Marikana and the boxer.

How a former prize fighter and trade unionist could potentially have averted a tragedy.

I’ve written about Joe Scanlon before, and have been reminded of him again as the Marikana events unfold in the Commission of Inquiry at Rustenburg. When I think of Scanlon, a caricature comes to mind of a stocky, powerfully built man with Popeye type forearms.

He also reminds me of Tom Murray. There are probably only a few of us left that will remember that irascible, firebrand boilermaker and six times president of the then Trade Union Council of South Africa. One of the ironies that I remember well after listening to his impassioned plea in the early 70’s for the inclusion of blacks into the union movement, was the debate that followed in the Cape Town City hall that job reservation should be maintained to protect union member jobs.

There is something very familiar with the hypocrisy of that debate and the behaviour of the Union movement in South Africa today: the protection of incumbent benefits to the exclusion of those outside the employment ranks. But there was also a major difference: Unions then were run by salt-of-the-earth workers, with little material self-benefit apart from a passion to serve their members.

But back to Scanlon. The caricature may not be all that ill-fitting. He was an ex-prize fighting steel-worker, and a Trade Unionist who rescued the American steel plant where he worked from going under. It was a simple formula of cooperation with management in cost cutting implying worker sacrifices. But it was a plan that would outlive Scanlon by decades and is still the basis of various bonus schemes today.

Scanlon was a product of the depressed 30’s, and a subsequent war period which gelled management and labour into a common purpose of the war effort. It also saw the birth of the Rucker plan by academic and author Allen W. Rucker which differed from Scanlon in focussing not on profit as much as on value-added or wealth created. But both were from an age where cutting costs and saving companies from bankruptcy were the primary concern, often leading to a reduction in employment to the benefit of those still employed. It’s a highly unpalatable yet commonly used formula in South Africa today, where the number of unemployed should be of far greater concern than the rights and benefits of those employed.

By all accounts, South African companies need little help in cost containment mostly at the expense of employment. According to the latest Labour Market Navigator the real risk-adjusted return on capital of South African listed businesses is currently 10% – the highest in the world. There seems to be sufficient encouragement for both labour and capital to continue working on an out-dated 20^th century model based on the supremacy of capital and the commodity expression of labour.

A strong union movement finds its succour in the assumption of an intrinsic adversarial relationship between labour and capital. And owners can cope with troublesome and costly labour as long as the final solution, cutting heads, is in their hands. It’s only when dramatic events such as Marikana take place that the vested interests of both owners and trade Union structures are shaken to the core.

It is doubtful then that a Scanlon plan would have prevented Marikana. A Rucker plan may have been more appropriate, but then individual pay, and not the payroll exclusively should have been linked to value-added – a model that I have championed over many years.

But Scanlon, and Rucker for that matter should not only be seen as a system. It is the philosophy itself, more than the “plan” that still today gives these efforts their true value. Both were convinced of the power of cooperation between management and workers and Scanlon in particular believed that much distrust existed between labour and management because there was a lack of information sharing. He believed given information about the company and a chance to participate in helping solve problems the average worker would contribute to the success of the company.

That could have prevented Marikana.

I am convinced that given the opportunity, means and ability especially at individual company level and without coercion or malevolent seduction from outside, there is still a substantial reservoir of goodwill and enthusiasm on the part of labour to be involved. Labour can and should play much more than a subservient role.

We have seen this in many other instances apart from flexible pay systems that permeate the East. The world’s biggest labour co-operative, the Spanish Mondragon Corporation was founded on the efforts of a Catholic priest and some students. From making paraffin heaters, the co-op has developed into one of the largest multi-national business organisations in Spain with nearly 85 000 employees worldwide and an annual revenue exceeding €15bn. Labour receives 75% of wealth created. Mondragon has 10 basic cooperative principles that would have die hard profit maximisation capitalists shaking in their libertarian boots: Open Admission, Democratic Organisation, the Sovereignty of Labour, Instrumental and Subordinate Nature of Capital, Participatory Management, Payment Solidarity, Inter-cooperation, Social Transformation, Universality and Education.

