By Glenn Ashton · 23 Jul 2013
There is widespread outrage at the exposure of collusion by South Africa’s largest construction companies, including the so-called “big six,” by our competition authorities. What is really interesting is that anyone is surprised about these revelations. After all, is this not how business is done?
The primary prerogative of any corporation is to return a profit on investment; everything is subordinate to that objective. We can have as many King III’s, as many Charters of Ethical Business Practice and as much moral regeneration as we like but once profit maximisation becomes the predominant raison d’être, human nature will certainly see greed trumping morals, nine times out of ten.
The clumsy defence of building industry collusion by Peter Bruce, editor of Business Day, our only national daily business newspaper, underscores the failure of the business community to recognise their fantasy of rectitude. Bruce’s attempt to nuance his defence of the indefensible by suggesting that South Africa would not have met its World Cup commitments if the big six – which includes up to 12 other companies - had not colluded, is at best speculative and, at worst, the sophistic grumblings of an apologist for corporate extortion.
Shortly after the World Cup, Labour Research Service researcher Michelle Taal highlighted the remarkable increase of profits by the big five, from an already healthy R790 million in 2004, to over R10 billion in 2007, when the World Cup contracts started to kick in. These suggestions were predictably dismissed by business leaders and their tame cheer-leader journalists as an attack on good business practice, at least until the Competition Commission began to reveal the extent of the rot.
Of course this is by no means the first collusion and price fixing scandal to occur in South Africa. We have had the bread cartel bust, which involved most of our large millers and bakers. Sasol has been caught out fixing prices around the world. Telkom was set straight by the competition authorities after serial failures by both the relevant ministry and the supposedly Independent Communications Authority of South Africa to rein in their profit gouging business practices. We have had concrete and wire products manufacturers caught out on similar grounds. And on it goes.
In fact South Africa spawned one of the worlds greatest cartels, that of the diamond cartel known as De Beers, set up by delightful individuals like Cecil Rhodes, JP Morgan, the Rothschild’s and of course the Oppenheimers. Even during the depths of apartheid, De Beers controlled the global diamond market, bringing the dreaded USSR and even independent African nations within its sphere of control.
Interestingly the De Beers cartel was only really actively prosecuted in the US, where it recently settled without admitting liability. In diamond rich nations like Botswana and Namibia, it simply colludes with the state to control the market for what are essentially hard, pretty stones with no other intrinsic value. De Beers is a classic case of market and resource consolidation and collusion, as taught at business schools and emulated wherever possible in the business world.
Against this backdrop, these revelations of collusion across the building industry are hardly earth shattering. However, that does not mean we should condone this behaviour, even when viewed through Bruce’s utilitarian lens of “getting the job done.” None of us are insulated from the effects of this destructive behaviour.
Besides manifest impacts such as all ratepayers having to pay increased rates in order to bail out overpriced world cup stadiums - Cape Town Stadium alone is estimated to have cost an extra billion Rands because of collusion - there are equally significant but somewhat less tangible, indirect costs to us all. By diminishing the ability to openly and transparently compete, innovative or cost cutting newcomers are excluded. Time and cost pressures on those who win the tenders reduce job creation through increased mechanisation, automation and rationalisation.
On a more abstract, but no less real level, this collusive behaviour exacerbates our already unacceptable income disparity. Taal exposed how directors of the big five earned, on average, 166 times that of a general worker in 2004. By 2007 that gap had grown to 285 times. In other words an ordinary worker would take 285 years to earn the average CEO’s annual takings.
Given that Murray and Roberts’ CEO Brian Bruce was the country’s top earner in 2007 at R99 million, the gap appears even wider. It is hardly surprising that there were continual strikes in the sector during the run-up to the World Cup, as tight schedules placed intense pressure on workers without suitably matching compensation.
This is far more than simply the enrichment of the elite, justified under the misleading claim that we need to pay executives competitive rates in order to retain them. This sort of collusion – and any corrupt practice for that matter – increases the wealth gap, and gives lie to the now disproven theory of trickle down economics. Instead of trickle down, money gushes upward towards the boardrooms, at our collective expense. We all pay, through increased interest rates, municipal rates and taxes, to fund this collusion and corruption.
Yet the free marketers and holders of MBA’s insist that this is the way business is done. Yes, maybe, but does that make it right? This is where we get to the nub of the problem; the intrinsic contradiction between complaining about corruption while countenancing collusion.
Is there really much difference between corruption and collusion? In definition yes, perhaps, but it’s pretty bloody nuanced. Most officials guilty of corruption will justify their actions by comparing them to the actions of business cartels – our bankers, bakers and construction industry simply show how things are done and ought to be done. See where this all leads?
So yes, we can have every available tool of best practice but corrupt cops, politicians and bureaucrats will simply point to the editor of a leading financial journal and directors of leading business schools, saying we have to get the job done, and this is how it gets done- on, down an endless slippery slope.
The real lesson, echoed down the depressing and ever expanding roll-call of ostensibly leading South African businesses being hauled over the coals by the Competition authorities is this: Perhaps the fault lies not only with rogue companies and immoral leadership pursuing maximum return in the shortest possible time. Surely it is the system itself that is broken?
And for that matter, should the Competition authorities even be playing the role of a moral watchdog? As exemplary as their role is, should we not unrelentingly prosecute those who corrupt the system, through their collusion or any other mechanism?
If we are to stop the rot we, the people, need to keep a beady eye on all of the players in this game. Our corporate, political and administrative leaders must all, each and every one, not only be above reproach, but be seen to be above reproach.
We need at least two major changes to achieve this. One is to urgently render all political party funding totally transparent. The present system is effectively institutionalised corruption. The other is to prohibit companies from hiding behind ostensibly “confidential business information,” or politicians and administrators behind abused concepts of security clearance and self-serving claims of sensitive information.
Our present business and political leaders have elevated such Machiavellian activity to standard operating practice, echoing poor role models like the US and UK, where all is secret until whistles are blown. The best way to curtail unethical and corrupt practice is to ensure meticulous transparency. We cannot continue to allow the rules to be set by the same tiny elite that continually break them to profit at our collective cost.
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It has become very tiresome to read endless reports in the press about state corruption while very little is said about corporate corruption. This is a refreshing alternative to that (racialised and anti-state) narrative. Corruption is corruption, finished & klaar.