Commercial xenophobia.

I have always been something of a Frederic Bastiat fan. The simple and satirical treatment of economic issues by this mid-19^th century economist is still relevant and valuable reading for a broad audience, including the barely economic literate.

My favourite is his sketch on the “train that never went”. For those unfamiliar with the story, Bastiat was scoffing at the concept of government creating artificial “growth points” (A bit like our previous decentralisation efforts.) In this case, the idea was to have trains stop at new stations in the French countryside. Passengers would get off and promote trade at the new station. So if a train went from A to B, a new station at C mid-way would create a new economic hub. But then he argued, why not divide the distances again, to have trains stop at D and E …and again…and again. Why not, he asked, have one long stop and have growth points all along the way.

His parable of the broken window is another classic. Here he relates the story of a shopkeeper whose son broke a window pane. In his defence, the son argued that there was a silver lining in the broken pane because it meant more work for the glazier which promoted job creation. This story reminds me of the time that workers at a West-rand mine trashed the surface because they had heard that some of the cleaners were going to be retrenched. Routinely trashing the surface would secure the cleaners’ jobs. Bastiat used his parable to explain his theory on the “seen and unseen” in economics, or the theory of unintended consequences.

Bastiat sees little difference between the window breaker’s logic and calls for government protection of certain industries. To illustrate this he wrote another classic, a petition to the French government from the “Manufacturers of Candles, Tapers, Lanterns, sticks, Street Lamps, Snuffers, and Extinguishers, and from Producers of Tallow, Oil, Resin, Alcohol, and Generally of Everything Connected with Lighting”. They wanted the government to block out the sun because it worked under conditions far superior to their own in the production of light and was flooding the domestic market at an incredibly low price. It was blatantly unfair competition, they argued.

In similar vein, he wrote his engaging cameos around Robinson Crusoe and Friday, with Crusoe representing pro-intervention sophistication, and Friday always challenging him with simple logic. In one of the sketches, the pair had worked out that their island was suitable for both hunting and planting, which needed 12 hours of toil a day to ensure sufficient food. One day, a canoe arrived from a foreign island which had plenty of game but no agriculture. The foreigner offered to supply them with all the game they needed in exchange for two baskets of vegetables a day. This meant they would have to spend an additional three hours a day on agriculture, but they no longer needed to hunt for six hours a day – saving three hours of toil a day.

The punch line of the story was that Friday loved the idea, but Crusoe opposed it. If you read the parable at this link, you will be bemused at how familiar Crusoe’s arguments sound today in trade protection circles. In the end, Crusoe insisted on certain guarantees which had the foreigner in uncontrollable mirth as he paddled back to his island. Echoes of Walmart!

Bastiat sums up his opposition to trade protectionism in the following quote: “The sort of dependence that results from exchange, i.e., from commercial transactions, is a reciprocal dependence. We cannot be dependent upon a foreigner without his being dependent on us. Now, this is what constitutes the very essence of society. To sever natural interrelations is not to make oneself independent, but to isolate oneself completely.”

His dock-working countrymen would have done well to heed this advice when, some years ago, they delayed the off-loading in Marseille of foreign fruit long enough to ensure that it was spoilt. This was done to protect French fruit growers against competitive imports.

This is just one illustration of the many degrees of commercial xenophobia that hinders free international trade. These include appeals to patriotism in “buy local” campaigns, exchange rate manipulations, subsidised local production, trade tariffs and of course outright import controls. Using the national flag as an appeal to consumer loyalty may seem harmless enough, but the latest “New Growth Path Local Procurement Accord” has an arm twisting element which could lead to consumers paying some costs towards the 75% local content target.

Of course, Bastiat has many detractors and his theories have to be tempered by the realities of today when laissez faire ideals have all but been abandoned; destroyed by some of its own champions who promoted greed, unbridled self-interest, speculation, immediate self-gratification and profit maximisation as the engine which drove it. We also have the realities of a tit-for-tat foreign trade environment that simply cannot find even-handedness in the Doha rounds of world trade talks.

There’s nothing wrong with informed and level headed consumers basing their buying decisions on more than price and quality. Indeed, South African consumers are arguably a tad too apathetic in using their purchasing power even on those criteria, let alone other social issues such as the environment. We just have to be careful that being caught up in the fervour of “local-is-lekker”, we don’t protect and encourage inefficiencies and lack of competitiveness. The point is that we should be focused more on the needs of customers and consumers, including foreigners, and less on the needs of suppliers, including workers and shareholders.