In Ohio, in the U.S., what began with the efforts in 1977 of a young steelworker Gerald Dickey, has developed into what Maryland academic Gar Alperovitz describes as “many, many worker-owned businesses in the state, and the support system for building them is one of the best in the nation. There is also a very energetic organization, the Ohio Employee Ownership Center at Kent State University that provides assistance to workers and others who want to establish such firms.” Mondragon itself got involved in Ohio in 2009.

Consider the efforts by a handful of employees at Aurora who bravely but vainly fought against a scavenging group of shareholders, then the power inherent in a committed group of workers becomes nothing short of inspiring. Or Albert Koopman who in the early 80’s handed over much of the destiny of his newly founded Cashbuild to a rebellious workforce.

We’ve had some highly questionable attempts in South Africa at involving employees in ownership through this curious delusion of the “worker-capitalist” and ESOP’s. Best known, is the much vaunted KUMBA scheme, where workers went on strike within weeks of becoming semi-millionaires through the scheme. Why the DA still insists on making this a key feature of their economic policy is baffling.

The difference between my earlier examples and the misguided efforts we are witnessing at home is patently obvious: the initiative in the former came from workers themselves. They were not “seduced to think like owners” by a mistrusted shareholder body and their mostly overpaid executives – a group that, driven by shareholder value and short term profit maximisation, has earned the misgivings of a large body of the informed public globally. Even more puzzling is that shareholders themselves are prepared to pay a high cost for this folly.

Another bit of hypocrisy in South Africa is the reluctance of Cosatu to invest their own or Union controlled pension funds in taking over control of companies. Labour correspondent, Terry Bell says “the rule was obviously applied to avoid the potential for embarrassment, should union members end up striking or otherwise protesting about the actions of a business owned by their own investment company.” In the same article Bell sees NUMSA potentially breaking this rule by its proposed takeover of Scaw after its sale by Anglo to the IDC.

But that objection hides a much deeper truth: more than any other country in the world we are locked in an early 20^th century expression of the relationship between labour and capital, despite all the motivational bells and whistles that have spawned a huge empire of “human capital consultants”. These, and the main actors involved have a powerful vested interest in keeping it that way.

The real truth is that employees in worker owned companies see themselves as workers first, and owners second. There is sufficient proof that they can do so without sending companies to the wall and inhibiting their ability to raise capital.

We can only hope that along with 44 others, the voices of Scanlon. Rucker, Dickey and a Spanish priest will echo among the commissioners of the Marikana enquiry and those involved in the current wage bargaining sessions.

The magic of markets.

How being market driven can make South Africa a winning nation.

It was a chance remark on a TV news bulletin by an energy expert that reminded me again of how little we appreciate the magical power of markets. He was lamenting the fact that the solar heating manufacturing industry had failed to live up to expectations of wealth and job creation because of cheap Chinese imports.

Of course, there’s the first problem right there! Failing to meet expectations of making money and creating jobs is the major concern, and letting down the South African consumer is not even mentioned.

Customer neglect by the industry was made clear in a previous report by Dominic Goncalves, Africa Energy and Power Research Analyst that in the initial stages after 2007 the industry was “plagued by malfunctioning products, fly-by-night companies, and incorrect installation and application of the products”.

Like in so many other cases in South Africa, the absolute sovereignty of the consumer and the need to be driven by his or her needs is lost in the obsession with profits, wages, and state action. It is basic economics that the latter can only be the result of allegiance to the former, and yet we keep on blunting our market focus by relying on state subsidies, legislation, trade restrictions, lack of domestic competitiveness, commercial xenophobia, a cheap rand, low interest rates, 30 year plans, systems, and wage extortion.

They may work in the short term, but if the umbrella provided does not lead to improved efficiencies and global competitiveness, and continues to protect mediocrity, then we are wasting money and effort and heading for eventual asphyxiation in our own pathetic little economic laager. In its early post war industrialisation, Japan protected local industries only if they could show they would no longer need protection and would be globally competitive within a few years. Australia experienced a similar miracle after opening its economy during the Hawke-Keating Government in the 80’s.

