What do Malema and Knott-Craig Sr. Have to Teach Us About the Morality of South Africa's Economy?

By Saliem Fakir · 2 Mar 2010

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Picture credit: Muffet
Picture credit: Muffet

A few weeks ago a Sunday Times exposé on highly regarded and respected former CEO of Vodacom, Alan Knott-Craig Sr. raised some interesting questions about the relationship between economics and morality.

Knott-Craig Sr. was alleged to have been involved in nepotism, corporate malpractice and violations of corporate governance, according to a confidential KPMG audit report. He was accused of lavishing favours worth millions of Rand on his son and other family members.

The allegations hang despite the rebuttal from Vodacom and Knott-Craig Sr. linking them to a group of disgruntled ex-employees. The former Vodacom CEO's public halo has, however, dimmed as a result.

Recent allegations on the subject of Julius Malema’s tender millions also raised the public heckle.

Significantly, what both these occurrences tell us is that the problem of 'unscrupulous business morals' is as rife in the political world, as it is in the corporate world.

And, it is an issue that is gaining public awareness.

The crisis of moral confidence in the economy was a topic of discussion following a recently published report by the World Economic Forum, titled, Faith and the Global Agenda: Values for the Post-Crisis Economy.

The report was based on a survey of 130,000 people, mostly under the age of 30 in ten countries, including South Africa.

A significant two-thirds held the view that the global financial crisis came about as a result of a deficit in ethics and values within the economy. For South African respondents, a significant 77% believed this to be the case.

Globally, less than a quarter believe that large multinational businesses apply a 'values driven' approach to their businesses and South African respondents reflected this perspective with only 20% rating multinationals positively on this issue.

At the same time, most believe that people do not apply the same values to their professional and private lives. For South Africa, 72% of respondents believed this to be the case. Thus, highlighting a problem of moral duplicity between private and economic actions globally, and quite significantly in South Africa. 

Yet few think of an economy as a moral animal.

Economics, as it is being taught, is not taught as a moral science, but rather as a matter of efficient logistics. Remember the demand versus supply curve in economics 101? Well, that is the start and end of the basis of economics.

And, perhaps also the beginnings of its undoing.

The emphasis on efficiency usually also translates into cost reduction, which essentially means greater profits for those who own and can control economic inputs, such as the costs of labour and materials.

Economists are taught to measure success in terms of growth indices and not whether the economy has been fair or resulted in more equality. There is no real theory on redistributive efficiency per se.

The latter measures are moral measures because they assess the degree to which the pursuits of economic agents are contributing to the general welfare of society, as opposed to being at its expense.

Prominent economic theorists who have favoured the aggressive capitalist model have tended to use 'theory' to perpetuate this divide between markets and morality.

The prominent Dutch-Anglo thinker Bernard Mandeville (1670-1733) who wrote the famous tract, The Fable of the Bees, was notorious for insisting on the separation of morals from the markets.

He laid the seed of an idea that has had great influence on a model of economics based on the virtue of egotism. His influence has extended to influential modern free-market economists such as Milton Friedman and others.

Mandeville's paradoxical principle was, "private vices, public benefits." It is a motto that has given great credence to corporate malevolence, exercised privately and publicly within its halls of power against competitors, suppliers and customers -- despite the presentation of an untainted public façade.

Perhaps Mandeville touches on a bitter truth; that this very 'private vice' ethos can’t be done away with without changing human nature itself such that integrating morals in the function of business is an impossible task.

For Mandeville, morals perpetuate self-denial. They interfere with the end result in that virtuous outcomes come from selfishness. To illustrate this point he wrote, "Pride and vanity have built more hospitals than all the virtues together."

The problem is that Mandeville has hit on something without developing a theory of how to restrain these vices when they do get out of hand.

But where economic theory dares not go, certainly moral theory should. After all, one of the great founders of economic theory, Adam Smith, was a moral philosopher himself and had a lot to say about the ultimate purpose of economics.

But Smith's followers mesmerized by his thesis of the "invisible hand" (meaning self-interest) pursued the idea to such an end that they obliterated the moral moorings that came to define his entire corpus of work on economics.

We should also be weary of the idea that morals and markets must be separated for another reason. There is a thing called Gresham's Law. While its application was originally formulated for money, it has resonance for other aspects of the economy.

Gresham's Law states that if there is sufficient counterfeit money circulating in the economy than those who have real money and gold will not circulate the real thing. Their fear is that if they entered into transactions they would end up receiving fake notes or gold.

The principle of Gresham's Law being that the bad drives out the good. The same can be said about moral agency in the economy. Too many bad agents will invoke Gresham’s trope -- the bad agents drive out the good agents.

The predominance of corrupt or immoral behaviour creates the general tendency for the toleration of such corruption where it becomes, in essence, the cost of business and how business is done.

It becomes business culture itself.

The boundaries within which business operates are not always what it publicly professes the case to be. The survival of business is not solely an outcome of the market, but really how it shapes the market through political intervention.

It is, therefore, no surprise that politics and business blend. Business and politics are mere alternate faces of the same thing: power itself.

This is illustrated no better than with the controversy surrounding Malema's business dealings. Malema's real objective is not business, but political power. Unscrupulous business, if this is proven true, becomes a means to an end for him.

The South African Communist Party (SACP), always to be trusted with producing witty neologisms, called this phenomenon of business and political collusion, most aptly "Kebble-ism," after the late Brett Kebble, who dished out oodles of cash to influential ANC cadres to promote his own ambition for a large mining empire.

Kebble did his business politics visibly and loudly while others did theirs quietly.

The whole business of politics has becomes business itself. And as much as politics craves power, so does business. The fetish for corporate power is no different from the obsession of big government to gain power over the public domain. However, the ambition of power for its own sake has a corrupting influence.

The corruptibility of politicians often goes hand-in-hand with the general corruptibility of the economy. Why else would politicians want to be corrupt other than gaining financial reward?

And given the problem of the revolving door between business and politics these days, the potential for mutual corruptibility as part of mutual benefit between the two worlds becomes ever more the norm rather than the exception.

Such incestuous relations themselves do nothing to allay public cynicism.

More so when "tenderpreneuralism" (another wonderful SACP neologism) flourishes, making political accountability subservient to business ventures (the second hat of politicians).

It becomes so infectious that the appointment of public servants is done with the design of securing ‘tenderpreneurial’ opportunities by ensuring sufficient 'in-people' dominate decisions over supplier choices, suppliers and contracts.

After seeing so many repeat offences between business and politicians there is little value in trust.

Unlike power within the state, which can be checked for the abuse of power through a properly working democracy and courts, corporate power can go unchecked unless there is a strong state and corporate shareholders and consumers to take action.

This dual moral deficiency - in state and economy - will exact a heavy burden on our moral resilience.

Encouraging a moral economy won't come through sentiment only, but by putting faith back into citizenry and ensuring that the few weapons we have within the embodiment of the state are not so corrupted that they favour this continued and ostensibly seamless and mutually beneficial co-operation between corrupt states and corporations. 

Fakir is an independent writer based in Cape Town.

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