Domestic trade alone can never sustain us in the long run. Successful economies have always been built on having a world view and being internationally competitive. We should stop seeing the market as a resource to be exploited but rather as a means to be of service to others.

It may be better for us to have a “sell South African” campaign, than a “Buy South African” effort.

Prisoners of freedom.

There’s something tragically and dangerously seductive in the latest “strugglers” war cry for “economic freedom”. Despite its magnetism, those who promote or slavishly follow it should understand its context and meaning to the same extent as someone has to understand the dangers of experimenting with heroin.

For one thing freedom itself is never an absolute state. We learn this very quickly when we progress from adolescence, that giddy time when we rebelled against all forms of authority, to adulthood when we discovered that freedom comes with the restraints of responsibility and accountability. 18^th century French philosopher Jean-Jacques Rousseau may not have been the first to write about the conditional nature of freedom, but he certainly expressed it the most memorably in his aphorism: “man is born free and everywhere he is in chains”. These same chains, and many more, are being rediscovered by many South Africans after the euphoria of the first democratic elections.

And unwilling to accept that perhaps these chains are largely in the nature of a Social Contract or our own Constitution, they are now being defined as “economic chains”, to be removed even if it means tearing up the contract.

Economic disparities and poverty are a real problem – one that is compounded severely by perceptions that drive the debate and the absence of universally accepted scientific definitions. There is supreme irony in comparing the seemingly well fed and clothed jogging poverty protestors, to the destitute groups seeking solace in aid camps in Somalia. We seem to prefer wallowing in envy rather than gratitude. Justified or not, these comparisons are the carriers of the deadly virus of unrealistic expectations. In the increasing absence of the means to fulfil legitimate aspirations, comparisons and expectations have become a flaming torch that could set fire to the constitution, the burning of which will without question enslave us and the arsonists beyond our worst nightmare.

But what is very, very sad about the youth march for “economic freedom”, is the expressed understanding that it means “having what the rich have”, or more specifically, ownership of minerals and land. This statement alone reveals volumes about their perspectives. Freedom is seen to be synonymous with owning, rather than doing. Freedom is having designer clothes rather than an opportunity to do something meaningful with one’s life.

Informed by our own life time of experience and the lessons of our forefathers, we as the “retiring” generation are then tempted to shake the youth out of this outlook…one that we ourselves encouraged; that has led to pressure on resources, environmental destruction, wealth disparities, waste, impatience, market volatility and unsustainable consumption and acquisition – all for little, if any, increase in human contentment.

We should impress on them that seldom does one find freedom in wealth and possessions. For in the pursuit of them one either becomes a wage slave, or defined and controlled by what one owns. Many simply get trapped in the have-more-want-more hedonic treadmill.

They should know that the true value of a human being does not lie in what they own, but in their capacity to make a contribution to others; that if they define themselves by their possessions, they are indeed very shallow, and their legacy will go with them to the grave. True empowerment is a state of being, not a state of wallet.

They should be taught that a decent job is not about its pay and benefits, but rather that which gives a sense of meaning in being able to make a contribution to another. They should be reminded that Nelson Mandela found meaning in imprisonment simply by having a purpose greater than his own needs, and that a doyen of psychology, Viktor Frankl, wrote one of mankind’s greatest psychology texts out of his experiences in a Nazi concentration camp.

They should be inspired by the heroes of the past and present, in business, politics, and all fields in society who made invaluable contributions to mankind not because of any financial reward but because of their desire to make a difference, passion for their work, their knowledge and experience. Material rewards on their own have seldom driven the human spirit to do great things. They also seldom provide lasting peace and contentment.

It would be good for the marchers to know that they will never be the best they can be by focussing exclusively on what they can get out of a situation. Being prepared to go beyond what they know they can get, is the essence of risk, entrepreneurship and adding value to society and ultimately for themselves. It is far better to create a job than to look for one. If they toyi-toyi to Pretoria in the belief that they will get a hand-out of South Africa’s wealth, then they are stifling their own capacity to do something meaningful with their lives in service to others. They change the march from being majestic to shameful.

But I suspect I am being a bit unfair to some of those marchers. I suspect that some of them do not share the definition of “economic freedom” as being about hand outs from the rich to the poor. More likely, they were there to show their disenchantment at not being able to find meaningful work; at having their aspirations smothered by the circumstances of our time. To them, clichéd advice that economic freedom comes from hard work must sound awfully patronising.