Take the debate on beneficiation and adding value to our commodities for export. It’s a discussion that has gone on for decades, and I remember the then Minister of Economic affairs, Jan Haak, pleading this case way back in the early 70’s. If we were finely tuned to the needs of the global market we would have had a viable global jewellery industry decades ago, or we could have been the first designers and manufacturers of auto catalytic converters that use platinum. Selling gold is being market led. Selling jewellery is being market driven. We seem to have the research, technology and innovative capabilities to be a world player. What we lack is the ability to translate that into actual production and sales.

World trade is full of unfair practices, protectionism, collusions and barriers that severely tarnish the ideal. Do we have to be part of it? And to what extent? We can only answer these questions comfortably if we have a clear conscience about our own dedication to that ideal…not in our own interest but in the interest of customer sovereignty and the buyer’s freedom of choice.

19^th century French Economist Frédéric Bastiat said it best: “If you wish to prosper, let your customer prosper. When people have learned this lesson, everyone will seek his individual welfare in the general welfare. Then jealousies between man and man, city and city, province and province, nation and nation, will no longer trouble the world.”

The macro evidence of our trading unfitness is revealed in the latest Global competitiveness report and the latest OECD survey. We seem to be quite good at certain controls such as auditing, banking soundness, and the legal framework – but very poor where it really counts such as domestic competitiveness, stability, education and training, and labour market efficiencies. We are good at making the rules of the game, but terrible at playing it! The latest alarming R25bn trade deficit shows how reliant we have become on imports and less adept at exports.

The top five competitive nations of Switzerland, Singapore, Finland, Sweden, and the Netherlands confirm World Bank findings of some decades ago, that the key to national prosperity lies in having an external focus and developing people. Switzerland’s consistency in top rankings never surprises me – after all, their best known export is the Red Cross. It’s actually a very simple formula: surpluses and prosperity are created when people by and large are giving more than they are taking. Deficits and poverty are created when people by and large are taking more than they are giving. You can never achieve the former if you are primarily focussed on the latter.

We are simply not market driven. That statement alone is bound to bring out the ideological super heroes in their different capes – left and right, capitalists and socialists!

But being market driven is not about a system. It is about behaviour. It is about an attitude. It is about being seriously concerned about the other, and putting their interests above all else within the rules of legitimate transaction. Being profit driven is the opposite. So too is being wage driven. At every turn in South Africa today, there is an incessant and hysterical babbling about getting; about profits, wages and hand-outs; a near exclusive focus on wealth distribution and redistribution, rather than wealth creation itself. The latter comes from being market driven and the former comes from the latter.

We don’t need all the scientific evidence to prove that this is so. Just follow events and the debate around us; or refer to Felicity Duncan’s article on lack of competiveness in our businesses; and just think of how we are treated as consumers, as customers, as citizens, as people, by our institutions, both public and private.

Our destiny as individuals, as companies and as a country is locked up in one fundamental axiom: that our true value lies in our capacity to make a contribution to others.

Above all else, that’s what gives us meaning.

That is the real magic of markets.

Are we hooked on hand-outs?

Pravin Gordhan’s 2013 budget reflects the difficulty of reversing the growing addiction to the welfare drug.

When my friend, Yvonne, had to have something done at the local municipality she was told that the official was out collecting her “all-pay”, the term commonly used here for the social grant.

In line with civil service pay nationally, Swellendam municipal officials are by far the best paid people in the dorp, which explains the incendiary comedy we had here not so long ago, when cadres tried to unseat the Town Council by, amongst some other mad abandon, burning down the local bottle store after it had been emptied of all of its stock. No certificate of competence is needed here. All you need is a bag of cheap wine, a match and a can of petrol. But not content with milking local ratepayers, it seems as if the same officials have found an extra teat on the tax-paying cow via the social grant.

They are not alone. Many employers here have adjusted their work schedules to accommodate absenteeism on “all-pay” day, and having a communal babelas (hangover) the following day – while ouma waits for some left overs for her children’s children in her care.

This is just a small drop in the vast ocean of global abuse that nullifies a substantial proportion of any welfare system, from subsidies to means tests to food-stamps. Redistribution is by far the most inefficient way of sharing wealth. It severs completely the vital link between wealth distribution and wealth creation itself or the link between contribution and reward.

