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.

From carrot to stick.

We have passed a perilous point when threats become a dominant part of negotiation.

Ben Coetsee has passed on. He was the hero I wrote about in an article some time back who found himself in the midst of a mob of striking miners that murdered a close colleague. They crushed his colleague’s skull with home fashioned pangas and stabbed him in the chest with a length of sharpened rebar.

Ben had joined a group of officials that had gone to the arena of the West Rand mine to appease a few thousand striking workers. As they made their way to the centre of the arena, they were attacked by a group of chanting and crazed strikers. Dragging their severely wounded and dying colleague with them, they all sprinted for the car, bundled in and drove through a gauntlet of rocks, bricks and panga slashes until they were able to reach the relative safety of the mine offices.

It was not only that act that has earned Ben a reluctant accolade of heroism, but also what he told me about a year ago: “I have a fundamental belief in the good of most human beings,” he said. “Even at the time, I believed that most on all sides were sincere in trying to resolve our differences.”

Alas, not even a big, pure and generous heart can withstand physical failure that prematurely removes from our midst the precious likes of Ben. They are needed most in these troubled times. Puzzlingly so when one thinks that those were the tumultuous 80’s and incidents of that kind, of which there were many, were viewed as “growing pains” in an arena that was to fashion “labour laws amongst the most advanced in the world.”

Like many of the provisions of our revered Constitution, those aspirations were written in stone as if to ensure their unassailable truth and permanence. Yet they lie in shreds, forlorn and impossible to nurture in an atmosphere of malevolence and unbridled, undisciplined mob action.

Intolerable incongruities and hypocrisies are endured daily in the name of sanctimonious theories of freedom and rights. The right to strike automatically implies the right to extort and intimidate – removing from others an even more precious right to work. The right to protest invariably leads to the impediment of the freedom of movement of others. The right to coerce overrides a national right to expect unimpaired economic growth, job creation and enhanced prosperity.

Above all, we have reached a point where the right to industrial action often implies superseding the most fundamental right of all – the right to life itself.

The law really does become the proverbial ass when the trucking industry has to apply for an interdict to stop strikers from behaving lawlessly -- even more so when it fails dismally to hold a group to account because the blame resides with unidentifiable individuals in that group. When employees base demands on a simple calculation between the cost of a strike and the cost of their demands, all rational thinking is lost. According to an ENCA report, Kumba striking miners made a simple calculation to support their demand for a R15000 pm increase: that a strike would cost the employer more than the increase would.

Of course the logic is severely flawed, but the key and frightening issue is that wild-cat strikes, violence and intimidation are now seen as a relevant factor in bargaining itself; indeed that extortion is no longer a vice but a legitimate part of the process. It is what happens when expectations lose touch completely with reality. One can only guess the extent to which misguided and misunderstood employee share options and of course dubious executive pay levels help fuel these. If Kumba workers are examples of worker capitalists then heaven protect us from its growth.

But those are theories that belong in the endless debate about causes – a debate that fills the news and current affairs media, as well as the minds and utterances of politicians, analysts, academics and yes, even journalists like myself. The same refrain was sung after President Zuma’s meeting with stakeholders when a more assuring stance would have detailed immediate and determined steps to quell the unrest.

Causes are always valid and cannot be ignored. Indeed even the current turmoil may reflect a deeper evolution which I intend writing about soon. But what we have to deal with most urgently are symptoms, irrespective of causes. If we don’t effectively treat the symptoms, addressing the causes will escape us. Murder is murder; violence is violence; and intimidation is intimidation. We have to address those ruthlessly regardless of arguments around extenuating circumstances.

The rules of accountability have to be rigorously tightened. If recklessly driving pop stars can be found guilty of murder because they “could reasonably have foreseen the possible consequences of their actions”, then surely the same rules can apply to industrial action and its organisers. Its timing and context may have been unfortunate but the NPA’s aborted attempt to apply common purpose in the Marikana murders may merit a revisit in future circumstances.

Jurisprudence and law become irrelevant when the threat of more lawlessness impairs action against current lawlessness. It’s a tool the Mafia used to great effect. It gives substance to Edmund Burke’s state of evil triumphing “when good men stand by and do nothing”.

There’s a point at which liberty becomes a threat to itself. At that point the velvet glove has to be removed to reveal the iron fist.

No right can be absolute.

The life issues of retirement.

A happy retirement may mean reinventing oneself, says Jerry Schuitema.

I have spent some time with quite a number of retirees since joining that demographic group a few years ago. It is dangerous to generalise, and perhaps I am someone who attracts misery more than most. But what strikes me is that the prospect of achieving the inner peace and contentment that one would expect from having none of the daily stresses of a working life seems to escape many. Most of us aspire to a blissful state during our active lives, and certainly hope to achieve it in the freedom of our sunset years.