While I salute and have empathy with those so frustrated, my only response to that is that the cause of death of aspirations is invariably suicide rather than murder. Aspirations, which are simply a willingness to do something meaningful with one’s life, to add value to others and being prepared to hold oneself accountable for one’s own destiny, can be nurtured to find expression in many forms.

Marches, protests, and other forms of dissent may break a chain or two, but the real prison is the one we construct for ourselves. The walls and the bars are made up of expectations, attachments, greed, envy and raw material self-interest. If freedom means being able to give expression to these, then we become prisoners of our own freedom.

Blaming yesterday, today and tomorrow.

There is a modest Brunfelsia pauciflora ‘Eximia’ a few meters away from my lounge window. For the botanically disadvantaged, it is a “yesterday, today and tomorrow” and its fragrance often drifts through the open windows on the gentle caress of a light North Westerly breeze during these nights that are hesitantly heralding summer.

Some say the brush got its name from its flowers which at any moment reflect all three dimensions of time. I see it more romantically: its fragrance depicting nostalgia, joy and promise. But that romance disappears fast in the context of our South African life, which seems so irrevocably stuck in the legacy of the past, the world woes of the present, and some “Nostradamic” spectre of the future. That rhetoric is wearing extremely thin. It is trapping us in inertia and a cumbersome debate with little prospect of productive outcomes.

There were elements of it again in Pravin Gordhan’s latest medium-term budget. But to give the finance minister his due, there was also significant recognition of the extent to which we have only ourselves to blame for the economic troubles we face.

True, we have acclaimed with some justification our ability to avoid the full effects of the post 2007 financial meltdown, largely because of our banking and fiscal prudence.

There was also a mild boast on Gordhan’s part of the 3.5% growth we were able to achieve while many of the developed countries were struggling with job shedding rates of less than 2%. Of course, they mostly still have unemployment rates below 10% while our 30% is in a totally different category of anxiety. The real point though is that we should be comparing ourselves with other emerging economies where many, including our BRICS partners have been able to record growth rates of 7% to 10%. That discount falls squarely on our own shoulders and accountability must be fully divorced from the “goggas” of yesterday, today and tomorrow.

The most pressing is, and always has been, education, skills and experience. We do not need a better example of the severely debilitating effect of a lack of skills than our inability to spend productively and effectively, the money that has already been thrown at projects. A lot of it (25% by municipalities and 16% by provinces) simply gets thrown back – after a bit of skimming to line the pockets of cronies and tenderpreneurs. This puts a huge question mark not only on proposed fiscal measures to improve this performance, but on the ultimate value of the shift to spending on infra-structure.

But for all of that and at the very least, this shift is perhaps the most encouraging aspect of the “mini” budget. At last we are challenging labour’s voodoo economics that jobs must be created through wage driven growth and consumption expenditure. The penny seems to have dropped with a distinct clang that we need to shift priorities from welfare to jobs, from hand-outs to hands-on.

The pay-now-earn-later fallacy has been at least in part, the cause of a burgeoning and bloated civil service which now absorbs some 40% of government expenditure, where the average pay is between 40% and 50% higher than peers in the private sector and where the track record on service delivery, productivity and old fashioned customer care has been nothing short of appalling. I have always been totally mystified by this strange feature in our economy, where people in non-competitive and relatively secure jobs can be paid so much more than their peers in a much riskier and harsher environment.

Good luck to Pravin Gordhan and his intention to cap government pay hikes to 5% and reducing the payroll share of his budget. He has already been put on notice by Cosatu’s Zwelinzima Vavi, who questioned this approach against the light of “that fellow who last year walked away with some R600-million rand in pay, bonuses and share options.” Now, I wonder who that could be? Throwing pay disparity into this mix is not only disingenuous, but mischievous. It would have been far better if Vavi offered some further solutions on making our labour force more globally competitive.

My previous writings all attest to an aversion to debt, whether on a personal, company or government level. But few of us can build a home without a bond. There’s a distinct difference between borrowing money to acquire or build things that will last for many years, and maxing out on a credit card or using bond finance for daily and routine expenses. I for one, will not have much of a problem with saddling my children and grandchildren with repaying a debt the fruits of which will still be enjoyed by them and their offspring for generations to come.

