Does the state have what it takes to open up economy?

The problem of monopoly has been with us for as long as human beings have traded goods and services. The good that has come out of modern economies — competition, free markets, innovation — is stalked by the ever-present threat of domination and stagnation.

Adam Smith, he of the “invisible hand”, railed against monopoly. “The price of monopoly is upon every occasion the highest which can be got”, he wrote. But the price that emerges from free competition, what he called the natural price, “is the lowest which can be taken, not upon every occasion, indeed, but for any considerable time together.”

The monopoly price, he said, is squeezed out of consumers, whereas the competitive price is the lowest that a seller can take and remain a viable business. Monopoly, he said, is a great enemy of good management. And like competition regulators, he was leery of any gathering of people of the same trade, which was likely to end in a conspiracy to raise prices.

There is a strong feeling that SA is in the grip of monopoly. Measures to open the economy – through equity-driven black economic empowerment, the competition laws as they stand, what small business development policy there has been – have not yielded much. In his state of the nation address, President Jacob Zuma presented evidence that black people, especially women, remain on the margins of the economy. And so, he presented the essence of radical transformation as an effort to open the economy to the excluded black majority and in so doing, “help to make the economy more dynamic, competitive and inclusive”.

The proposals in the address will be detailed in the various departments’ votes. But the guiding principle seems to be a desire to see more black people in active roles in the economy. This would be achieved by using, I suppose more effectively than in the past, the state’s buying power and leverage to support black business; and to encourage white business to subcontract to black firms. Although the barriers to black participation in the economy are framed as historical and institutional, the speech expressed some frustration with black people who cash out proceeds from land reform instead of becoming farmers.

This year, the competition authorities will be given more powers to tackle the level of concentration in the economy. This is likely to see amendments to the Competition Act dealing with complex monopolies come into effect. In the current formulation of the amendment passed in 2009 but not proclaimed, scrutiny would fall upon markets where five or fewer firms collectively hold at least 75% of the market share.

WE’VE SEEN THAT STATE EXPENDITURE AND INTERVENTION IN THE ECONOMY HAVE BEEN RACKED WITH CORRUPTION AND MISMANAGEMENT

Then the authorities must determine whether a subset or all the firms in such a market appear to act in concert, although without explicit agreement. If a finding of monopoly conduct is made, the authorities are empowered to order remedies that will restore competition in the market.

It is possible that the amendments to “deconcentrate” the economy may take another form. But the idea will be to add weapons to the competition authorities’ arsenal to extend their effectiveness beyond breaking up cartels.

Politics dictate that this policy package should be declared radical. But will it work? Policy proposals have fallen victim to poor consultation and weak design. We have seen that state expenditure and intervention in the economy have been racked with corruption and mismanagement. Dare we hope it will be different this time, Mr President?