There are of course, many retirement counsellors and it is not a bad idea to approach one or two. I’m presenting my thoughts not as one of those, but from my own experience and observations.

Provision and financial security remain the key concern for most middle class former employees, small entrepreneurs, tradesmen and even some professionals. While financial planners may feel justified in using this in their sales pitches to young and middle aged adults, it is a concern that does not necessarily go away with having adequate financial plans in place.

Indeed, what is quite surprising is to find that the level of concern does not differ much between those who have retired on the bare minimum and those with much higher levels of financial security. This is only partly due to an attempt to maintain pre-retirement lifestyles and implies that these concerns are largely self-defined.

In truth, the concern is less about the state of finances, than about the loss of options to earn income to improve the current state. That concern seems to linger until financial security exceeds by a good margin one’s own perception of or calculated requirement. By nature we all foster a sub-conscious confidence that tomorrow will be better than today. It’s what kept us going in our younger days when many of us were quite prepared to live within modest means while patiently holding on to the belief that things would improve and would be better for our children.

Adjusting to the reality that today is what is going to be, and perhaps even better than tomorrow is a huge leap for most people, many of whom are not even aware that it could be the source of inner agitation. But it is an essential adjustment for a relatively relaxed retirement and “living in the moment” is the most important life skill for that adjustment.

A perhaps self-evident but often neglected condition for living in the moment is to avoid deadlines as much as possible. Deadlines are the future’s way of destroying serenity in the present. We can often avoid them by simply not postponing until the last moment what can be done today. (Have you done your tax returns yet?)

If one has the option of earning extra income then one should pursue it, but not to the excess of an acquaintance I mentioned previously, who slaved at something he hated, and then died to never really enjoy his more than adequate retirement funding.

The lingering need for exponential improvement of and control over one’s state drives many to some quite misguided ventures which more often than not they are totally unfamiliar with. A popular one seems to be a “guest house” or “coffee shop” at the coast. Swellendam, and I imagine many others on the popular Southern Cape Coast, have seen a number of inland retirees leave disillusioned and poorer after the failure of such ventures.

Coupled with the loss of active earnings, is the loss of a sense of purpose. One of my favourite quotes is that of Eleanor Roosevelt who said: “When you cease to make a contribution, you die.” For a large part of our lives we have defined ourselves by what we do, our work, and by those with whom we have associated with in a professional capacity. Retirement cuts that umbilical cord and it’s not easy to grow a new one. (Terrible analogy, I know!)

One simply has to find comfort in the fact that rarely can anyone, including great icons of the past and present, continue to make a contribution to the end of their days. One reaches a point of simply having to look back and be satisfied with whatever one has achieved. Smaller acts of contribution, like volunteering for a church bazaar, do not rank lower than those applauded by a stadium of admiring followers. The latter is more about satisfying one’s ego than achieving real self-worth. By this time, one should have reached the maturity that no longer seeks the good opinion of others.

A sense of loss seems to be quite pervasive in many of the retirees I spoke with and it is more than losing regular earnings and purpose. As one progresses into retirement one experiences the fading away of previous friends and acquaintances, especially those that were professional and work connections. The older one gets, the more difficult it is to forge new relationships. I’ve heard it said that one does not make many new friends after the age of 40 or so. That may be a personality issue, but I suspect it also has to do with being less flexible and tolerant as one gets older.

What one can’t avoid is the number of family members, friends and acquaintances who pass on, increasing one’s sense of loss and awareness of one’s own mortality. The latter can be depressing, but can also be a gift in persuading one to live in the moment; focus on what is important; reflect without melancholy; let go of anger and regrets, and shed clutter. Accumulation and ownership at this stage of one’s life is purposeless and burdensome. Empty spaces are much better filled by strengthening one’s relationships with those closest to one, and reconciling with those that may have drifted because of some or other past grievance.

If you have a life partner, an important discussion should be about having as much space between you as about doing things together. It’s perhaps an odd observation to throw in here, but I always sense a touch of underlying acrimony in many retired couples. It’s most likely caused by the sudden 24/7 togetherness which even young couples much in love will find difficult to cope with.

Travel is a favourite activity for those that can afford it. This is probably a prejudiced view from someone who travelled quite a bit in his younger days but I cannot see much value in it today. I simply got tired of the schlep of crowded airports; baggage fetching and carrying; in and out of trains, buses or taxis; standing in queues; and trying to make sense of discourteous people babbling in a foreign language.