And in turn this is only one tiny thread of Mike Schussler’s recent dramatic adieu to the welfare state. His warning of an economic tsunami approaching South Africa should not go unheeded. An ever increasing number of people (15 million) relying for sustenance on an ever decreasing number of people (6 million) is clearly a road to ruin. And when the government budget continues to reflect highly inefficient redistribution of wealth more than creating the conditions for an efficient private sector creation of wealth, the tax paying cow is simply going to dry up. Those who believe that milk comes in government moo-juice boxes are in for a rude awakening.

Schussler calculates that our 70% of budget spending (after interest on debt) on welfare proportionately makes us one of the biggest welfare states in the world – about 15% of GDP, compared with a world average of 8½%. This does not include the often ignored NGO spending of some R20bn per annum (ironically less than 70% of what is lost annually in state maladministration and corruption).

We are no longer a welfare state, but a dependency state. We seemed to be hooked on hand-outs and the peddler equally so to ensure that the addict does not go into violent withdrawal and exact revenge in the streets or at the polls. So every year a large part of government revenue is little more than a “tik-tax” as it were.

Gordhan’s huge dilemma is reflected in his own statement that “social spending is not a substitute for job creation”. The critical question is to what extent does the one frustrate the other. After giving encouraging detail of government efforts to promote growth, he also announced increases in the social wage. While he sees it as complementary, this may again be a case of not fully accounting for individual behaviour and expectations.

The bottom line is that we have had economic growth and employment feature in many recent budgets, yet unemployment has risen and the social wage has increased by an average of 11% a year in the last three years.

The indefinable yet important and profound difference between a welfare state and a dependency state prompted me to engage Mike Schussler electronically on an exact definition of a welfare state.

The “welfare state” is a multi-layered institution of different permutations, compositions, features and approaches that strongly resist a single universally applicable definition. In a future article I hope to do greater justice to that analysis which gives a far clearer assessment of our welfare effort and should have even the most avid champions of a welfare state, mixed economy, or socialism concerned. It is critical to be able to encourage remedial action across all of our many ideological and political differences, without getting hung up on slogans, rhetoric and semantics.

The term “dependency state” is a more appropriate definition of the state we are in, rather than welfare state or socialism which are deeply imbedded in the concrete of political bias.

A number of issues illustrate the difficulty of soliciting an across the board applause for the “death of the welfare state”.

· All nations have a degree of welfare spending in their state budgets. Like the Nordic countries and many others show, the size of that spending, either as a proportion of the budget or of GDP need not be a telling issue. But affordability determined by the broadest tax base is.

· A very critical consideration is government efficiency in both delivery and administration. Maladministration and corruption can make the whole effort toxic to an economy.

· The composition of welfare spending is very important. Effective education and skills development are arguably as desirable as investment in infra-structure, giving a longer term positive return on that investment. The former is an investment in people and the latter in fixed assets and structures.

· Spending on poverty relief and social grants on the other hand, can be a far greater threat to a healthy economy. It is also the exponentially addictive component in welfare spending.

· It’s a mistake to assume that “welfare-ism” or even socialism unequivocally imply a reduction in economic freedom. The Nordic socialist model is in many respects closer to laissez-faire economics than the United States which is severely allergic to welfare spending.

· What’s happening with welfare states in some parts of Europe may not imply a kind of Berlin wall catharsis. It could simply be a mature rolling back of welfare spending in countries needing austerity. It could indeed be a precursor to a healthier flexible approach to welfare. We are clearly no-where near being able to do that in South Africa, where the reverse is happening.

So the most important features of welfare are its financing and structure, and the above few points alone are a startling critique of our version of a welfare state, even given the social backlog that most are sympathetic to. The answer is, of course, broadening employment, which Gordhan certainly has not ignored and which I dealt with at length in my last article.

But in the end, numbers, definitions, plans, policies and systems become irrelevant against the overwhelming force of individual behaviour like that reflected in my introduction.

Or like the email I received this week from industrial psychologist and management consultant, Fayruz Abrahams asking why immigrants from Zimbabwe and Somalia show such entrepreneurial flair; and why South Africa’s absenteeism is the worst in the world.

Or the experience of Gielie, the citrus manager here, who was confronted by a group of workers about to get a pay increase to bring them in line with the minimum wage. They wanted to know how their work schedule would be reduced to minimum work for the minimum wage.