So far from quivering at the thought of a 40% public debt to GDP, I would rather question the validity of that measurement itself. It really is a formula that mixes apples and pears. Public debt is owed by the government and accumulated over a long period. I fail to see the relevance in comparing it with GDP which is a one year measurement for the country as a whole and which can change from one year to the next . But then the fallacy becomes absurdity when it is benchmarked with other countries, where the underlying criteria could be totally different – such as the size of the government to GDP; the composition of the debt, its maturity, the lenders and terms. A simple example is the continued investor faith in a Tsunami ravaged Japan which for a number of years has had a public debt to GDP ratio of nearly 200% without them getting their kimonos in a knot. But when Greece approaches 100%, they break plates in more than dining rooms.

Far more relevant, I would have thought, is the cost of servicing that debt as a proportion of the overall budget. It is the same criterion that banks use in determining your bond entitlement – the size of the instalment in relation to your income. It used to be a maximum of 25%. Although we cannot compare this directly with the government budget, we could argue that debt servicing costs of some 15% of the total budget is reasonable. Expressed in money terms of roughly R150bn, it may seem like an unbearable burden, but the money borrowed has to be given a future value in terms of inflation, and must be seen against the economic benefits of the infra-structure established, and additional tax revenues through growth stimulus.

We are a young and growing country. It makes sense for us to have a relatively high debt to develop roads, bridges, railways and other infra-structure. Certainly a lot more sense than developed nations running up debt to bail out banks! This is a point that seems to have totally escaped that fellow in parliament with an Italian accent that lamented our road to the Parthenon. “Rubbish!” was Gordhan’s justified response.

But before we place our offspring in the hock for trillions, we do need an assurance from the Finance Minister on one of the most important issues of our time. It is the issue of accountability. The spenders have to be held fully accountable for the results.

There’s that famous Chinese adage that says: “Give a man a fish and you have fed him for a day. Teach him how to fish and you have fed him for life.” But there is a crucial element missing in this proverb. It is willingness. I may give someone the means and ability to catch fish, but without a willingness to do so, that someone will still prefer a hand-out of fish. The only way to ensure willingness is to hold him or her accountable for catching the fish. The culture of accountability has to be nurtured across all levels of our society, particularly staff in the public and private sectors.

Full empowerment happens only when we accept full accountability for our actions. No number of permutations of “B’s” and “E’s” can ensure that.

And again, our empowerment can only be ultimately measured by the extent to which we have made a meaningful difference to the lives of others.

OWS without wows.

When you see a dog chasing a bus, the imp in you prompts a thought about what the dog would do if it caught the bus: would it become a passenger, or the driver, or even claim ownership of the bus? I had a similar thought in following the latest protests of “Occupy Wall Street” or “Occupy Whatever” in different parts of the world. What indeed would this motley group do if they had to deal with the fruits of their “occupation”?

As someone who has written a fair amount in “The Human Touch” on Moneyweb and before, on the subject of inequalities and disparities in the modern global economy, I could have been basking in some state of “I told you so”. But that would have been inexcusably presumptuous. For one thing, as a journalist and ex-news reporter one is more often than not guided by the writings and views of economic gurus and experts than by one’s own insights. For another it has been such a glaring issue for some time that predicting growing public dissent and protests would merely have been stating the obvious.

For all of that, I like many it seems, am relatively unmoved by these public expressions of outrage. The activists themselves appear to be blaming the main stream media, including public broadcasters, for not giving much attention to their cause. Perhaps they have missed a point about these institutions. They have always been guided more by form and technique (what and how) than by content (why). Unless the rallies attract hundreds of thousands and are led by an iconic figure such as Martin Luther King, they seldom attract the news cameras. Of course, if they turn violent like in Rome this past week, then they will make the news headlines.

There could be many other reasons why this particular “movement” is so far failing to generate much of a “wow” factor, especially in South Africa It is being tainted again with hackneyed ideological cold war rhetoric – for the most part taking a broad swipe at a system rather than behaviour and broken parts in that system. It smacks a bit of hypocrisy against the background of severe deprivation for many over a number of decades. For example, a global protest against the starvation of masses in Somalia would have been more authentic than marches against greed in the relatively affluent streets of New York. It is also easy to discount these grievances as being little more than envy on the part of those who have not caught the bus. Are they protesting against the injustice of wealth disparity, or simply saying “I also want what you have”? Is it a case of a little greed challenging big greed?

