes nearly 5% of our GDP and employs just under 700-thousand people. Several hundred thousand more can be added in seasonal employment. The up- and down value stream in agriculture pushes the total contribution to GDP to nearly 25% and employment to about 6 million.

The consequence of labour disturbance in agriculture far overshadows that in other sectors in terms of unemployment, inflation, reduced foreign trade, socio-economic disruption, and above all, food security.

There is a poetic ring to De Doorns being the apparent catalyst of recent events. It means “The Thorns” in English – indeed an economic nettle that has to be handled with extreme care without political or economic opportunism and certainly stripped of assumptions and pre-conceptions.

I had many when I first came to this mixed farming area in the Overberg. I was appalled at the conditions in which many worked and lived and most of all by the dismal pay which for many was just above the prescribed minimum. But I soon learned that the trigger that was released at De Doorns is squeezed by many forces, of which pay is only one. Another very serious one is an abysmal lack of productivity attributable to rampant alcoholism; absenteeism and widespread abuse of the social grant system, which ironically will probably spread if minimum wages are increased and push many more above the qualifying threshold.

It’s an industry that for years has relied on sound human and caring relationships, albeit in earlier days somewhat feudal and patronising. It is still an essential ingredient for many traditional farmers, especially the small, privately owned farms. But gestures like extended family housing, regular hand-outs of produce, fetching and carrying to towns, subsidised farm stores, and interest in and help in caring for children are becoming fewer as these relationships become strained with conventional labour posturing.

Agriculture is a highly disparate industry and even employment conditions and pay criteria differ starkly from farm to farm, from product to product, from market to market, from one day to the next. Attempting to peg an important element such as the price of labour (which constitutes up to 40% of overall costs) to a guaranteed level not sustainable by all, particularly small farmers, in a highly volatile, competitive sector can permanently change the structure of the industry.

It is simply inconceivable that this change will not imply a radical reduction in employment.

In years, perhaps decades to come, will this be the legacy of De Doorns?

A crisis of perceptions.

The S.A. national census shows again how we deflect discourse from real core issues.

Don’t you sometimes wish that there was a grand illusionist out there that overnight could change the colour of us all into a single one – say green? Illusionists trick us with a sleight of hand, distracting our attention from reality by drawing it to something else.

This image came to mind with the provisional release of the 2011 census results; so did Disraeli’s famous remark “lies, damn lies and statistics.” I’m not a statistician, having dropped the subject in my first year of tertiary study. So this may disqualify me from being disdainful about their use, and perhaps even a tad hypocritical because I use them often enough in supporting my own drawing bias. What follows therefore, carries something of a disclaimer and is more of a question to those who may understand the stats differently.

But that’s the point: statistics are often suspect in their gathering, processing and extrapolation (for example, there’s a full 6% difference in the unemployment rate reflected by STAT SA’s Quarterly Labour Force Survey and the 29.8% shown by the population census by the same agency!). But the real lies get told both in their selection and then in their interpretation. Add a racial slant to that mix and we literally get blinded by colour.

The two main crisis issues reflected in the 2011 census remain unemployment and a lack of skills and training. They are clearly strongly related.

So here’s the real question: would either of these problems disappear if we removed any racial inference? I cannot see how. I do not want to understate the importance of race and of addressing the past in very many of our social problems. But attention to the race issue, including the trans-generational “legacy” argument is often little more than a tragic sleight of hand, whether deliberate or unintended, which becomes a discourse stopper. Ultimately all of the headline grabbing comment on most issues can be linked straight back to the two mentioned above. And the other issues are not the cause but rather an effect of those two.

Let’s take the statistic that shows that “white household incomes are 6 times that of black households.” That immediately led to one headline that read: “Census debunks myth about white men”, and another that read “Census reveals stark equality lies.”

But the same statistics could have been used to say: “Average income for black households has risen by 169% in the past decade, and for whites by only 88%.” Or better still: “average income of poorer households has risen more than 2 ½ times but for wealthier households by just over ¾.” (Of course, mathematically these respective increases will not necessarily eliminate the imbalance for years to come.)

There’s even further context that economist Mike Schussler brought to my attention:

“Africans have a median age of 21 while Whites have a median age of 38. 14% of White South Africans work for themselves while only 5% of Africans do so. The typical education for whites is post-matric and for African it is pre-matric (4 ½ times more whites have a post school qualification than African South Africans.)”

