Does size matter?

The questionable criteria used to measure national economies.

We seem to have an obsession with size: from the bedroom to the boardroom and from national accounts to bank accounts.

This fixation is most likely rooted in the belief that size represents power and influence. So it is not surprising that the recent “re-grading” of Nigeria’s economy to being the largest in Africa ahead of South Africa caused some flutter in the media and, as this Moneyweb article pointed out “put a little dent in our national pride”. That article made a good comparison between the key economic indicators of the two countries so will not be recapped here.

The elephant in the room is that based purely on a calculation process of one specific indicator one can dramatically re-position a country’s economy. In this case the indicator is Gross Domestic product, or the value of goods and services produced in a year. A “re-basing” of that measurement in Nigeria’s case has not only put the country ahead of its closest African rival, but a full 1/3^rd bigger. At a stroke of a pen, it has also reduced the country’s economic growth rate by about 1-percentage point, or 14% in real terms.

This all may seem academic and technical, a view that inappropriately scoffs at the considerable weight that is placed on this one holy cow in economic measurements. It stands virtually alone in driving a large number of very important decisions that affects the lives of ordinary citizens – monetary, fiscal and in company boardrooms. These in turn can affect confidence, investment, credit ratings, taxes, interest rates, exchange rates, prices and jobs.

It’s often been said that if you can’t measure it, you can’t manage it. Against that there is the aphorism often attributed to Albert Einstein but more likely coming from American sociologist William Bruce Cameron, which says: “not everything that counts can be counted, and not everything that can be counted counts”. I’ve often used that quote in relation to our obsession with measurements. What it does not quite cover, and which is very relevant to important national statistics, is that it is not only what is counted or omitted, but also how it is calculated.

A very large number of national statistics are not based on purely scientific criteria like measuring distances or temperature, but on surveys and sampling. While I am not a statistician and perhaps not fully qualified to challenge the veracity of such measurements, the Nigerian re-rating at least points to anomalies in the process of measurement and compilation of data. The rebasing of GDP, which most countries do regularly in at least five year intervals, implied a reassessment of relative contribution and influences of the various components.

While it is clearly impossible to do a fully comprehensive collection of all data, sampling has to rely on a number of complex and difficult criteria that inevitably increase the potential for inaccuracies and flaws. The size of the sample is one and the integrity of the data at source another. Then there is interpretation and adjustment for deviations from the norm, such as seasonal factors, to eventually extrapolate a dubious “average” which can be notoriously misleading.

A good example is the highly important inflation measurements or CPI, which virtually every citizen scoffs at as far removed from their own experience of rising living costs. In the end, no-one and nothing is “average”. Statistics iconoclast and statistics guru in his own right, Mike Schussler, has regularly taken issue with mainstay statisticians on some of the vital metrics that guide our economic destiny, including the GDP holy cow, inequality measurements, unemployment, poverty indicators and many more.

Defensive responses to his postulates ignore the all-important reality that these metrics can be challenged and that they are not infallible or absolute. It’s a bit like the Nkandla affair which has become unashamedly trivialised into a “who-dunnit” to draw attention away from the intolerable hypocrisy of one man’s blatant ostentation in the midst of misery and deprivation. It could, of course, be an indictment of many others here and in the rest of the world, who fail to acknowledge that inequality is perhaps the world’s biggest economic challenge, reaching the intolerable proportions that it did in the 19^th century when it led to a rewriting of economic textbooks and spawned the founding theories of conflicting ideologies that threatened to plunge humanity into global conflict.

Perhaps the most important of the many challenges to the GDP measurement goes back more than 4½ decades when US presidential candidate, Robert Kennedy challenged it as “measuring everything except that which is worthwhile.” This raises the question what other “worthwhile” activities should be measured and how should they be interpreted?

It will be something of a contradiction to the theme, if I attempt a list of important national indicators, similar to the quarterly, monthly, weekly or daily indicators which I dealt with previously. Ultimately no indicator or statistic can be seen in isolation. We can expect much of that in the run up to the elections to support either the “good story” or the “bad story”. Virtually any indicator or statistic can be used or misused to support a particular argument, sometimes out of pure mischief or opportunism. Some of those more vulnerable to abuse are the Gini-coefficient reflecting inequality and the Consumer Price index measuring inflation.