Or violent labour disputes which contributed substantially to the R16bn reduction in state revenue.

We all experience these life bites daily. Anecdotal they may be, but they make us all much more aware than any esoteric treatise or a budget speech can, that something is wrong.

The one incident that said it all for me was a TV interview with a new matriculant job seeker who said: “Now that I have my matric, they must not expect me to sweep floors and clean toilets!”

Yes something is very wrong, and we cannot ignore the possibility that it is both a cause and an effect of our increasing addiction to hand-outs.

An unemployment state of emergency.

Beyond rhetoric, are we really taking unemployment seriously enough?

Imagine if President Zuma in his State of the Nation Address declared a state of emergency around unemployment. At least he would have captured more of the headlines in what was a very newsy past week. Would it have been justified?

Of course such a state can only be valid and effective if the authority imposing it is trusted and not part of the problem. So I will remove my tongue from my cheek. But we are in an employment crisis, the knock-on effects of which invade every fibre of our society, from soup kitchens to prisons to banks. We need a thorough and critical re-examination of everything, including assumed rights that could impact on employment or encourage unemployment.

For one thing, let’s abandon this fixation with the terrible troika of poverty, inequality and unemployment. They are feeding off each other by mixing cause and effect. Uncompromisingly prioritising employment, either in job creation or job retention will go a long way to solving the other two, perhaps even making them less relevant.

Here’s an example: we try to solve poverty through social grants, but what it has tended to do is shift the emphasis from efficient wealth creation to highly inefficient government wealth redistribution, moving us from a welfare state into a dependency state and, as Mike Schussler has warned, exponentially making the social wage addiction unaffordable. There are hundreds of more “unintended” consequences, like reducing self-help willingness and fortitude.

Of course we have to be a compassionate society with a social conscience, but compassion itself must not be debilitating. It must be that of the surgeon, who does not allow emotion to contaminate care. Even compassion must have empowerment and enablement as its primary purpose.

Inequality has as many, if not more anomalies. While the often outrageous levels of executive pay can be challenged (as I have in a number of articles) and certainly contributes to inequality, the main cause of inequality as measured by the Gini co-efficient is unemployment. It adds many zero incomes in measured households which severely dilute the base.

Pay inequalities do not contribute directly to unemployment. They fuel expectations and anger, which in turn fuels wage demands, strikes and violent labour unrest. That, in turn creates employment barriers. Worse still, it reduces customer focus and competiveness, the greatest job destroyer of all.

It is the most vicious of circles. In effect, unemployment is causing unemployment.

Zuma’s intended review of the tax system no doubt implies getting Pravin Gordhan to be more of a Robin Hood. It will make no difference to Gini. The simple answer is to fix the executive pay market so that it can at least to some extent withstand populist hysteria. Of course envy will always be present, but current pay differentiation principles must be made less vulnerable to both informed and emotional attack. Shareholder value criteria are out dated and counterproductive.

We seem to be a nation frozen in guilt and grievance. Let’s strip the terrible troika of its enormous clutter of distractions, emotions and heat: like race, affirmative action, land reform, BEE, Apartheid Legacy, trans-generational privilege, etc., etc. Let’s filter all of these and other issues through an employment sieve. Shouldn’t we, in a time of crisis, temper our lofty ideals of fair play and justice to the gross injustice to those millions who have tried for 5 years or more to feed themselves, find the dignity of work, make a contribution to society and enable the best in themselves? And to the youth, who should not be poisoned by past grievances, but who ask simply for the opportunity to do something meaningful with their lives.

Our current solutions to unemployment rely mostly on grand planning such as growth stimulation and a massive effort on education. They are useless without a commitment to the real essence of employment which is about serving the other, adding value to the world out there, and behaviour based on willingness, self-accountability, low expectations and high aspirations.

Which brings me to labour rights: Suspend them -- at least in some cases! I shudder as I write it, and would not have entertained the thought until recently. I am more aware than most of the propensity for profit-obsessed and greed driven capital to exploit not only workers, but customers and society as well. About this too, I have written often.

But we need to finally put to bed uncertainty about the effects of labour rigidity. We need not do so on a grand national scale, but in pockets which can be ring fenced wherever retrenchments and unemployment threaten and wherever groups of like-minded people freely collaborate in the creation and distribution of wealth as they see fit.