The 6-to-1 race income ratio creates some other odd assumptions, one by a popular political analyst who questioned white employment equity concerns because the “figures show that whites are 6 times more likely to get employment than blacks.” This logic is blatantly flawed. Employment equity is a barrier to new white job seekers and often to promotion. Sure, there may be some form of covert racial and “old boy” nepotism, particularly at the executive level, but not nearly enough to counter legal requirements for employment equity where incumbent qualifications are the same. Average white income levels are sustained by skills and experience, as well as self-employment and emigration (the white population is now 7% smaller than it was a decade ago and is just below 9% of the total population).

Just as bizarre was a conclusion from an economic think tank (whose name escapes me now) that income disparities were responsible for unemployment. That one I simply cannot fathom. Certainly unemployment is the biggest single contributor to inequality, but to argue the reverse is trying to connect too many unrelated dots. Even if it were remotely true, the implication that we could solve unemployment overnight by somehow miraculously and savagely cutting top incomes goes beyond all rational thinking. It would literally turn the economy on its head.

The whole debate around inequality is rife with misconceptions and ill-founded assumptions.

There are huge differences between wage disparities, income disparities and wealth disparities. The first is simply the difference between low and high remuneration in employment. The second is mostly measured at household levels where unemployed dependents are added. So each of the 4 ½ million unemployed people with zero incomes gets added to the lower end of the pool, massively diluting that income. And the third relates to possession of assets such as property.

In addition the data itself is skewed. The Quarterly Labour Force survey and Income and Expenditure survey are exactly that –surveys of households where the information is obtained in a “Q&A” and “tick-a-box” format. Schussler believes a lot of this information is contaminated by people not understanding the difference between gross income, net income, and take-home pay. They most likely give take-home pay which will be net of deductions for tax, pensions, medical aid, garnishing orders, etc. Ironically, at the higher income level, that particular question is more likely to be better understood, and the responses could further inflate the disparity.

And while we are about it, we might as well give Gini a fat slap on the wrist. As far as I can make out the Gini co-efficient uses the same survey material in compiling its income disparity measurement, suffering from the same contamination. Yet in supporting wage demands, Trade Union leaders use the “worst in the world” 0.67 measurement as proof of wage inequality and not broad income inequality. That’s either very misguided or mischievous.

In short excessive inequality is largely a function of unemployment which in turn in South Africa in particular, is largely a function of lack of skills and training.

Many of my columns have lamented inequality and income disparities, and I must confess that they may have been influenced to some extent by my own oversight of the fuller context. But this does not detract from the key argument that in the workplace itself, market remuneration dysfunction exists at both the executive level through dubious reward criteria, and at the lower level through collective extortion.

Both are adding to inequality by inflating pay at the top and discouraging costly and troublesome employment at the bottom. While outrageous executive pay may not have as big an impact on inequality in real terms as unemployment does, its impact on perceptions is many times worse. That alone means we cannot ignore it.

Inequality is a serious and highly dangerous social mood influencing time bomb. We owe it to each other to change perilously misinformed perceptions that lock many into poverty thinking, unrealistic expectations and facile solutions. We certainly cannot afford to inflame them. We can start by avoiding needless racial interpretations and sharing credible and understandable information in the workplace.

Perhaps it is time for us all to go green…but then there’s too much envy around as it is.

A severe budget blemish.

How unholy alliances and cosy relationships destroy Gordhan’s noblest intentions.

A severe budget blemish.

How unholy alliances and cosy relationships destroy Gordhan’s noblest intentions.

Size does not matter. Behaviour does. In a different context that statement would no doubt trigger some sniggers and a long standing adolescent debate about whether bigger is better.

But in the context of government, traditional free market wisdom has it that the opposite is true – that the smaller the government, the better it is for economic growth, prosperity and national competitiveness. It’s a criterion championed with some fanaticism, as I discovered in responses to a recent article on the encroachment of government in national economies worldwide.

This may explain Finance Minister Pravin Gordhan’s pride, as reflected in the “mini-budget”, about his ability to keep (as a percentage of GDP) government revenue and expenditure to below 30% respectively, the budget deficit at below 5% and overall public debt at below 40%. The proportions are better than for most of the developed countries (see graph in this article) and better than Brazil and Russia in the BRICS group.

The budget reflects government’s claim on resources. Not all of it. You still have to add other activities such as state owned enterprises. A claim on resources is only one part of government involvement – the other probably as, if not more important, is its regulation of economic activity through laws. Here we rank rather poorly according to the Legatum prosperity index and there’s been much criticism of what is arguably highly restrictive regulation in the South African economy.

To understand the debate at all, we have to go back to the basics of wealth creation itself. Tangible wealth is created in legitimate transaction which insists on freedom of choice, free moving prices, maximum suppliers and optimum consumer awareness. This creates a state of perfect markets, which in turn perfectly reflect all our imperfections. All of these conditions can only come together fully in a utopian state – a state that has to be driven by sound human values and not by competition alone and certainly not by short term raw material self-interest.