At the very least, most of the important measurements that are trotted out regularly should be accompanied by disclaimers that draw attention to other metrics in the background. Here, I would include the UN’s Human Development index which covers life expectancy, education, and income; the WEF’s annual Global Competitiveness report; the Gini-coefficient because of its growing importance as an issue of our time; national debt and inflation. Of course there are many others that may be more relevant to another specific measurement or statistic being focused on.

But the above relate to specific long established criteria of what makes for a winning nation: having an external focus and developing people. These are far more the outcome of a national attitude, willingness and behaviour than they are of policies, institutions and measurements.

The mysteries of mining.

And the hidden curse of natural resources.

It’s been a while since I visited Pilgrims Rest. The picturesque town nestled in the mountains of Mpumalanga has a special place in our history and a visit there takes one back to the mid-19^th century – probably more so for members of my generation for whom the heady days of gold rushes and diamond discoveries of a prior era were romanticised in most forms of entertainment and popular fiction.

In the search for instant wealth, rogues rubbed shoulders with the genteel; the cavalier with the cunning; the meek with the brave; and the fox with the lion. Most shared one powerful motive: unbridled greed. A smaller number were in it for the sheer adventure, others through desperation; but there were also those drawn into the frenzy by the power such wealth could bring for themselves, King and country.

Mining and the exploitation of natural resources are strongly woven in the fabric of South African history with names such as “Wheelbarrow” Patterson, George Harrison, Cecil Rhodes, J. B. Robinson, Hans Sauer, and Barney Barnato adding vibrant colour to that fabric. Some were part of the colonially inspired Rand Lords -- villains to some, heroes to others. They went on to dominate gold and diamond exploration and extraction leading to the formation of four large mining houses that for many decades were to play a dominant role in the South African economy, strongly influencing other commercial, industrial, social and even political structures.

It was and still is a rough, risky world both for individuals and investors. Having had one very close call as a mine onsetter in my youth in nearly falling down a mine shaft, I shudder still today when I see TV images of those dark holes that zama-zamas crawl into to claw from the bowels of the earth, some specks of the yellow metal. They may be labelled illegal or even criminal, but to me they display raw courage, albeit inspired by tragic desperation.

In their own, small and individual way, they represent the hidden curse of mining and exploitation of natural resources generally. Find it; get it out, and you have instant wealth. It may have been this spirit that inspired a refrain that my father in his shaft sinking and high speed developer days would chant as they descended into the portals of hell: “Stof en gate, skiet die Engelse klip en ons maak geld!”

Completely absent in this spirit is a sense of doing something meaningful for others, the very soul of business. Like some lotto player, the beneficiary has little interest in who pays the winnings. They are simply there, a never ending source of wealth as long as you have a winning ticket. So like a frenzied mob, everyone wants a ticket, even to the point of stealing or extorting it via decree or complicity.

For decades I accepted that this is simply the nature of the beast. The only criticism I could find was that in the exploitation of natural resources we failed to apply enough of the spoils to the development of people. As such, we failed to adhere to the fundamental precepts for what makes a winning nation – having an external focus and developing people.

Failing to do the latter has been a tragedy, but not doing the former has been the more destructive. It is a moot point whether South Africa’s grand lotto of mineral wealth has not inordinately held us back in promoting those principles and becoming a truly winning competitive nation. It is more than co-incidence that by and large the richest nations in the world have limited natural resources, while the converse can also be argued.

When Jimmy Furstenburg, a co-custodian of my consulting work since retirement, asked me where I would place mining in the continuum between survival and empathy, my immediate thought was unequivocally in the survival mode. But on further reflection, I remembered that one of our employee awareness training programmes, People and Wealth, designed specifically to enhance an empathy understanding of business, was first developed at a gold mine. It was a joint project between me and the late Ben Coetsee, the HR manager of WAGM. He lamented the appalling lack of awareness amongst workers of the product and its uses. Morale was not based on any sense of purpose over and above pay and a soldier like camaraderie in the workplace.

Further reflection reminded me of the efforts of the World Gold council, formed specifically in the late 1980’s to promote alternative uses of gold. Perhaps it has been a case of too little too late. Earlier and greater market empathy may have led to more beneficiation and value adding at production source. The wider use of gold as alternative to money, or directly challenging the demonetisation of gold in the 70’s may also have been more actively explored.