Avid travellers will disagree with me, but I often wonder whether it is not chasing shadows, a trivial diversion, filling one’s memory bank with more snapshots that crowd out other, more important but perhaps not so pleasant things that need attention.

The older one gets, the more the journey becomes an inner one, forced upon us by increasing frailty. It’s a journey one can rehearse to avoid being overwhelmed by it when that time inexorably arrives. The key lies in an ability to detach without rancour, or to love without attachment.

Psychology doyens inform us that inner peace and contentment is as much a matter of mind as it is of circumstance. Retirement demands a new and different mind-set for us to achieve that. It’s a question of reinventing oneself.

The living issues of retirement.

The existential choices one has to make before and during retirement.

Remember when the old folk became part of the extended family: loved and respected “counsellors” who still led the prayer at supper time? Then came Dr Spock to replace parenting advice, and today we have the internet which needs only a few touches on the keyboard to tell you everything and much more than the BBC (born before computers) generation could ever tell you. So while our children have made us redundant as counsellors, they in turn are being displaced by the “Google generation”.

Today both sides of the generation groups seem to prefer “independence” for the elderly or reliance on some or other communal compound or institution. So one of the most important decisions one has to make before or early on in retirement is where to stay. Equally important is whether it is a final move or simply a bridge between an active and passive life. There are many options and they affect a number of financial and existential issues that may be in conflict.

It makes sense to hold on to one’s home for as long as possible, but most will ultimately be confronted with the need to move. Selling one’s home brings with it a sense of loss of control and conversely renting gives one a sense of being under someone else’s control. But these are perceptions more than reality. Owning a home too big for an ageing couple could be as constrictive to one’s choices as having a landlord.

I divested from fixed property partly for financial reasons, but also for mobility and other existential needs. My terminally ill wife needed frail care so I moved to a village with frail care facilities. It was a mistake for a number of reasons. Frail care is not always what it is made out to be and there is a fine line between that and hospitalisation – a line perhaps too readily crossed by frail care staff. One should seriously consider home care nursing as an option. It need not cost much more than permanent frail care, especially if covered by medical aid, and there’s considerable comfort for someone surrounded by familiar faces in familiar surroundings.

This of course, raises the perplexing issue of medical cover. My premium has increased three-fold in as many years and no doubt many retirees have experienced something similar. Even those with company subsidies have added substantially to average retirement living costs.

I don’t have an answer on dealing with matters medical. It’s a highly personal circumstance, but a common fate that most face is downgrading their cover to basic, or reverting to cheaper hospital plans. I put away a certain amount every month for “other” medical expenses. It seldom covers what I need.

Insurance by its very nature relies on the fear and insecurity of the insured. Premiums are more the price of peace of mind than to cover real events. If only we were made of sterner stuff and had the financial discipline in our younger days to establish our own “contingency funds”! And perhaps the key to some serenity lies in having that courage. Once you have done what you can afford, the rest must be placed in the hands of benevolent gods.

Regarding accommodation, I opted for an occupational rights facility as opposed to a free hold unit. Big mistake, especially if it turns out not to be your last move! It means that you get back a portion (normally 80%) of what you paid for your unit investment, not what they sell it for and you cannot rent it out, sublet or have more than the registered occupants. What they also don’t tell you is that if you move you must still pay for most of the wear and tear, damage or alterations that you have done, over and above the 20% they swallow. In four years, the levies increased by 300% to a level that could rent a reasonably sized home in a small town. Residents have no “corporate body” type say in running the village, and some of the administrators treated residents like dementia patients.

I could write a book about that experience – but I can’t make up my mind whether it should be comedy or tragedy. Retirement villages have a number of obvious benefits such as security and “lock-up-and-go”. What they cannot provide for though, is the behaviour of the residents, many of whom find it difficult to adjust from secluded suburban living to a more intimate environment and frankly become difficult and crabby Prima Donnas. A friend or neighbour today is gone tomorrow, either because of the grim reaper or some dispute which more often than not was the result of not fully understanding boundaries of courtesy in visiting or sharing communal facilities. One also need not be reminded of one’s own mortality weekly or monthly.

But there are many other options of communal living within a frail care environment. It is a personal choice that requires a lot of diligent thought and above all, a keen knowledge of oneself. In retrospect, I believe this option is best achieved by selecting a retirement village in a smaller town still within an hour or two of major medical facilities, where the units are much cheaper, frail care also modestly priced, and where people have a warmth and sense of camaraderie that you simply don’t find in the big cities.

One can also rent these units and in most cases the levies, either included in the rent or paid separately, enable access to communal benefits such as temporary frail care, meals and entertainment facilities.

