So­cial pol­icy dogged by free mar­ket

Terry Bell

CityPress - - Business - Business@ city­press. co. za MOY­AGABO MAAKE moy­agabo.maake@city­press.co.za

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.

TSA AIR­WAYS

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.

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