In Platinum group metals, a similar council was formed at the about the same time. Individual platinum refineries today are also actively engaged in scientific and market research to promote wider use of the metal. It’s a moot point whether earlier and greater empathy with platinum customers would not have led to the development by the producers themselves of the auto-catalytic converter. Palladium producers had already experienced the futility of trying to dictate price to a dependent market, a policy AMCU now seems keen to revive.

De Beers has also been down this road in the diamond market. It has discovered that its business model of trying to control supply is no longer functional with the CSO cartel label becoming more onerous, more producers entering the market and diamonds being tainted with revolutionary blood. Apart from introducing the Kimberley Certification process guaranteeing a bloodless product, it has for some time now been more actively seducing pretty hands to be adorned with highly expensive trinkets.

Ultimately, it is simply a case of business sense. Being of service to the market does not mean being subservient to it, like a blindfolded cow to slaughter. It’s always been the hallmark of great companies to go beyond simply responding to the needs and wants of customers and to also explore what they could need or want that they are not aware of. Innovation is a natural outflow of empathy.

But what you cannot do is bring your own needs and wants to the market. The concept of empathy applies to the way you approach your market and society, and while it can inform wealth distribution, especially in employment policies, the latter will always be dependent on the former. Put differently, wealth distribution is always dependent on wealth creation. Some of course may retort that “charity begins at home”. It was also a favourite Mafia mantra.

The mining industry is clearly still firmly stuck in a survival mode, perhaps inevitably so in some cases such as in the current platinum labour problems. But one could also argue that having essentially been in this mode for a long time, has contributed to those problems.

Understanding one’s real purpose in business gives a greater sense of meaning for all involved, particularly for employees, but also for serious investors. The need for means is the less significant part of human endeavour. The search for meaning is far more significant.

After all, one of our greatest needs is to be needed.

Ownership and empowerment.

The fallacy of seeing the two as synonymous.

In the days when our pet dogs were allowed to run free, there was that comic scene where a fox terrier is chasing a bus and someone asks what the little rascal would do with the vehicle once it had caught it.

It’s an appropriate analogy in response to President Zuma’s latest push for broader black ownership after the election and for those populists who seem to think that owning the means of production is a panacea to eliminating poverty and wealth disparities. It reflects a dismal ignorance of history and is an extremely reckless political ploy. So far, efforts to change the ethnic base of private ownership have done little to eliminate wealth disparities – indeed they have made them worse.

Conversely, those that scoff at the red berets and their antics may just be misjudging the level of envy and resentment that already exists and the extent to which these emotions are fuelled further by rhetoric. There is already a dangerous emotional overload in the current elections.

But then, one has to concede that the soil for such ferment has been fertilised no end by misconceptions on both “sides”. This goes much deeper and is more powerful than the reality of the politically loaded slogans of “unemployment, poverty and inequality”.

The power of ownership is firmly cemented as an absolute in all mainstay political theory. Ownership, it is automatically assumed, gives one ultimate control. The question then is simply who should own. At one extreme political ideologists argue that it should all be in the hands of private sector, and on the other that it should all be in the hands of the state. It’s only when one gives a human face to these institutional concepts that severe practical flaws in the theory become evident: who is the private sector and who is the state? Of course, the belief that ownership gives one ultimate control is a myth. It not only comes with demanding responsibilities, but also with social constraints, rules and regulations. And as private companies soon discover, ultimate control lies in the hands of their users or customers and not shareholders.

But the most important question of all is why do they own? There can only be two answers: for self-gain or for service to others: for survival or empathy.

I have already argued extensively for greater recognition of the inherent and implied service motive or the empathy base in the private sector. We have done this sector no favours by putting virtually exclusive emphasis on the profit motive as some kind of golden calf. At the same time, I have always defended profit as an essential tool in enhancing efficient use of resources particularly capital, and ensuring competition, and freedom of choice. Profit maximisation is a different thing altogether, and often leads to market failures that give an excuse for state intervention.

Even market orientated economies recognise the need for state intervention “when markets fail`”. This is clearly open to wide interpretation and will forever be a subject of debate and opportunistic agitation including political power play. State involvement through direct or part ownership is generally justified when government alone has the necessary resources to provide essential services. Add BEE into the mix and you have a toxic contaminant.

State owned enterprises exist throughout the world, including highly developed Western economies, and some are just as productive and efficient as their privately owned counterparts. They are mainly to be found in infra-structural sectors such as transport, communications, energy, and health care.