Involvement is always far better than incentive. It accounts for the strength of some of the Asian countries like Taiwan and Japan while even in the United States workers have regularly shown a willingness and ability to successfully take control of companies and their destiny. Involvement can be forged in a number of ways such as worker buy-outs, employee equity, labour co-operatives, and fortune sharing – the last mentioned being the most appropriate for South Africa circumstances. Its most important tools are company awareness, common purpose and common fate and regular sharing of information.

I simply cannot believe that given the means and ability, and faced with the growing tragedy of millions of unemployed comrades, brothers and sisters relying on the employed to feed them, workers in this country will not be willing to look at alternatives beyond taking to the streets, challenging current union structures, and running around in death defying striking mobs.

Individual rights cannot guarantee willingness and self-accountability. Often they impede them.

When one is at war one declares a state of emergency and all desirable frills such as “rights” are suspended. We are at a war of sorts between labour and capital. People are dying, both from the effects of intolerable levels of unemployment and from confrontation in the workplace. So mooting some or other drastic national intervention to stop the rot in its tracks is more than mischievous headlining.

At the very least we need to seriously challenge the assumptions and raison d'être that drive huge vested interests such as organised labour, corporate capital, and political structures.

I have suggested previously that we could introduce a fortune sharing, market driven model (See one of many links) in those ring fenced sites. I firmly believe such a model will create pockets of excellence, stability, greater employee contentment and attract capital simply because of reduced risk.

We have become so obsessed with wealth distribution, which includes profit maximisation and wage demands, or redistribution through government that we have forgotten and are perhaps violating some very simple and basic rules that have been reinforced over the ages. These underpin Adam Smith’s benevolent understanding of markets, not the greedy morphing of it that we have seen in the last number of decades.

The most important principle we have forgotten is that tangible wealth is created by adding value to other people’s lives via legitimate transaction. Everything else, wages, profits, and taxes have that as their source…indeed as their purpose.

Is this is what Adam Smith had in mind when he wrote: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.”?

Unemployment’s biggest and intolerable tragedy is that it robs people of the opportunity to do that. It robs them of more than sustenance. It robs them of meaning.

Philanthropy, pride and precedent.

Will Patrice Motsepe’s magnificent gesture make much difference to class conflict?

classic old world aphorism says “a favour is not a favour if you tell the whole world about it”.

This may contribute to the mild cynicism that some have displayed to billionaire Patrice Motsepe’s decision to donate half of his family’s fortune to charity. I’m not one of those cynics, but he did not do the decision much good by saying that it was inspired by the Gates/Buffett Giving pledge. Does one need inspiration to be charitable when one is surrounded by poverty?

Also, there is something demeaning to philanthropy itself when it becomes something of a competition, an adolescent “mine is bigger than yours” school yard rivalry; and when less overt or smaller donations by the much less affluent may be seen to be less significant. It has a similar unpalatability to the rivalry that is a critical flaw in executive pay itself.

But this may be unworthy nit-picking on my part. The two key questions that are raised are whether Motsepe’s gift will set a precedent, and whether it will enhance trust in business and its leaders as a whole.

Regarding the first question, Motsepe has indeed set a splendid example that will most likely be a fillip to South African philanthropy, setting off a kind of billionaire telethon. But it is highly unlikely to affect even in a small measure the critical distrust the public has of business and its leaders. After all, grand philanthropic gestures like the billionaires’ Giving Pledge have been in the headlines for some years now, and the strategic value of overt corporate social responsibility has been recognised for even longer. Yet, trust in business and business leaders remains in crisis.

And that crisis can be quite easily explained: it’s not what the rich and corporate business do with their money, but how they made it in the first place. The real value of generosity in economics is about giving the best of oneself and of looking beyond immediate self-gain. That is the essence of risk and entrepreneurship.

In a parting shot shortly before his death some six years ago, Nobel Prize winning economist, Milton Friedman, reiterated his view that “there could be no greater threat to free enterprise than the concept of a business social conscience”.

This was a return to his essay in the New York times in 1970 when he argued that “There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

He went on to accuse those propagating the view that business was not concerned merely with profit but also with promoting desirable social ends of “preach­ing pure and unadulterated socialism. Busi­nessmen who talk this way are unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades.”