Rarely can government itself meet these conditions. Its job therefore, is mainly to enable the creation of wealth by others and ensuring through laws that the above conditions are nurtured. Its secondary role is to reduce social tensions, severe inequalities and imbalances through what Gordhan calls a “social wage” by redistributing wealth in such a way that it does not discourage wealth creation itself.

The graphic illustrates how fully dependent government’s financing is on wealth creating cells such as companies. There are some others, such as user-pays services, and customs and excise duties which fall under spending taxes such as VAT and rates at local level. But companies, broadly defined to include professionals and the self-employed, are the primary wealth creating cells and in turn provide the bulk of government income. Loans cannot, or should not be viewed as income. Indeed, ultimately they become a cost burden.

In support of my opening statement that size of government as measured by the budget, does not seem to matter, we need only examine state expenditures in some relatively good performing economies such as Norway, Denmark, the Netherlands and Germany which are all between 40% and 50% -- well above South Africa’s less than 30% and still poorly performing economy.

The answer can be found in many other features of the South African economy, including restrictive laws. This is well beyond the scope of this article and is also a much covered subject in most of the media including Moneyweb over a number of years.

But focusing purely on the budget, and leaving out for this article, the all-important question of whether government is spending money on the right things, such as ostentatious presidential homes and arguably an excessively burdensome social wage, one of the most critical questions the Finance Minister has to contend with is the behaviour of those charged with spending state funds.

Corruption, maladministration and inefficiencies are a severe blight on state financing. Yes, it has received much attention before and is a favourite topic for investigative journalists. But we are understating its severely debilitating role. It goes far beyond the staggering estimated loss of R385bn at every level of government since 1994. It also goes far beyond neutering all laudable intentions in the budget, the severe tarnishing of its credibility and the escalating costs of policing these. The worst is the spread and on-going cultivation of corrupt behaviour which robs all of us of a fair deal not only with government but in all social and economic relationships.

This must be strangled at birth, and not only when the perpetrators are caught in the act which happens too seldom. Here government alone cannot be blamed. We forget too easily that corrupt relationships involve two parties – one invariably in the private sector. My questioning the immediate self-interest driver in business has often solicited the accusation of being naïve. But it’s the same kind of naiveté that exposes the king with no clothes, the elephant in the room and underpinned a question that brought down the mighty Enron.

And with this naiveté I question the easy acceptance of appointments to company and corporate boards based not only on B.E.E. considerations but on who they know rather than what they know. It only comes to our attention when it reaches outrageous levels such as those exposed by Barry Sergeant recently, but there’s a germ of corruption in many of our economic activities, from the lunch invitation to massive donations to political parties. It is very easy to defend these activities and relationships when one accepts the premise that the sole purpose of business is to maximise returns for its owners.

It becomes much more difficult to defend if the question is whether it is in the interest of the customer; more difficult still if it is in the interest of enhancing competition. And it becomes virtually impossible to defend in the interest of the broad public.

Critical crossroads for labour.

What happens when both pay increases and further layoffs become impossible?

The simple and cynical answer to the question in the headline would be that the plant or operation simply closes, more people lose their jobs, and South Africa’s severe unemployment problem takes a further step into socio-economic mayhem.

But that would deny the escalating dire consequences, the presence of entrepreneurial ingenuity, a strong survival instinct on all sides, and a still critical mass of goodwill that seeks solutions rather than confrontation.

The average South African can be forgiven for having a strong sense of foreboding about recent events on the labour front. Demands have been ostensibly outrageous; strikes have again been spontaneous, violent and disruptive; and normal governing processes of centralised bargaining, conciliation, legal prescriptions and Trade Union control have simply broken down. Like climate change itself, we seem to be having more than one “strike season” a year. It’s not unfitting to assess these events as being revolutionary, especially against the political slogans of “economic freedom” and the problems of unemployment and inequality.

But the appearance of a revolution is also masking the inexorable path of an evolution: one that globally has started to challenge the Anglo-Saxon business model and in particular the supremacy of capital and the commodity expression of labour. This challenge does not necessarily threaten the need for free markets and freedom of choice. It is merely interrogating the inevitable outcome of conflict between the main stakeholders of capital, labour and state -- an inescapable result of a near exclusive focus on wealth distribution, whether in profits, wages or taxes, rather than on wealth creation itself: a focus on reward rather than contribution.