South Africa’s biggest and most influential SOEs are in energy (Eskom), Telecommunications (Telkom), Broadcasting (SABC), and transport (Transnet; SAA, and Sanral.)

After the wave of privatisations worldwide from the 70’s, continuing today in many previously communist regimes, these enterprises also largely adopted “commercial” practices, giving due recognition to the need to generate earnings and not rely on taxpayer funding. This is the perfect example of the vital role of profit, not as an end in itself (which would be unacceptable given their largely protected monopoly status) but to ensure maximum efficiencies and productivity.

On the surface, then, SOEs should perform as well and as efficiently as their privately owned counterparts: servicing their markets through the best use of resources. Yet they don’t, particularly in South Africa. It may be a sweeping generalisation, but few would disagree that they are among the worst performing businesses in the country. It was ironic that a mere few weeks ago, we faced forced power outages. My pet peeve at present is with Telkom, whose large promise, and exasperating, dysfunctional call centre has left me involuntarily twitching my ears.

So much has been written about their failures that it would be superfluous to go over them again. Of course, everyone has a view on the cause. Perhaps in part it is their “commercialisation” which has made them adopt many of the bad behaviours of their survival peers in the private sector, including outrageous levels of executive pay and marginalisation of labour. But paradoxically it has not prevented many of them from being on the edge of insolvency.

Without the profitability mandate being met, one would at least have expected their service mandate to be impressive. But it is the worst. Then one can only hold the owner, the government, accountable. If a state owned enterprise fails in profitability and above all in service, the motive behind and validity of government ownership becomes highly questionable.

Yet, the populists want more.

While nationalisation, particularly of mining, may be a dead subject to the elite, it is very much alive in populist politics. In order to underscore its stupidity even to those who want ownership, I extrapolated a contribution account, reflecting wealth creation and distribution for the industry as a whole.

As the graphic shows, nationalisation of mining will bring the state only the 8% from dividends (5). It cannot escape supply costs (1) and capital expenditure (2) which is the lifeblood of mine survival. It most likely will succumb to labour pressure which will increase the employee share, obscuring efficiencies and ultimately forcing taxpayers to sustain operations.

Nationalisation may nearly double the government’s revenue from mining but in return it has to manage the mine, run all the risks associated with mining, and use taxpayer’s money for development. The latter demands high risk private capital and not what would be tantamount to reckless use of taxpayers’ money

As they say: “Be careful what you wish for. You may just get it!”

A two faced business.

Facts and fallacies about the business sense of survival or empathy.

All economic debate is based on assumptions about humanity. Yet surprisingly, despite our scant knowledge of ourselves, we are prepared to assume fanatical stances on economic theory to the point of risking violent conflict.

It's self-evident that our economic construct cannot be too far removed from the essence of our humanity, our basic instincts, and that we will always strive to express ourselves in an optimally free environment. The latter implies freedom of transaction and markets and frankly I'm too old, cranky, impatient and perhaps even too arrogant to debate this point in the ideological kindergarten of red berets.

The two mutually supportive predominant instincts that define human behaviour are survival and empathy. The convergence of the two creates a vast number of permutations – as many as the variables in individual DNA’s and fluctuating constantly according to time and circumstance. These characterisations can also be applied to our understanding of companies, giving us broadly two definable approaches or models: a survival model and an empathy model. While their behaviours may show similar variations as those displayed by individuals, their purpose or intent is what defines them and will drive their predominant behaviour.

The survival model is the most commonly understood definition of business. It has a money focus, and is driven by self-gain, immediate self-interest, maximum profit and shareholder value. It mostly feigns empathy as a means of survival.

The empathy model has a people focus and a service motive. It is driven by customer and societal interests, and sees profits and wages as an essential means to service, rather than as an end in itself.

Common assumptions about both models need to be tested.

A survival motive accounts for success.

· Survival is based on fear and insecurity which promote greed and short term thinking. It’s inconceivable that one will get the best out of people by appealing to the worst in them.

· It contradicts an axiomatic truth that the true value of anything depends on the contribution it makes to others.

· It makes an arbitrary and highly questionable, if not false, assumption about the intent or motive of great entrepreneurs, sustainably successful companies, and individuals.

· Virtually all successful entrepreneurs have professed to have been driven by their passion and desire to make a difference to other people’s lives and not by profit.