Friedman is best known for his unshakeable faith in free and unregulated markets, something evidently shared by his friend and admirer, Alan Greenspan, whose failure as Federal Reserve Board chairman in clamping down on activities in the financial markets is now widely recognised as having been the main cause of the bubble bursting in 2007. He confessed as much when he told the American congress in October 2008 that his view of the world was wrong. "I made a mistake in presuming that the self-interests of organisations, specifically banks and others were such that they were best capable of protecting their own shareholders and their equity in the firms," he said.

To give Friedman his due, he actually opposed what he saw as Greenspan’s lack of monetary discipline. But then, in an ironic twist shortly before his death he praised Greenspan’s ability “to achieve price stability without committing to a strict money rule”.

As someone who championed shareholder supremacy and who had a somewhat accommodating stance towards greed, Friedman undoubtedly played a huge role in in the growth of the shareholder-value phenomenon. His disdain for business social responsibility is based on two key assumptions – that the pursuit of profit automatically guarantees a social good; and that the “rules of the game” should be immune to social pressures as long as they are competitive and “without deception or fraud”.

His attitude towards greed does not differ much from the rather cynical generally held view “that it is part of human nature” and dangerous only beyond a degree. It’s a highly debatable assumption, and one which is more frequently and dogmatically proposed by economists than psychologists. I’ve always been somewhat bemused by those who attribute to Adam Smith the defence of greed to any degree as a necessary evil in economic wellbeing. Smith scholars deny this vehemently and cite his discourses on ethics as outlined in his key work “The Theory of Moral Sentiments.”

Even then, the last few decades have seen the creation of a vastly increased number of opportunities for unbridled greed to flourish, encouraging not only wider income disparities but also public indignation. We can then expect pressure for a change in the “rules of the game”.

Whether we approve or not, the world has no doubt moved on from Friedman’s restricted view on the purpose of business and there is a far greater acceptance that corporate social responsibility is not a threat to profit, but rather part of its pursuit – which of course makes it a bit hypocritical.

Perhaps more acceptable is the proposition that “there is one and only one social responsibility of business–to use its resources and engage in activities designed to serve its market.” Then, indeed, the corporate social responsibility manual could be rewritten. Then the most valid and more difficult question to answer is whether business should not return money available for corporate social investment to the customers who paid for it in the first place. In turn, philanthropy and compassionate individuals could become the source of CSR funding.

Today CSR implies a lot more than supporting some or other charity or social cause. The new business strategic discipline of sustainability has a substantial environmental element which to a large degree is non-negotiable. Non-compliance will inevitably lead to legal enforcement. Societies will change the rules of Friedman’s game.

Philanthropy and non-government or non-profit organisations are undoubtedly the most admirable institutions of a modern, compassionate society. But corporate social responsibility will have its critics whose points are not always without validity. It is a rather muddy field with fine dividing lines between marketing, advertising, spin, promotion, public relations, charity, executive pet projects and touches of cronyism. Companies pay tax of about R150bn a year, or more than 20% of the government’s total revenue and they can rightly question whether they should still be spending money on activities which the government should be doing.

The simple certainty is that any beneficiary of a business activity: shareholders, employees, government, and recipients of CSR benefits cannot count on those benefits without business serving customers and without the latter paying for them.

When it fails to do that well, all CSR efforts become counterproductive. The best recent example we have is how this 2011 statement by Barclays Chairman Marcus Agius sounds today: “Barclays has always taken its role in society seriously and believes that being a valued, respected and trusted citizen is vital in creating sustainable shareholder value. That ethos has been part of our corporate values since the bank was founded over 300 years ago.”

CSR will automatically have a loud ring of hypocrisy if not utter futility, if the customer experience is a poor one.

And as long as the amassing of fortunes is broadly seen to be unfair, relatively exclusive and exploitive, philanthropy will also have a hollow if not hypocritical ring to it.

At sea without a moral compass.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As a nation we should be outraged.

Emulating great entrepreneurial minds.

And reconciling shareholder and customer interests in the process.

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

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

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

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

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

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

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

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

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

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

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

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

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