Social policy dogged by free market
Once again, we’re getting calls from a number of trade unions for the private sector to exercise “social responsibility” in order to help build a developmental state. It is a far cry from 1996, when the combined labour movement presented alternative economic policy proposals.
But trade union leaders should be fully aware that social responsibility only forms part of the capitalist system in so far as it affects the bottom line. Reducing profits and shareholder dividends to benefit the community only makes sense within the system if doing so boosts later profitability.
It is not just a question of any socially responsible company losing out to competitors and, as a consequence, going bust; it is, in fact, arguably illegal for company directors to prioritise benefits to the community over increasing dividends to shareholders.
A classic court case that underlines this was Dodge v Ford in the Michigan Supreme Court in the US in 1919. This was before the Dodge brothers started making their own cars and were 25% shareholders in the Ford Motor Company.
Henry Ford, a harsh boss who hired and fired at will, still qualified as an enlightened capitalist because he paid over the odds to those who worked for him. He did so because he had virtually no competition and understood the people who built his cars also bought products made by other workers. The money spent by his workers boosted the earnings of others who would, in turn, buy more products, including cars.
This is the idea of the “virtuous cycle” that owes its origins to one of the founders of free market capitalism, Adam Smith. But like Smith, Ford never saw the possibility of a world of surpluses, leading to a “vicious cycle” of competition and to the global crisis we now face.
In 1918, Ford decided to reward his customers by reducing the price of his cars. The Dodge brothers didn’t agree and took Ford to court.
The brothers argued it was the fiduciary duty of the company to maximise profits to the benefit of shareholders, not customers. The court agreed and higher prices – and profits – were maintained.
That, in a nutshell, is the essence of the system. But, in a parliamentary dispensation where politicians can, to an extent, regulate the economic environment and in which the voting community can exert some pressure, the anarchy of the free market can be constrained to the benefit of workers, the communities they come from and the population at large.
That was the thinking behind the release of the social equity and job creation document endorsed by the labour movement in 1996.
Here, unions played a proactive role and produced well-structured arguments. These were based on the idea that redistribution would lead to more jobs and economic growth.
But the major federation, the ANC-aligned Cosatu, quickly back-pedalled when government introduced its “trickle-down” GEAR policy, based on growth leading to redistribution. Since then, and apart from fairly constant sniping at the “neoliberal nature” of Gear and the policies that succeeded it, labour has produced no comprehensive economic alternative.
And government, despite numerous protestations about development and beneficiation of mineral resources, has continued to pursue its free market course, in the process losing advantages previously held.
Alternative policies are clearly needed. If Cosatu can overcome its present problems, the labour movement could again put forward the reformist redistribution leading to growth policies.
Within the confines of the national economy, this could lead to more jobs and a reduction in the wage and welfare gap.
The public enterprises minister has asked for nominations for board members for seven state-owned companies on her watch. This follows a review conducted by Minister Lynne Brown and her department that led her to conclude the boards, including those at Eskom, Transnet and South African Airways, needed bolstering.
It is not clear whether the current boards will be given the chop. Nominations close next week.
Asked whether Brown was cleaning house, Peter Attard Montalto, an analyst at Nomura, said: “Maybe, but the ANC has such a tightly controlled process of cadre deployment that the best we could really hope for is cadres with a better grasp of the technicalities and with business acumen, who are still loyal to the party and policy.
“The reality is that the number of people ‘authorised’ by the ANC with that skill set is probably not huge.”
Colin Cruywagen, Brown’s spokesperson, did not directly answer questions on the influence of the ANC’s deployment committee, but he said Brown’s statement was clear about what she was looking for.
“We will not add to the statement,” he said.
Attard Montalto said Brown’s move was a signal that Treasury was having a serious influence across government in showing “the sheer impossibility of the current path of parastatals”.
Treasury officials earlier told Parliament some parastatals were operating unsustainably, with some of them borrowing cash to fund operations instead of infrastructure.
This week, Brown held back the annual reports of South African Airways and SA Express because the law requires them to prove they will be able to continue operating for a year after signature of the financial statements. Neither airline could do this – they were already in talks with Treasury for further state guarantees.
FINANCIAL SNAPSHOT: 2012/13 revenue: R27.1bn Pretax loss: R1.2bn GOVERNMENT GUARANTEE: R5bn he airline’s board, led by Duduzile Myeni, comprises 11 relatively new members. But it has been riven by squabbles that have spilt over into the media and prompted Brown to hold a frank meeting with the board in June.
In a note to Parliament this week, Brown said she could not table SAA’s 2013/14 annual report as the airline had applied for an additional going-concern guarantee from Treasury.