An important postulate of capitalism has always been that success breeds success; that the wealthy represent “a dream” that can be embraced by anyone in a free society and inspire them to greater things. In addition, it has been argued, wealth is never generated in a vacuum and by its very nature encourages wealth creation and productive pursuits around it.

The failure of this tenet in the last few decades and growth without jobs in many countries, has changed the perfectly normal human habit of comparison from aspiration to expectation and into a social time bomb.

And when success is perceived to be largely the outcome of cronyism, greed and corruption, or the spinning of some Lottery-like numbers in executive board rooms, then comparison breeds anger and social discord.

It would be a mistake to see the 99% whimper as insignificant. Taking a step back then other, more dramatic events such as the MENA rebellions, the London riots and Greek protests against austerity measures all have to be seen in the same context. One could argue that service delivery protests and labour strikes in South Africa also have a strong disparity element.

Wealth inequality has always been a fundamental issue in economics ever since it was raised by Adam Smith when he wrote: "No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable". Today the voices of concern have widened across a very broad spectrum to include the likes of Warren Buffett. Recently, economist Nouriel Roubini put it more ominously: “Any economic model that does not properly address inequality will eventually face a crisis of legitimacy”.

The OWS protests are clearly a challenge to this legitimacy. It remains to be seen whether they will gain sufficient momentum to make a difference and strongly influence an outcome. For now they are a feature of the vexing question ever present in economic modelling: the balance between the principles of liberty and equality.

This balance can never be achieved unless it is informed by an even higher principle: that of justice.

The triumph of loss.

“Aren’t you afraid?” I wanted to know from my 78 year old cousin, Nel.

“I was until a few days ago. Now, no longer,” she replied calmly and serenely.

And for the third time in my life I experienced that mystical and puzzling state of detachment that people often have when they are confronted with their imminent mortality. Detachment is not the right word. It implies an indifference and aloofness which simply does not fit. You get to see that more clearly when you hold the hand of a dying loved one to comfort them and discover that you are not the comforter, but the comforted. They seem to lose all self-concern, replacing it with an empathy and warmth towards all others. In their presence you feel diminutive, inadequate and puerile. It is undoubtedly the highest state of being human, endowing many of those who go through it with a form of majesty, dignity, total serenity and a complete loss of fear and agitation.

One can only marvel at this strange trick of life – that its ultimate lesson is taught in dying. It’s a lesson extremely difficult to learn in the routine of our daily lives. We only get a glimpse of it in the presence of death and then mostly only when it is of someone close to us or our own.

Nel crossed a threshold when chronic emphysema caused her to pass out and she had to be revived with induced oxygen. The prognosis was that she had only days left and had to be admitted to the local frail-care where she now holds on, albeit stabilised to give some hope that perhaps the days will be months, if not a few years. Her mobility is restricted to a length of plastic pipe providing oxygen from a rather noisy compressor in her room. Yet for the most part she remains tranquil – something she seldom experienced in her more active state. A somewhat reclusive spinster, Nel was fierily independent, taciturnly courteous, always of modest means, prudent to the point of being tight-fisted, and highly protective of her belongings. Mall-meandering was her favourite past time, but more for looking than buying. She harboured many fears and insecurities, mostly sparked by her interest in topical events and by things completely out of her control. Her personal transformation, despite remaining firmly agnostic, has been nothing short of miraculous.

Perhaps Steve Jobs said it best in confronting his death: “almost everything -- all external expectations, all pride, all fear of embarrassment or failure -- these things just fall away in the face of death, leaving only what is truly important.” Never known for charitable pursuits or warmth towards others, even towards his own family, his last desire was that his children should get to know him.

Detachment is not a new concept to mystics or even the thousands of new age inspirational gurus. It is expressed most powerfully in the phrase “death before dying” which has a Sufi origin. Sufi master and director of the Academy of Self Knowledge, Aliya Haeri, would ask her workshop participants to write down and rank ten things that described who they were. They could range from “father”, and “journalist” to, as one wit insisted as his most significant feature: “dog-owner”. She would then ask them to savour each one and examine them in combination to determine whether their lives were in balance.

But that was not the real punch line. This came when she instructed them to start at the bottom and lament the loss of that particular title or label. For example, you lose the label “husband” or “wife” if your spouse dies. Some titles may seem difficult to lose, like “doctor” if you have a degree in medicine. But the description has little practical significance if you no longer practise. When you come to removing the last one you are left with who you really are: a chunk of marble undefined by others, labels and titles.