It is often said that one should not move away from an environment where one has a support base of family and friends. But one can, albeit with some effort, establish that base in any area. Staying purely for family reasons is a very personal and emotional decision that very often leads to disappointment. Also that base is not as permanent as one may expect.

A popular option is moving to the coast. If you do, it will most likely not be your last move, and you should consider renting a coastal property before buying one. Living close to the sea needs a lot of house-cleaning and maintenance, and one is also invariably separated from family and friends and proper medical facilities.

It’s amazing how often people who live and work at the coast, move to an inland town or city on retirement and vice versa. The same goes for moving to a rural setting like I did. My rent here is about half of the levies I paid in the retirement village in Johannesburg. While rented farm houses are mostly extremely cheap, they are also difficult to obtain close to town. But one can easily find reasonably sized homes for between R3000 to R4000 pm in town – even cheaper in some of the less popular but still attractive towns in the area.

Plot living and achieving a measure of self-sufficiency is tough and one’s declining abilities and energy very soon result in an abandonment of pet projects. Also the mobility I sought in selling my own home has been constrained by other factors such as security and the need for house- and pet-sitters when we are away.

Interestingly, and we all know this, even paradise becomes mundane and you quickly stop noticing your idyllic surroundings. But I know with equal certainty that if I moved, I would just as quickly mourn the loss of those surroundings. The real trick is when you leave one environment then, like Vegas, what happened there should stay there.

It is equally so with retirement itself. It should never be simply about escaping one phase of one’s life. Rather it is about starting and adjusting to a new one, and leaving all the previous baggage behind.

But this is an emotional issue, exceeding by far the financial and existential issues of retirement. It will be my next subject.

Financing your retirement.

Sharing experiences on key financial questions after retirement.

We are a rapidly increasing number of people– that group for whom financial planning is no longer relevant, but where the fruits of that planning are: or should be.

Have you noticed how little advice for this group comes from that vast body of ever keen financial planners and advisors? Most of the advice assumes employment earnings, has about a three to five year gestation, or even longer – too long for the average retiree – and seldom cater for the need to draw a regular monthly income. I suspect that many Moneyweb readers are in this age group and have a combined depth of experience that may be useful to share with others.

A story that comes to mind each time I read the insights of those no doubt well intended wealth building soothsayers is the one about the wise old woman from the Cape Flats. Listening to a bunch of her men folk jabbering on about how they were going to make money she interjected in a heavy indigenous Cape accent that defies the written word: “You! You all make plans, but God has his own plans for you!”

I don’t believe in a “one-size-fits” all financial plan. In my financial reporting days I never seriously considered offers to write an investment column because I was not comfortable with the idea of giving individually relevant investment advice through mass media. Also, I had little interest in the subject and would rather take risks for a missionary ideal than for money. My approach to my retirement funding probably reflects this, but is also a fit between comfort and risk and then a resignation to living with that without letting go completely of regular oversight. This is a more important principle than constant obsessing about risk for higher returns.

Despite FSB rules, one is horrified at the number of people who still get “caught” by scams, schemes, and poor investment advice. Redress is mostly useless, costly, time consuming and stressful. I fume a bit when I see the smug comments about the victims being caught out by their own greed. These are often desperate people caught in a trap of declining income values and increasing living costs far beyond what the CPI shows. Flinging caveat emptor in their face is callous.

Even the most immodest of the wealthy cannot claim that luck played absolutely no part in their fortunes. Likewise for many others life has thrown them some curved balls, sometimes late in life, which they simply could not return. It’s always baffled me that we can admire the former and despise the latter. Prudence and modesty are no guarantees against misfortune.

Amongst my friends and acquaintances were those hammered by trust in others, the property and stock market slump, medical misfortunes, disappointing endowment policy performances and R.A.’s not matching advisors’ promises. You can probably list a lot more. Then, of course, there are those who have retired on a monthly pension and/or annuity, spent their lump sum pay out on that dream cruise, and are now facing the squeeze of eroding incomes and higher living costs.

One that gets me into a real frenzy is Gill Marcus’s absolute disdain for the plight of retirees and the economic reality that lower rates have done little to promote growth and create jobs. For the some of the general public it has enabled debt reduction, for others it has encouraged more debt.

For the elderly investor “50 basis points” translates into a 10% or so loss, and their income from this source has more than halved since June 2008. It has forced many into riskier asset classes and a faster erosion of the remaining interest earning capital. Compound interest works in reverse too. If you draw a fixed monthly income above your interest yield, the remaining capital declines exponentially.

A good way to start is to examine your current needs and the capital needed for your expected life span – already a calculation fraught with unknowns. But a gross monthly income starting at say R15 000 to last 20 years or so will need at least R2m on current average investment yields and to keep pace with official (not individual) inflation.