We see the same obsession at a national level. Everything is skewed towards what we can get, rather than what we have to give. Often conflicting goals such as profit maximisation, employment equity, job creation, minimum wages, labour laws, social security, housing, land reform, health care, and yes, even the irrefutable need for education can only be satisfied by meeting one fundamental condition – the creation of wealth in the first place. It is the sacred cow that we keep leading to the slaughter house to cut out prime steaks before it has had a chance to grow and multiply.

Like post-war Germany and Japan, we have to find a new labour accord and a less conflict ridden approach to real market informed wealth distribution in the workplace. It will require shedding some long and fanatically held ideological paradigms and ultimately come back to one fundamental and self-evident truth – that wealth can only be created by providing a product or service to another human being in an environment of free and fair transaction. All other considerations are subject to this condition. It is also the easiest thing to teach at any level of economic awareness, and to solicit allegiance to that common purpose.

While many are frightened by the apparent breakdown of structure in wage negotiations and collective bargaining, it can also be interpreted as an inevitable result of growing dysfunction in centralisation of power as well as dysfunctional labour markets either by manipulation at executive level, or extortion at the lower ranks. Add to that extreme lawlessness and intimidation, and collusion between government and capital, then ivory tower supply and demand theories simply become immaterial.

Much has been said and written about pay disparities in South Africa. In turn much of it relies on some dubious statistics and classical supply and demand theory which simply and dangerously scoff at the explosive role of mass envy and resentment. Unfortunately logic and scientific argument are no match for emotion and hysteria. They ignore the simple truth that perceptions create an experiential reality for a large body of people who have become deaf to this logic. We certainly need to quell the disruptive symptoms of economic imbalances, but we can’t ignore causes either.

So while the executive bonus and top earner wage freeze is little more than a gesture, and arguably a blunt, perhaps even trivial emotional tool, if it helps to reduce the national fever by a degree or two, then it has some validity as treating a symptom. In the longer term, however, we far too readily accept that there is a functional market at senior and executive level. Pay disparity is not only about pay differences, but also about perceived fairness and the validity of criteria that are used to reward different levels of employment. There are many, including shareholders and authoritative remuneration studies, which question the legitimacy of some executive earnings, irrespective of the wage gap and need for differentiated pay.

Fragmentation could be a good thing if it means a sharper focus on the wealth creation cell itself – individual sites and companies. There increased awareness, understanding and communications have become critical. It is far easier to teach people the principles of maximum wealth creation and optimum wealth distribution by making the information relevant to that particular workplace. It is also easier and more effective to strengthen this awareness through open and transparent channels of communication.

A 2^nd important positive that could flow out of the current turmoil is one that answers my initial question: what happens when both lay-offs and pay hikes become unsustainable. The answer is of course, flexible pay. And it will require entrepreneurial ingenuity, survival instinct and a critical mass of goodwill – attributes that we are being forced to adopt as the walls of labour unrest on the one side and critical unemployment levels on the other close in to crush us.

So it is not surprising that the Chamber of Mines proposed exploring profit sharing as one element of solving mine labour turmoil. We’ve been there before, of course, so it will be interesting to see what new designs it comes up with and how it will avoid the failure of these schemes so far to temper belligerent wage demands, or a recurrence of the much vaunted Kumba share option scheme which could not prevent newly created semi-millionaires from going on strike for higher wages.

The inherent problem with employee profit sharing is that wages are seen as a cost to profit so certain employees can benefit at the expense of others being laid off.

There are four absolute pre-requisites for any form of flexible pay:

· It must be simple and understandable,

· It must have a clear line of sight where employees can see the effect of actions or events on wealth creation and their pay,

· It has to be accompanied by regular and understandable information sharing.

· Pay-outs or feedback must be regular – at least quarterly if not monthly.

Conventional profit sharing schemes can seldom meet these requirements – share option schemes even less so.

But I have personally witnessed (see this article) how easy it is to teach and communicate principles of wealth creation and distribution at any level of awareness and comprehension in the workplace. We developed such a programme called “People and Wealth” at the then Western Areas Gold mine in the early 90’s. It was championed by the HR Manager at the time, Ben Coetsee, whose passion for enhancing understanding was driven by some traumatic labour violence years before.

Using illustrations, role play, replicated bank notes, and objects such as beads and beadwork, we watched in amazement how an illiterate Mozambican mine-worker could explain wealth creation and distribution at the mine, in effect bringing to life the mine’s value-added statement. I used the final product effectively in many other sites during my consulting days, and it lives on in the work being done by Fayruz Abrahams in Port Elizabeth.

Flexible pay requires a certain level of trust between the stakeholders. For that they have to be on the same page, have access to understandable information and share some common goals: features that are essential for normalising industrial relations.

I have little doubt that the current tumult is moving us in that direction.