With that comes the realisation that the only permanent things that we can hold on to and that should really define us are principles and values, such as integrity, courage, compassion, and honesty.

We build our lives around three interrelated areas of attachment: emotions, people and possessions.

Detachment from emotions, habits and beliefs is where the real character sculpting happens. It includes letting go of preconceptions, anger, resentment, jealousy, guilt and remorse. Even some of the more positive such as trust, love, pet “projects” and pleasure come with their own health warning. Of course it is impossible to detach completely from emotions. We are human and emotions are an essential attribute of our humanity. Only a course in psychopathy will discourage emotions such as remorse or guilt, or even anger and a fleeting moment of resentment. It is the extent to which we are defined by them, when they eat away at us, guide our behaviour and become overwhelming that we have to detach. It is then that referral to a higher order of the values mentioned above becomes imperative. I do not say this lightly. I was defrauded by someone very close to me, and fully appreciate the great difficulty in letting go of anger and resentment. But I have also come to fully appreciate the destructiveness of holding on to those emotions.

Despite my own measure of reclusiveness, I have always had extreme difficulty in practising detachment from people. I must confess that these attachments have repeatedly caused me considerable pain. Loyalty and trust come easily to me and the price has been high – certainly high enough to discourage others from doing the same. But then, complete detachment from people can only be the preserve of psychopaths or the severely anti-social. Perhaps the dying possess the ultimate key – empathy for others that is totally unconditional and unselfish. Or is it in the Buddhist tenet that we should love all people equally? The golden rule is the same as for attachment to emotions – it should not define who we are. Abraham Maslow has argued that one of the attributes of our highest level of maturity is when we are independent of “the good opinion of others.”

Detachment from possessions and things should be the easiest. After all, it is such an obvious state of impermanence. Attachment to them is also the most dangerous, invidious and self-destructive. Yet, we have allowed it to define not only ourselves as individuals but a whole species. We have built social structures and systems around it; made it the cause of all conflict, allowed it to drive all of our aspirations, priorities and relationships and even threaten the very planet we live on. We are not only the biggest hoarding species, but also the most destructive and wasteful.

We have switched from meaning to means. The last 5 decades have seen possessions, acquisition and consumption drive our social order to near self-destruction and to a point which we facilely call a “bubble burst”, causing widespread panic and distress. Ironically, a systematic detachment from possessions may be the only way of preserving a semblance of tranquillity and hope as things threaten to fall apart around us.

There’s nothing wrong in owning things. To be owned and defined by them is perverse.

Don’t tax it: fix it! Executive pay in a bubble.

You meddle with price at your peril.

This is a wisdom that we have learned from centuries of economic experience. Price is a critical factor in moving resources to where they are most needed. It is an inexorable natural law which not only balances supply and demand but also reflects fundamental imbalances between them. Economic history is full of examples where price meddling did not correct imbalances, but indeed exacerbated them to the point of crises. You do not fiddle with the thermometer if you do not like the reading.

It is not surprising then that when debating what is one of the most critical issues of our time – pay disparities – the market purists predict all kinds of dire consequences if executive pay is tampered with through interventions such as a wealth tax. But what if the price mechanism itself is broken?

I have consistently argued that the labour “market” is one of the most dysfunctional of all. There are just too many glib assumptions, interferences, impediments and even emotional factors that frustrate conventional market scrutiny at all levels, particularly at the lowest skilled and at the “executive” level.

The pay disparity debate is rife with incongruities that have to be clarified first before it can become remotely coherent. There are so many on both sides that I can only deal with some and then briefly. I have also previously dealt with others in this column.

For starters, the “real gap” has to be better defined. As important a social issue as it is, the pay gap hysteria is based on some shaky assumptions. Gross income comparisons are used and that gap will be considerably reduced by different personal tax rates at the opposite ends of the scale. The much vaunted Gini wealth gap “shame” organised labour loves to bleat about, suffers from the same inaptness – plus some others that space and complexity discourage me from dealing with here.

Cosatu goes a giant leap further into absurdity by presenting the Gini indicator as proof that South African workers are underpaid. Our nearest comparable Gini neighbour Brazil has a maximum tax rate of only 27.5% compared with our 40%, --

implying a much higher “after tax” gap between rich and poor than in South Africa.