Of course being and staying debt free is a great comfort, unless it is amortized debt close to the end of its term. Then most of the interest has been paid anyway, and it may be better to use that money for some interest yielding instrument. That calculation is easy to make or obtained from the financial institution owed.

I have spoken to many retirees including those with inflation adjusted pensions, and the thing that strikes me most is how often their financial situation deteriorates over time despite euphoria at the time of retirement. So, perhaps after a “gap year”, you may need to explore all means of generating alternative income for as long as possible. Here too, it’s a question of balance between the existential, emotional and financial. An acquaintance of mine was so panicked by his state that he slaved miserably filling vending machines for 12 hours a day and then passed away leaving a R3m estate.

Maintaining your own bond free or largely unencumbered home is as much an existential decision as a financial one. But it represents both capital and potential income. Having, or applying a significant part of retirement capital into properties for rent is a questionable cause. I’ve had a number of tenants in my life and when they are good they are mostly so-so. When they are bad, boy are they a long term legally protected headache! It takes a special breed to be a landlord. If you are not up to it but still want exposure to property, then rather invest in a property fund, trust or company. Syndicates by and large are unfortunately highly risky.

Declining interest rates require shifting classes to make up for lower cash yields. If you have a living annuity try to keep the monthly return prudent and become active in switching the RA portfolio assets when allowed to. In most cases it can be done once a year at no cost. Whatever you do, be as informed as possible to let advisors know that they are not dealing with an ignoramus.

In my approach I divested from fixed assets completely and while I shifted significantly from cash to equity, Unit Trusts and ETF’s, I believe I have kept a fair balance between classes. ETF’s give some flexibility between income and capital preservation by being able to augment income with timely unit sales.

You could, of course, rely on someone else to achieve asset balance through investing in an asset allocation flexible fund.

The most important thing is to find a suitable mix that you can be comfortable with over a reasonable period. It is more important to avoid agitation every time something happens in one or other asset class than to try and get maximum yields from your retirement funding.

Nothing can destroy one’s retirement serenity more than concern about provision. Most retirees will ultimately be faced with a race between their longevity and the life of their capital. It’s coming to terms with that reality that is the only source of contentment, even if it means making a pact with the universe that one’s last cheque can bounce.

But there are other equally if not more important existential and emotional factors that can destroy a peaceful retirement. I’ll examine these in future articles.

Blaming the Boss.

Labour unrest is as much about relationships as it is about pay and working conditions.

When someone behaves badly one of the first questions asked is whether he or she comes from a dysfunctional family, or was abused or beaten as a child. It sparks the seemingly endless debate about nature or nurture and psychologists and criminal apologists are quick to portion a large part of the blame on parenting.

It’s an exasperating debate for living ancestors like me. You have this constant and vague threat that you are somehow accountable if your child or grandchild does something unspeakable or becomes a serial killer.

There is a link, albeit a rather obscure one, between this and the blame game around the worker conflict we have been experiencing. Blaming bosses is of course, the obvious one, and it’s a mood that will continue for a long time after the Lonmin miner’s return to work. The bosses, on the other hand will claim innocence under the veil of “market conditions”, “affordability”, “union rivalry” and many more.

What is ignored and totally understated is that employee discontent is as much about a relationship between boss and worker, as it is about pay disputes and working conditions. That relationship is one of power and while this may sound patronising and paternalistic, there is a valid link to parenting in understanding that relationship and the norms that validate it. Parenting is, after all, the first experience of power we go through.

One submits voluntarily to power on a simple condition: that one believes the person wielding it has one’s interest at heart. There are very few instances other than the workplace where one experiences power more frequently and to a greater extent. Like the parent to the offspring, the elements that legitimise that relationship are the care and development of the subordinate. Legitimacy depends on much more than an employment contract.

To unpack these criteria you simply have to ask yourself what you expect of a boss as opposed to what you expect of “the company”. Your expectations will most likely cover “having a sympathetic ear”; “understanding my circumstances”, “demonstrating care”; and “honesty”, “fairness”, “opportunities to develop”, etc. They fall into two broad categories of “care and growth”. Power is not a “soft” quality. It is never earned by being a “pal” or sanctioning mediocrity.

Another important finding is that rarely will “pay me more” feature in that relationship. It is as if it is vaguely accepted that pay is not within its ambit, and is subject to outside forces. It is only when those forces and their legitimacy are not fully transparent and understood that it becomes a trust and worker contentment issue.