· Long standing research by Collins and Porras of successful companies has shown that profit maximisation ranked fairly low if at all in their thinking.

Ensures prosperity for all in the profit driven deployment of capital.

· This is the most vehement defence of the survival model based on the quaint belief that wealth is created in its accumulation and deployment. Tangible wealth is and always has been the result of creating something of value for others. Capital accumulation and deployment is at best a result of that act.

· It is based on the fallacy that profit is equal to wealth creation or value added.

· It is extremely difficult to avoid short term thinking in a survival model which has led to serious economic ailments such as unsustainable wealth disparities, and marginalisation of other constituents particularly customers and labour. The “trickle-down” effect becomes severely impeded.

· Paramountcy of capital which is synonymous with “capitalism” leads to accounting for profit maximisation and shareholder value. It inevitably develops in its structural and operational processes, a conflict environment by seeing other constituents as exploitable resources and as costly commodities.

The survival model is synonymous with market orientation and free enterprise.

· Nothing is further from the truth. Market orientation means being driven by the needs and wants of others. The profit focus in the survival model means being driven by self-gain and your own needs. They are actually opposites in intent.

· “Capitalism” more appropriately defines a self-gain behavioural trait within free markets – a trait which has become self-destructive and a threat to freedom itself. The economic ailments it has caused have led to increasing rules, regulations, interventions and calls for bigger government.

· The above assumption relies on a misinterpretation of classical masters such as Adam Smith. While he did propose that freedom would lead to the pursuance of self-interest, he also believed that this self-interest would be mostly enlightened and driven by humankind’s instinctive empathy for each other – not predatory material self-gain.

Ensures competition and customer care.

· In the absence of a genuine intent to serve others, the survival model becomes hostile to competition, seeking either to destroy it or collude with it.

· This often leads to customer neglect.

· It also attracts further rules and regulations to govern its behaviour, which ultimately discourages new entrants, and favours big above small.

Ensures maximum productivity and efficient use of resources.

· This is partly true. But the standard macro measurement of productivity (output over input) is synonymous with profitability which again puts emphasis on the paramountcy of capital.

· Productivity is more easily achieved by reducing input rather than increasing output, encouraging containment rather than growth.

· This emphasis also prefers to grow output through mergers and takeovers, rather than through organic growth. In the process it also reduces relative input, reduces competition and marginalises other constituents.

The empathy model also conjures up many assumptions that have to be challenged.

The empathy model is leftist, socialist, Marxist and anti-free market.

• Without a strong underpinning of empathy our world would fall apart and humanity would self-destruct.

• As Adam Smith implied in “Theory of Moral Sentiments”, empathy is nurtured in freedom. Freedom in turn cannot flourish without empathy.
• Empathy cannot be institutionalised in a system. Coerced empathy is an intolerable oxymoron and creates resentment and envy.

It goes against classic business principles.

• There is no institution in society that relies more on empathy with others than business – albeit some more than others such as mining.
• Empathy is not about charity, but about sustainable service.
• The model relies on and has to be guided by the rules of free legitimate transaction of supply, demand and price.
• It should embrace competition as enhancing choice in its market and in identifying more opportunities in the needs and wants of its customers.
• A sincere empathy model is better equipped than its survival peers to adopt principles of common purpose and common fate.

It is revolutionary and untested.

• The empathy model is followed by more companies than many believe. Empathetic behaviour has been the hallmark of great sustainable companies and entrepreneurship and is particularly prevalent in small and medium enterprises.
• It is, however, difficult to recognise with the obsession and near exclusive focus on shareholders in accounting and in turn strategic and operational processes.
• These processes become toxic and counter-intuitive when they start dictating purpose, and then behaviour, which in turn impede the forging of common purpose and common fate, as well as tarnishing the image of and trust in business.

We are witnessing a struggle to change the course of business behaviour, with a plethora of new demands and rules. The answer is a lot simpler and requires going back to the basics of the inherent benevolence of any business.

But freedom itself will be threatened without a serious review of the company scoreboard to reflect empathy, maximum wealth creation and sensible distribution, all of which are far more supportive of and subservient to free markets than the survival model.