The biggest shortcoming in the “market-driven-pay” argument is that it lacks sound empirical research. To be sure, there are vast volumes of research and statistics on pay levels themselves, their impact and how they have been constituted, but little on benchmark drivers. For example, the Association of British Assurers questions “peer level” benchmarking as being valid at all.

Comprehensive data on poaching, resignations because of better pay offers, etc. is sparse. Also nothing tangible exists for the most important evidence such as quantified shortages and surpluses and the crucial but unquantifiable motivators and de-motivators. What really counts here cannot be counted: as Einstein would have put it.

The “market-driven-pay” argument that current levels prevent a flight of executive skills is based on a false assumption that “price” is the only or even major influence on human effort. There are many other motivators or detractors, including passion for the task, family and other ties, living conditions, tax rates, and different living costs.

Some argue that this is indeed recognised in geographical differentiation. Impossible! You cannot adjust measurements with factors that cannot be measured, particularly when the latter are highly personal and for many could be far more important than pay itself.

Another obvious flaw is the assumption that there is a single category of executive skill or talent that can be benchmarked against others of the same species and then globally. In turn, the argument goes, they come at a specific price according to supply and demand – like neurosurgeons or pilots, or tomatoes and potatoes.

There is a vast difference not only between different “executives” but also between groups. The three I identified in an earlier article are creators (who develop an innovative idea into a major business), builders (who construct big corporates from underlying and organically growing ventures) and professional managers (who are appointed by shareholders to promote their interest and mostly to enhance shareholder value.)

Creators and builders are the true entrepreneurs, often starting at a modest level and taking substantial personal risks along the way. They should be allowed maximum room to go about their legitimate business, even if it implies huge rewards.

Professional managers are an entirely different matter. They have become nothing less than a clearly identifiable separate “stakeholder” in business since the mid-seventies: a “4^th estate” next to labour, capital and government. I would argue that their “price” was broken by a bizarre distortion which coincided at that time with a giant leap in short-termism, speculation, derivatives, debt and a disconnect between tangible wealth and “froth”. Today we are paying the price for 40 years of excesses and executive pay is one of them.

In the pursuit of shareholder value and applying the agency theory, shareholders have futilely tried to replicate the attributes and behaviour of creators and builders, and constructed a price on four pillars: base pay, bonuses, stock options and longer term incentives. But the premise itself was a myth and unavoidably caused a vacuum between supply and demand. Once established this price increased horizontally and vertically.

This graph by the Washington Post shows that inflation adjusted executive compensation has quadrupled in 20 years to early 2000. Average worker pay over the same period has been static if not in a small decline. The supreme irony is that according to author Roger Martin total returns on the S&P 500 were 7.5 percent (compound annual) from the end of the Great Depression (1933) to the end of 1976, the beginning of the shareholder-value era. From 1977 to the end of 2010, they were 6.5 percent -- suggesting that shareholders have little to celebrate, despite having been made the clear priority.

Executive compensation is clearly distorted and in a bubble. It seems to have survived the global financial bubble burst, but burst it must, either through government intervention or through investor reaction. Warren Buffet and many of America’s wealthiest are NOT averse to a super-rich tax. At the very least this seems to confirm that Americans do not share fears of an exodus of executive skills if their take home pay were to be reduced.

Still, I would caution against using tax as a method of correcting pay disparity in South Africa. Economist Azar Jammine has mooted that it could be on Finance Minister Pravin Gordhan’s mind when he delivers his medium term budget policy later this month. The wealth tax debate is still far from coherent. For one thing, there’s little point in moving more resources to an environment that is rife with inefficiencies, waste, non-service delivery and corruption.

Proper cost benefit research has to be done with comprehensive data on how that money is being deployed by the rich at present – for example into charities, investments, saving and perhaps other productive pursuits. Certainly not all of it will be on toys and ostentatious lifestyles. Tax is a very blunt and seldom successful instrument in correcting supply and demand imbalances. A wealth tax may do little in the long run to uplift the poor or close the pay gap. An unintended consequence is that it validates and entrenches the faults in this market. Best the imbalance is corrected by those who created it in the first place – the shareholder body.

Any price distortion is unhealthy for an economy. This one is particularly onerous. It is arguably creating little value for those who introduced it, and is far too heavy a price to pay in social discontent.

Busa and Fedusa.