These perspectives are not only my own. They were developed from an extensive research project by my brother Etsko Schuitema in the mining industry in the tumultuous 1980’s and further developed by our own consultancy. They have been known for a very long time and one of the most important perspectives discovered at the time was that trust and the legitimacy of power in the workplace were mostly forged by the relationship between the subordinate and the immediate boss.

Yet, it is this relationship that is often neglected, disrupted, interfered with and neutered. It has been a costly neglect and an important missing element in containing employee frustrations and labour unrest. Regaining legitimate power in the workplace is a huge task. Despite all the useful aids of modern organisational theory, adversarial lines are still firmly entrenched in out-dated ideological paradigms, overwhelming pay/profit obsession and vested interest power structures.

A promising opportunity lies in information sharing and employee reporting – a task that should be the remit of first line leadership. We are witnessing how volatile false expectations can be. But it is also fragile as a power base as the National Union of Mineworkers has discovered. The only legitimate information source is the company itself, but then it has to be transparent, credible, regular, understandable and developmental.

Part of the problem is a lack of leadership qualities in supervisors themselves – qualities that very seldom constitute an important criterion for appointments. The absence of empowering leadership and then holding them specifically accountable for the care and growth of subordinates is also an important oversight. Empowerment and accountability can to some extent compensate for a lack of inherent leadership talent.

More important factors that frustrate sound leadership in the workplace are external.

A power vacuum such as that experienced at Lonmin’s Marikana mine has been created by the false assumption that the care of workers is the job of the Union and the shop steward, and the supervisor’s job is to extract production and effort. You simply cannot divide power in this way. There is also no need to.

Equally dangerous is to hand the care and growth of employees over to another surrogate in the form of a “human resource department”. This again divides power in the same way as assigning them over to a shop-steward does. Contract labour likewise introduces a surrogate in the form of the contract principal and divides the power earning care and growth functions from the control or command functions. Contract labour itself tends to inhibit the longer term development of employees.

Many of my routine detractors will fume at the idea that the care and development of employees are remotely the responsibilities of business. They assume that company responsibility towards employees ends with meeting labour law prescriptions, creating acceptable working conditions and a pay cheque. This is a commodity expression of labour and one feature of the way business has been dehumanised. The understanding and structure of companies on the principle that capital is some kind of Pied Piper whose flute attracts labour and customers as it merrily prances along the path of self-enrichment simply has no place for such human frills.

Yet modern pragmatic business understands that it makes sense because conflict threatens profits, increases risk and increases the cost of capital. It’s an expedient view lacking authenticity and, as all counterfeit things are, will be exposed in the end: especially when the raw self-interest tune of the Piper rings hollow with his followers.

It is of course, a tune far better played by a Piper that is the customer. That’s a melody that creates harmony in a common purpose.

The power of poverty thinking.

Entrenched poverty is as much a state of mind as it is of wallet.

“It was the best of times; it was the worst of times...”

That has always been my most favoured line in the English language.

It came to mind again in the stark contrast between the return of the inspirational South African para-olympic team and talk about a poverty driven revolution on our doorstep. At what point, one must ask, does deprivation become a self-imposed helpless state? Even some economists familiar with empirical and scientific definitions concede that poverty is relative. This means it is largely self-defined – as much a state of mind as of circumstance.

Revolutions are mostly caused by social ferment based on a gap between individual expectations and real experiences. When the gap between expectations and reality grows too wide you have the perfect setting for violent discord and revolution.

Most analysts tend to focus on reality because it seems to be more tangible and subject to the rigours of empirical and scientific research. Expectations on the other hand are self-defined, intangible, soft, incalculable, hypothetical and arguable. Yet they have to be managed and treated with great caution, not only in the extent to which we encourage them in others, but more importantly the extent to which we harbour them ourselves at a risk to our own serenity and contentment.

Poverty as World Bank Definitions show, defies a one-size-fits all metric. Many of the other measurements that are used to define aspects of poverty, a state of deprivation or income disparities range from being non-definitive to ludicrous. The Lonmin rock-drillers have demanded a “living wage” of R12 500 basic per month. Economist Mike Schussler statistically places their current basic pay of R4 500 in the top 25% of formal wage earners. The Gini co-efficient is suspect as a reliable indicator of income disparities. The C.P.I inflation measurement is equal nonsense at an individual household level. And so there are many others that may look fine as an overall tapestry but completely lose meaning as an individual thread.

The only definition, albeit not a formula, of poverty that makes sense is that it is a state where there is an absence of adequate food, water and shelter. Even this definition can be very subjective and circumstantial. Squatter does not need to equal squalor.

Expectations are the more important and real force. And here one cannot ignore the toxic additives of promises, entitlement, comparisons, resentment, jealousy and envy.

