Monopoly power needs policy fix
If you googled “white monopoly capital” in SA last Sunday, you would have ended up pretty confused. The headings on the first five hits variously asked what it is, said we need to go beyond it, suggested it’s a myth, proposed a deconstruction, and argued that it’s a dangerous discourse.
Yet there’s not a lot of debate about the unusual concentration of ownership and economic power in SA. To take one indicator: in 2014, just 616 companies paid two-thirds of all company income tax in SA. That’s less than 1% of the 700,000 enterprises registered for tax. The top 616 companies reported more than R100m in taxable income apiece.
Economists generally agree that monopoly power can encourage inefficiency and aggravate socioeconomic inequality. These tendencies do not follow from some moral failing on the part of the managers or owners, but rather from the nature of market power. Big companies will always be tempted to use their strength to raise their profits at the cost of competitors, consumers, taxpayers or workers.
In SA, this is most obvious in the prevalence of importparity pricing for basic goods such as steel, fertilisers and animal feed.
In a competitive economy, prices should be determined by the cost of production, not by international benchmarks. That is how competitive markets push producers to reduce costs. But if the only real competition comes from imports, which in SA include the cost of transport, then companies may be able to maintain prices well above their costs. Ultimately, society as a whole ends up paying a whole lot more.
Big companies in SA also contribute to unusually unequal pay scales. Our biggest companies benchmark their executives, managers and senior professionals against New York and London. But they measure workers’ wages against China’s and Brazil’s. The result is that formal-sector wage inequality in SA is among the worst.
Bloomberg found in SA CEOs earn more than 500 times the per capita GDP. In the US, the figure is 300; in most of Europe, less than 200.
If companies are less efficient and equitable because they have market power, promoting a few black individuals into their management and ownership will not help much.
True, the big companies are anything but representative. According to BusinessTech, for the 40 largest listed companies in SA, nine out of 10 CEOs and seven out of 10 board members are white.
The ownership of SA’s biggest companies has become considerably more diffuse since 1994. According to Who Owns Whom, 20 years ago, Anglo American alone accounted for 43% of all shares on the JSE and Rembrandt for 13%. Financial institutions controlled 28%, while directors and institutions – largely pension funds – held 8%, and foreigners just 2%.
Today, Anglo American has divested most of its assets in SA. Its head office and biggest holdings are now overseas, and by 2015, it owned just 2% of the JSE. Rembrandt was down to 9% and financial institutions as a group were at 11%. But foreign shareholdings had climbed to 27% and institutional and directors’ holdings to 29%.
The Public Investment Corporation, which manages public-sector pensions, held more than 10% of JSE shares.
If the government really wants to tackle monopoly power in SA, it has to deal with the market structures and systems that underpin it. That means working with large companies more systematically to achieve developmental aims such as equity, job creation, broad-based empowerment and sustained growth, while promoting small producers and self-employment on a much larger scale. The overriding aim must be more equitable access to economic opportunities for all South Africans, not just improving representivity at the top.
In this context, industrial policy is often more important than classic competition measures. The South African economy is relatively small, so in some industries — for instance basic steel and petrochemicals — it can support only a handful of modern producers. The state may have to use industrial policy measures to influence companies’ decisions rather than just penalising collusion.
Ultimately, SA’s narrowly concentrated economic might is not compatible with democracy. But modern economies are complex and capital, like labour, can go on strike. The governance challenge is to find effective and strategic ways to manage economic power towards a more inclusive and equitable economy. It doesn’t help to confuse simple slogans with practical policy initiatives, or to act as if improved representivity at the top will automatically trickle down to benefit the majority.
IF THE GOVERNMENT REALLY WANTS TO TACKLE MONOPOLY POWER IN SA, IT HAS TO DEAL WITH THE MARKET STRUCTURES AND SYSTEMS THAT UNDERPIN IT