They may sound like two chick-flick lovers, but if these two economic actors are encouraged to dance, they might perform a tango that could make a meaningful difference to unemployment. Dance experts will tell you though, that the tango needs passion, real synergy and being precisely in step to avoid the partners ending in a tangled mess. Labour and capital are far from that!

Busa (Business Unity South Africa) and Fedusa (the Federation of Unions of South Africa) representing bosses and workers respectively, have met and have agreed to work together to address unemployment.

“Ho-hum”, some may respond. There’s been a lot of similar talk over a number of years, not the least of which has come from Government in urging business and labour to make a greater common effort in repairing this frighteningly fraying fabric in our society. Government has little room to talk. The worst strikes this past year or so were in the public sector with the private sector being relatively free of industrial action. One can only wonder what on earth an arguably bloated Nedlac, which represents the three economic estates of Business, Labour and Government, has been doing since its inception, if it has not already established common ground in beating unemployment. After all, it was founded to “build bridges that hold the nation together”, or so its lofty mission statement says. There cannot be a greater gulf in our society than the raging river of unemployment. In turn this scourge feeds off the on-going conflict between labour and capital, and settling this conflict is Nedlac’s main remit.

One can be forgiven too for feeling that Fedusa may not make the most suitable dance partner for business. While many may perceive it to be level headed and conservative, the more radical in labour circles would give it a “sweetheart” label compared with Cosatu. Joining forces with Nactu to revive the old South African Confederation of Trade Unions (Sacotu), will give a combined membership of less than 1-million, only about half of Cosatu’s membership. In any case, Cosatu’s more radical stance, which is being fuelled by out-dated ideological rhetoric, real income disparity grievances and an inappropriately cosy relationship with the ruling political party, has so far had much greater sway on labour events, behaviour and regulation.

For all of their catchy acronyms, umbrella organisations in both labour and business will ultimately get nowhere in solving unemployment. The lack of real and tangible common resolve will continue to stymie efforts. This resolve has to be firmly based on a willingness to sacrifice quite a number of sacred cows. There was none of that in the Busa/Fedusa statement. At best it conveyed some old platitudes and peripheral action on some non-core issues.

More importantly, umbrella organisations can only create a framework. The real action has to happen where the rubber hits the road – in individual companies and other employment cells. And even this will not be effective if it does not impact on the crucial relationship between the worker and immediate supervisor where trust is ultimately nurtured.

We simply don’t have the determination of a post war Japan or Germany, or even the later South Korea and current China to solve unemployment. While some may argue that demographics and circumstances are very different, we also cannot ignore the fact that unemployment in this country is of such proportions that it could equal, or come very close to the crisis levels that those countries faced. It may indeed need a kind of labour “reconstruction plan” that challenges all current paradigms.

We may have to temper profit expectations away from “maximum” to levels more in line with the relative cost of capital elsewhere. The harmful inflexible aspects of luxurious labour laws have to be scrapped. Tax and regulatory burdens on companies should be re-examined. Pay disparities can be addressed by benchmarking pay differences to Gini type tolerance levels. If we cannot do this in one fell swoop, then let us experiment in pockets. We can apply different rules for small and medium enterprises. We can create organisations privately or jointly owned with labour that have special dispensation, including minimum employment restrictions and fortune sharing pay policies.

Compromise is only possible if one reverts to the simple mediation tactic of focusing on what unites rather than what divides. The crisis itself is an obvious one. But there are many more that can be even more profound for job creation and retention, industrial peace and company sustainability. This brings me back to my old favourites: common purpose and common fate.

The “what’s-in-it-for-me” creed has turned our current generation into a bunch of sissies, lacking the fortitude and risk tolerance of preceding generations. Today it is far easier to be a victim than to be a champion. A perfect example is our constitution which is seen as protection for victims rather than aspirations for a higher order of behaviour.

The same attitude prevails in economic activities including business and government. They are viewed as the providers of income and security rather than of service to others. This ignores the existential reality that these services exist because they serve. It does not take a giant leap of faith then to accept that they exist to serve. Behaving that way strengthens that reality. Behaving differently weakens it. It is this behaviour that builds companies to last, that moves them from good to great, and from being anonymous to iconic.

The conflict of interest between labour and capital is artificial, out-dated and inappropriate for our times. It is divisive and makes the forging of a common purpose in companies and other economic activities impossible. It also makes completely unattainable a compromise in the interest of a greater social good,

Until we achieve some semblance of common purpose, Busa and Fedusa will be dancing to the wrong music.