So it was not without some frustration and pique that I listened to the dire warnings of a pending revolution by amongst many others, the very people who have helped create the expectations in the first place, and mixing in the toxic additives through their own ostentatious lifestyles. And then, to boot, by the very people who have been responsible for the biggest let down in expectations – that of central and local government service delivery.

We simply don’t appreciate enough, the nuances that make up expectations and the frustrations and self-destructive behaviour they can cause. The real problem is that they are not always rational and defendable, but are real for the person harbouring them. As Bertrand Russell would have it: There is no reality but our perception of it. Or Hamlet’s assessment that “there is nothing either good or bad, but thinking makes it so.”

With age comes a long list of broken promises and unfulfilled expectations that tempers a belief that life owes you; that you come into this world with a list of debtors. The reality is that life owes you nothing but life itself. And even this is a lease of unspecified duration rather than permanent freehold title. It is up to you and you alone to make a living in whatever circumstance.

Of course sound social values require healthy parenting and for all of us to look out for each other. Indeed many countries have a high level of social justice without detracting from individual and national aspirations and effort. But able adult self-accountability is blunted when this becomes entrenched as an inalienable right and valid expectation.

In response to the Woolworths bit of social theatre, the esteemed newspaper editor, Ferial Haffajee again draws attention to a seemingly infinite debt – that of affirmative action, B.E.E., and B.B.B.E.E. While we have to achieve racial equity and eliminate racial bias in the workplace, her concept of “trans-generational privilege” applicable to a whole group is a new concept to me in my understanding of how life works. But more precarious is the implied existence of “trans-generational unprivileged, underprivileged, disadvantaged or victims”, who now have special rights because of race and can legitimately have expectations for special treatment above others. By default, the solution to workplace inequity will be swapping incumbents rather than creating new jobs.

Reading her litany of personal deprivation it struck me that post war teens and young adults, including most of all colours in South Africa, experienced much worse. Yet that generation of “baby boomers” was able to convert an age of extreme deprivation into an age of innovation, abundance and unprecedented prosperity. Within less than one generation the vanquished of the 2^nd World War, Germany and Japan, surpassed the victors in economic health and strength. In less than 20 years, Korea and many other Asian countries changed from largely pastoral societies to highly industrialised. Something similar is happening in China today.

What distinguished them was putting education on steroids and having a very low level of expectations. They expected little but aspired to much. Juxtapose that against the decline of some European countries today and you will find the opposite – a decline in aspirations and a rise in expectations that have lost touch with reality

Reflecting on those times the thing that strikes me most is that we never considered ourselves “poor”. Perhaps that was because there were many that were poorer than we were. It could also be that we had rather limited exposure to real wealth because at the time it was seldom flaunted, seldom ostentatious, and seldom elitist. It simply was not all that important to us. Our earlier role models of teachers, doctors, police, priests, company managers, sports-heroes, government officials and even politicians all appeared to be of modest means. That, at least, was my experience of it.

Like my children, grandchildren and I suspect some readers, Ms Haffajee will no doubt roll her eyes to the ceiling at my “when-I-was-young” nostalgic dip into a prudent and modest past. This is not a competition for most deprived and it certainly is not to deny my liability, culpability and status as a “social debtor”. It is an expression of concern about cementing for generations to come indebtedness on the one hand and an expectation on the other – one group that is always made to feel that it owes, and another that believes that it is owed in perpetuity.

It is one symptom, and a very important one, of the tragic swing of the debate in South Africa away from responsibilities to rights, and to a near exclusive focus on distribution and re-distribution away from wealth creation itself: sharing the pie differently before it is baked. It is the same self-destructive affliction in many companies where there is a near exclusive focus on profit or pay: the curse of morphed capitalism. In turn this behaviour has exacerbated the entitlement mood.

Clearly a country will struggle to grow and create prosperity if one group sees its main opportunity as simply being able to redeem a debt from another. A lingering sense of indebtedness is divisive and will extend on-going resentment on both sides while adding to racial tension.

South Africa has an explosive gap between expectations and reality. It is a national psyche or state of mind that locks many into dependence, poverty thinking and helpless inertia. It is a climate where regular empty promises and revolutionary rhetoric could become a suicidal self-fulfilling prophecy.

We certainly need inspirational leadership. But perhaps we need a Cesar Millan type “country-whisperer” or national psychotherapist more.

A leap of faith for industrial peace.

Getting past traditional paradigms and belligerent confrontation in labour relations has become critical.

Unions don’t play nicely. The history of the labour movement over the last century or more is tainted with blood, violence, intimidation and coercion. Our own experience in the 80’s when new unions were being formed was no different and we did not need a Marikana tragedy to remind us of how ugly the conflict between labour and capital can become when it is framed in highly charged traditional, emotive and largely ideological paradigms.