Sensible distribution in particular is not arbitrary but has to meet the legitimate expectations of all of the stakeholders. The key pre-requisite is not only that distribution has to be informed by factors such as supply and demand for skills and qualifications, and be comparatively attractive to capital investment, but that these rewards in turn are linked to and influenced by wealth creation and empathetic behaviour.

Shareholder expectations have to be defined and legitimised to what is defensible. Benchmarking informed by the relative cost of and competition for capital is easily achieved and some benchmarks already exist. Shareholder expectations cannot be legitimised under the banner of unbridled maximisation. This is a wanton challenge to social trust and constantly perverts the instinctive empathetic behaviour of business.

Indeed, enlightened and serious long term investors should favour the empathy model. In time, it is conceivable that all companies will be assessed on the basic criteria of which model they live by.

The real difference between the two models however, is a philosophical one. The survival model is about being alive; the empathy model is about having a life.

The Governor’s dance.

Marcus doing an interest rate tango on crutches.

With the January inflation rate at a higher than expected 5.8%, speculation is rife that the next Monetary policy committee meeting will see another increase in the repo rate.

At least this time there should be few who will be caught off guard as there was with last month’s announcement by Reserve Bank Governor, Gill Marcus, when she lifted the repo rate by 50 basis points (that’s ½% in non-esoteric terms).

Just as an aside, but an important one to the many whose economic welfare is sensitive to them, the presentation of numbers often hides some important truths. The increase actually translates into a 10% increase in the cost of using other people’s money and, just as important, a 10% income increase for a very large number of people trying to save or living on income from low risk savings. Indeed, in less than five years and even after the latest increase, the cost to borrowers has been more than halved and the income for savers even more so.

More telling than the actual announcement, or her defence of it, were the responses that inevitably followed from the usual “dial-a-quote” sources. They ranged from “surprise” to “inevitable” and from “wise” to “ill-advised” or “premature”. Few seemed to pick up on the irony that if it was so “inevitable”, why was it surprising? Even fewer, if any, questioned the fundamental premise that these interest rate manipulations are a cure-all for our economic woes -- if not a cure all, then crucially important in changing our economic course.

It’s an easy thing to do in a world that seeks facile control of its destiny and the touch of a magic button that can counter-balance underlying mischiefs or create a buffer against storms elsewhere: much like a fat-trap pill to reduce obesity. It’s a myth and a convenient one for many, including the labour movement and other sectoral interests unwilling to take the painful steps needed to get their own houses in order and make the country more productive and competitive.

And it’s a context where authoritative myth-busters should be applauded for having the courage to challenge their peers and colleagues and reveal the king with no clothes. Economist Mike Schussler is one of those. He did it once before when he dared tarnish that holiest of grails -- the measurement of Gross Domestic product. Given the inordinate obsession with this metric and its influence not only on policy but on the business mood and company strategies, I still believe his challenge was one of the more important economic developments in decades.

And he did it again recently, perhaps intuitively a few weeks before the Monetary Policy Committee announcement. In a Moneyweb Article, he shattered the myth that a lower exchange rate inevitably corrected trade deficits by encouraging exports and discouraging imports. To that one can add that despite more than ten years of declining interest rates, we have had very little economic growth to show for it.

The primary constitutional role of the Reserve Bank is to protect the integrity of money or the country’s currency -- internally through containing inflation and externally through a strong exchange rate. This questions the validity of any other role that may remotely threaten this task: such as promoting economic growth, job creation, or succumbing to any other social or political pressure. It also questions the role of the Reserve bank as being pro-active rather than reactive. One could argue the same for fiscal policy, or government spending, albeit to a much lesser extent. The forthcoming national budget will no doubt reflect how fiscal policy is being interpreted - accommodating or disciplined - in an election year!

These may be severely out-dated premises going back to the pre-seventies, if not earlier. Perhaps I have also overstated them in an environment where technology, knowledge and speedy responses have ridden rough shod over old world logic. But one thing is certain, and it’s an argument that I have constantly presented in my writings: no policy -- monetary or fiscal -- can accommodate or make up for misbehaviour. Behaviour at a personal, organisational and national level ultimately shapes institutions, policies and measurements. It is not the other way around.

And it is cause for celebration when old world logic trumps all of our impudence and arrogance in believing that we are so much in control of things that we can simply break some fundamental rules. In a nutshell the desired behaviour means living within our means, earning more than we spend or giving more than we take. In that way we create surpluses and in turn prosperity. The converse creates deficits and poverty.

Our forefathers knew this. Nothing has changed except our strange belief that things can be done quicker and easier by the stroke of a fiscal or monetary pen; by massaging statistics; by moving the goal posts of prudence; by a cheaper currency; by a benevolent banker; by the wizardry of an overpaid executive; by a charitable government; by marching in the streets or by withholding our efforts in the workplace. We see the effects of this fantasy world in burgeoning debt as individuals, government and as a trading nation.

The overriding remit of those at the helm of both monetary and fiscal policies (Gill Marcus and Pravin Gordhan) should be to courageously, vigorously and openly challenge these misbehaviours at every turn. There simply is no place in our current circumstances for political niceties and all of the vested interest nuances that are brought to bear on their decisions.

Until they do, they will be performing a tango on crutches in a ballroom full of clutter.

Enslaving the born frees.

Through the shackles of expectations and dependence.

In the hype that has accompanied the grand seduction of the so-called born frees into registering and voting in this year’s national elections, the seduced may want to heed the words of one of the most profound political observations ever made: “Man is born free and everywhere he is in chains”.

They were written by the 18^th century Swiss philosopher Jean-Jacques Rousseau, whose political thoughts, many historians believe, influenced the French Revolution as well as the development of modern political thought. They ring true with thunderous clarity in South Africa today against the bizarre irony that political freedom achieved two decades ago has spawned large scale and frequent civil protests as well as the birth of the “economic freedom fighters” now contesting the elections.

At the very least this reflects the self-evident reality that freedom itself is never an absolute, contradicting much of the large promise that underpins the election spin. Rousseau’s context expounded in “On the Social Contract” still holds true: that in the name of freedom we subject ourselves to a contract with others – customs, conventions, laws, rules and regulations which in turn inhibit freedom.

Those are obvious restrictions to freedom. But there are many other less obvious: imposed and self-imposed, that not only constrain freedom but lead to a vague inner agitation that often spills over into blaming of others, or misguided responses that have very little to do with the initial constraints or simply replace one set of constraints with more onerous others.

Nature, climate, living conditions, health, and access to basic life satisfiers all play some role in our inner experiences of freedom. Political freedom itself extends far beyond the franchise. Democracy may be the best system we have but as the Greek philosopher Plato observed centuries ago, it has some severe flaws which modern technology and sophistication have done little to assuage, indeed perhaps they have been highly exacerbated.

Majorities seldom rule. That rule is far more strongly influenced by personal expediencies of political incumbents, external vested interests and lobbies than by the expression of the popular voice every 5 years. Majorities more often than not contain as many dissenters and detractors as can be found in opposition parties.

None of this detracts from the importance of the vote and the need to exercise this right at every occasion. The danger lies in the creation of unrealistic expectations. The banner under which all the election hype is paraded, the seductive call of the concept of freedom and the extravagant promises which mesmerise followers, persuade large numbers into surrendering their destiny to others. In that, the born frees submit to the greatest enslavement of all: dependence on others and an expectation that things will and must be done for them. It is the addictive substance that governments use either directly or by implication to gain power over subjects and keep them subjugated and more often than not exploit them for self-gain.

Throughout time, politics and economics have been virtually indistinguishable. The relationship between them has been the predominant theme in virtually all debate and thinking on how societies are best structured.

What is perhaps less understood, measured and appreciated is how the political process itself, the election roll-out and political conduct within it shapes and drives individual behaviour that has a lasting and profound impact on economic destiny. The popularity contest that marks most democratic elections globally and the inordinate influence of money and media, make it increasingly difficult to attract the best leaders into government. The unpalatable reality that you can’t help people permanently by doing for them what they can and should be doing for themselves simply gets lost in a fantasy world of false promises.

South Africa has a particular challenge in the burgeoning youth vote. It’s a group that by and large has far fewer opportunities than before and are most vulnerable to political seduction and exponentially adding to that toxic mix where rights override responsibilities, expectations overwhelm aspirations, dependence is preferred over self-help, government becomes bigger and the number of people dependent upon it increasingly exceeds the number contributing to it.

It is perhaps an understandable global trend in a world clamouring for a change in the rules of the economic game against a backdrop of increasing concentration of wealth in hands of a few, the sheer size and behaviour of capital and the misbehaviour of large global financial institutions including banks. This has detracted attention away from lessons of history which, in broad brush strokes have shown that wealth creation is best achieved in the hands of free and private initiative, that the primary role of government is not wealth creation itself, but creating the conditions for others to do so.