Whatever the past justifications were for this violent and highly disruptive confrontation, and there were plenty, we simply have to get past it now. Our third lowest World Competitiveness report ranking in industrial relations is a lot more than just another shameful statistic. It is the real elephant in the room to which the critical problems of unemployment, poverty and inequality can be validly and more directly linked, perhaps even sourced. An economic “CODESA” has much merit, but it will find a massive stumbling block in the way our labour relations have developed over the last few decades. Dismantling this cumbersome and antagonistic system will require a huge leap of faith equal to CODESA. It needs to go back to the basics and question all the holy cows such as labour rights, collective bargaining, profit maximisation and shareholder supremacy.

Many of the issues involved are beyond the scope of this article, so I’ll touch on only a few and with some recognition of their quixotic nature. One that has been mooted is to encourage the growth of competitive Unions – of having a number of labour benefit tuck-shops in the workplace as it were. In the present climate it will simply see a repeat of the 1980’s, encourage mob rule and intensify the underlying tensions that led to Marikana. In theory it does have merit such as exposing flaws in collective bargaining, fragmenting centralised union power and allowing greater flexibility in differentiated pay for various employee tiers. This has already happened to some degree. But if unions and marginalised groups start vying for the same broad based support it will simply fuel already explosive expectations and exacerbate an ideologically charged environment.

Free market utopian theory has always been tempered by social values and needs. But it is useful occasionally to challenge the extent to which these may have become murky, counter-productive, and to expose some flaws in current assumptions. One is that the true value of labour is determined by the supply and demand for skills and qualifications itself, or worse still, by the bargaining power of a collective. This is not strictly true. The value of any product, service or effort is determined by the end user or buyer in free and fair legitimate transaction. In a company’s case, the true value of the combined efforts of both labour and capital can only be established when that product or service has been sold to an outside customer.

What this says is that irrespective of how much can be extorted from bosses or remuneration committees, or what certificates of competence may be presented to support a certain pay level, the real sustainable value is determined by a completely neutral outside force that finds those efforts useful and meaningful.

The firmer the link between real and established value-added or wealth creation, and rewards in the form of remuneration and profit, the more valid and sustainable they become. In a healthy competitive environment there are clear limits to which one can reverse this process – in other words predetermine and insist on certain rewards and then extort these demands from an outside customer. We have clearly passed those limits in South Africa and the price we are now paying is growing unemployment, a decline in competitiveness both in exports and against imports and ultimately higher inflation.

There really is only one way to restore this link – and it implies the outrageous suggestion of breaking away from rigid centralised, collective and horizontal wage bargaining across sectors, industries, and occupations, to site and company specific bargaining. This may mean that people in a small clothing factory in Natal could be paid less than those say in a large manufacturer in Gauteng. Or that a seamstress at company X could be paid less than a seamstress in company Y.

There have been some mild and very tentative steps along these lines, but its full expression will always be severely hampered until another equally, if not more outrageous concept is introduced – flexible pay in the form of fortune sharing. A transparent, understood and well communicated flexible pay system – initially only a small proportion of pay need be put at risk – will enhance perceptions of fairness while promoting understanding and company involvement. It will encourage greater responsiveness to customer needs and enhance workplace meaning in a spirit of “people serving people”, which is the essence of all transactions after all.

Where collective bargaining/consulting will be useful is in creating with market guidance benchmarks for optimum wealth distribution between labour, capital and state – the three contributors to the creation of wealth. The labour share will still be subject to the disciplines of differentiated pay according to competencies and experience, but these can be determined not in absolute amounts but rather in acceptable Gini type multiples between lowest skilled and highest.

Of course it could be argued with some merit that smaller and less profitable companies may find it difficult to attract top skills. But that is also true for the current model. In addition nothing should stop a company from transparently and through negotiation, adjusting the differentials as needed, while many skilled people could be attracted to smaller companies that give them greater involvement and a chance to improve their rewards through greater efforts, which is implied in fortune sharing.

Shareholder concessions are also implicit in greater flexibility. There has to be a move away from unbridled maximisation of profit to meeting defined legitimate profit expectations based on and regularly adjusted to the specific capital structure of that company. There are ways these can be benchmarked, one being through EVA. Once the shareholder’s cut of value added or wealth creation has been agreed upon, then shareholder fortunes also become linked to wealth creation – a move which most likely will see greater benefits and certainly greater sustainability.

What we have lost in labour relations is the understanding that trade Unions cannot provide for the care and growth of employees. Only management can. They too are ultimately constrained by customer tolerance, or enabled by customer approval.