While governments have a role to play in the wellbeing and development of citizens, they become counter-productive and nationally destructive when the former overshadows the latter, when indeed the two are seen as different. Anything that detracts from the willingness and determination of individuals to take charge of their own lives contributes to their enslavement. None are as free as those who are accountable for themselves in any circumstance.

What the born frees most likely will not hear from any politician is this: others cannot give you freedom; they can only remove restrictions to your freedom. The rest is up to you.

The trust conundrum.

South African government one of the least trusted in the world.

Only 17% of informed South Africans taking part in the latest Edelman Global Trust survey, trust the government to do the right thing.

This is the first time that South Africa has been included in the annual global barometer monitored by the world’s largest public relations firm. While opinion surveys have their pitfalls, the long standing Edelman research is viewed as one of the most authoritative and covers 33 thousand respondents in 27 countries. South Africa has made a rather shameful debut in its 2014 survey released this week, showing the lowest informed trust in government of the 27 countries researched.

One is tempted to conclude that this lack of trust by the informed (college educated, high income mature adults) is not shared by the less informed. But this is contradicted by the relatively low general public trust index average of 42%, which covers trust in the four main institutions of government, business, media, and NGO’s, or civic organisations.

This again raises the question why a government with such a low level of trust, still has such overwhelming support at the polls. Blind historic allegiance to the “struggle” and less populist opposition parties are perhaps two of many answers. But in the absence of comparable Edelman data (which shows a global trend of a substantial decline in government trust) the forthcoming April elections could yield some surprising outcomes.

Despite political and media rhetoric (my own included) that has criticised business behaviour over the past number of years, most informed South Africans (63%) still trust business to do what is right. This means that the country has another dubious honour of having the widest gap of the countries surveyed between trust in government and trust in business.

The gap globally is one of the noteworthy features of the survey and is shared by virtually all of the countries involved.

This poses a colossal conundrum for business and society as a whole.

· There are still many (42%) who distrust business.

· Trust in business generally has not improved. Indeed it has been buoyed by an improvement in emerging markets, but an entrenched if not growing scepticism in the developed world.

· While most trust business more than government, there is a continuing demand for more regulation of business, especially in the financial sectors, energy and food.

· More than half (51%) see the primary role of government as being the regulation of business and protecting consumers against exploitation.

· Company leaders are simply not trusted. Only about 20% of the general public trust business leaders to make ethical or moral decisions; tell the truth and help solve societal problems. It is even less (about 15%) for government leaders, pointing to a lack of moral leadership worldwide.

· Adding to this sense of disquiet is the decline in public trust in the media – down from 57% to 52%. American and British media score rather poorly at about 40%, while South Africa media received a rating of 55%.

· As sectors, the media and banks share the lowest rankings in trust, the latter having improved their trust score in the last year or so. The most trusted sector is technology followed by the automotive industry.

· Less than half of the general public trust the financial services industry to do the right thing, with the financial advisory and asset management sector ranking even lower at 46%.

· The most trusted constituent in society remains the NGO or civic organisation sector, followed by business, the media and then government.

Edelman CEO, Richard Edelman believes it will be “a monumental error” for business to see the sharp decline in trust in government as an opportunity to agitate for greater deregulation. They should rather build on their higher trust position to engage societal concerns.

“Our research indicates a reputation hangover for business from the Great Recession of 2008. Events of the past 12 months ...have renewed concerns about business’ ability to self-regulate”, he says.

The latest Trust Barometer again reminds business of the need to move away from old paradigms and assumptions about itself. It’s a subject that has occupied most of my writings in “The Human Touch” on Moneyweb. The narrow “profit above all else” mantra and short-term shareholder value criteria that have dehumanised business over the last few decades will impede the evolvement of business and a return to its rightful place as a force for good and making a meaningful difference to our lives.

Edelman Executive Ben Boyd has perhaps summed it up best: “Today’s world requires a shift from the historic, transactional nature of capitalism to a model of value creation that encompasses societal benefit as well as shareholder value. This year’s data outlines not only an opportunity, but more importantly, a responsibility for business to redefine and reprioritize the way it thinks about value. To this end, value is no longer the sole domain of the finance function.”

Sound familiar?