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The toxic trade-off

Labour, business and government seem locked in dispute over who should get what, focusing on distribution rather than contribution and wealth creation.
In reality, tangible wealth can only be created by being useful to others. Picture: Supplied

From any point of view, it was a sad day to experience the recent power outages because of an Eskom wage dispute, and to witness angry workers trash Nelson Mandela Bay. Clearly not on the same scale, there is still some similarity between those actions and that of using women and children as shields in military conflict, or children as suicide bombers. Whoever the perpetrators are, they will vehemently defend the ends as justifying the means. To which Adam Smith, the Scottish economist of the 1700s, would have responded: “Virtue is more to be feared than vice, because its excesses are not subject to the regulation of conscience.”

It’s not acceptable to harm or even inconvenience others in the pursuit of self-gain, which in itself seldom qualifies as a noble cause. In the same vein, there can never be any justification for imposing your own needs and wants on customers, clients, consumers or users. It’s a moot point whether modern society has not become too tolerant of this behaviour, often excusing it in the same way we tend to be lenient on transgressors who have had a tragic upbringing.

Yet it is understandable in the broader context. For the most part we have made the pursuit of self-gain the most important, if not exclusive, purpose of our economic endeavours. The term ‘exploitation’ even features in some organisational theory handbooks as an objective when it comes to markets and resources.

It is that concept which inevitably spawns the kind of behaviour we witness on many fronts, of which labour agitation is just one. When these principles are marshalled and expressed through powerful groupings such as labour unions, large corporations, business theory, governments and many other, they often do battle with each other and the fighting elephants crush the grass. It unleashes a toxic trade-off between vested interests; an obscene haggle which culminates in scheming, conniving, colluding, manipulation, theft, corruption, customer neglect, and even societal harm.

This conflict cannot be settled at a centralised level such as Nedlac or centralised bargaining. Solutions there often impose intolerable prescriptions down the line and undermine – instead of encourage – much-needed flexibility. It has to happen at an individual enterprise level where a common purpose can unite the stakeholders and expectations can be managed. Do not blame labour only! Capital interests have been the architects and refiners of the short-term profit-maximisation model and the destructive excesses we have seen in the last few decades. Labour simply follows the same logic, compounded by the commodity status it has been given (largely by itself) and, in this country, by a fall-back to radical cold war rhetoric.

The self-gain, profit-pursuit theory is flawed in many respects. For one thing, it does not distinguish between purpose and motive. Purpose applies to the collective; motive more to the individual. Clearly, the more individual motives are aligned to a common purpose, the more powerful that collective expression will be. But that common purpose will suffer when individuals or stakeholder groups pursue their own conflicting vested interests. The second flaw is the assumption that wealth is generated by the pursuit of those interests. In reality, tangible wealth can only be created by being useful to others. It is then a huge leap to say this happens automatically when people exclusively pursue their own maximum material self-gain; that we achieve the best in us by appealing to the worst – greed or fear. That particular assumption has been proved wrong time and again.

Despite King IV’s ideal of seeing business as an instrument of creating value for all, global emphasis on inclusive economic performance, and the wave of new economic thinking that challenges classic economic theory, we still don’t seem to be close to forging new paradigms. The main participating stakeholders of labour, capital and state seem to be locked in dispute over who should get what. The focus is still mostly on benefits and distribution, rather than contribution and wealth creation.

The latest mining charter proposals are a case in point. This chart, based on the PwC ‘SA Mine’ survey in 2016, shows how misguided they are.

 

With state and labour being 75% beneficiaries of mining wealth creation, the obsession with changing the capital structure seems absurd. It can be explained only by an assumption that in all things, capital rules supreme. Little in the charter, and nowhere in his comment on the charter, did mineral resources minister Gwede Mantashe explain how it would ensure higher production, mining sustainability and increased wealth creation. Again, and as always, it’s all about distribution rather than creation; about taking instead of giving.

Little in the mining charter explains how it would ensure higher production, sustainability and wealth creation … it’s all about distribution; about taking.

If we want to take the “creating value for all” refrain seriously, not only must we stop the stakeholder trade-off, but we must get them to share an unequivocal common purpose of maximum wealth creation and a common fate in sensible and flexible distribution. I have written megabytes on this theme, but a more recent thought struck me that company boards must be re-examined. At present they represent virtually exclusively shareholder interests, but they could be broadened to include the other contributing stakeholders of labour and state. This will only work if all think entrepreneurially in line with the above common purpose of serving their markets. Frankly this can’t be said for shareholder interests. Perhaps more so!

And let’s not blame ‘the system’! The constant harping on about “capitalism” or “socialism” has become presumptuous, boring and counterproductive. Economics is not about systems, constructs, institutions or numbers, but about an evolution of meaningful and mutually empowering relationships between people. Systems that we impose on that will always fail if the perceptions, assumptions and behaviour of people are flawed.

One of the most intriguing issues humanity has always wrestled with is the deeply profound relationship between contribution and reward; giving and receiving; empathy and survival.

What comes first? Where must the emphasis lie? I’m more convinced that Newtonian cause-and-effect logic is not appropriate. Not only are the two mutually supportive, they are one and the same thing.

That principle is reflected in accounting practice in the value-added or wealth-created measurement – what I have called “the magnificent metric”. It is also the oldest, simplest and most powerful economic principle known to humankind. It captures both contribution and reward in one number – a bit like those optical illusion drawings where two pictures are contained in one, depending on how you see it. And if the whole measures both, then the parts (labour, capital and state) reflect both. We can quibble about proportions, but never to the extent of harming the whole.

So wherein lies the logic of expecting more by giving less – in withholding one’s labour or contribution? A price will inevitably have to be paid somehow, somewhere. The body economic is scarred, and those inflicting the wounds will ultimately pay a price beyond some loss of income. The bigger damage is loss of trust and tarnished reliability. But let’s not exonerate those who for too long have viewed labour as a cost, a drag and a burden to their own slice of the pie.

This thought from American philosopher Waldo Emerson: “It is one of the beautiful compensations in this life that no one can sincerely try to help another without helping himself.”

Imagine adopting that as the supreme principle of economics.

COMMENTS   7

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“Focusing on distribution in stead of contribution” …hit the nail on the head.

Everyone wants a fish, few want to learn how to fish. Those that do want to learn don’t have support because politicians are so busy promising giving away fish instead of developing sustainable skills.

Being given a piece of land isn’t empowerment, being given a (proper) education is.

Well thought through and written, once again. I cannot help wondering whether this attitude of distribution without contribution is not perhaps linked to one of my own observations over the years. The struggle against an unjust political regime in South Africa was dubbed a struggle for freedom. Yet, since “freedom” in 1994, it seems the political leaders are hell bent on limiting the newly found freedom in all kinds of ways. Is there maybe a fear of freedom and of actually having to do something to contribute to the purpose of tangibly improving everybody’s existence – in labour, business, and government?

I remember reading an article many moons ago, about Uhuru somewhere in mid-Africa. All and sundry were invited (drums at night etc).
People were invited to attend the ‘’independence’’ celebrations…
Thousands arrived with big baskets etc. They were very disappointed as they believed that they would receive goods and presents etc

You simply have to look at the published salary scales for Escom in comparison with other salaries to realise that most union bosses do not really speak on behalf of the “poor”.
The attitude of destruction of property, the economy or rubbish bins, for that matter, shows a total disregard for anybody other than own, narrow, self interest.

Jerry, u started well: “Labour, business and government seem locked in dispute over who should get what, focusing on distribution rather than contribution and wealth creation.” then you went off the range and got lost in noise! Come back to simple basics Jerry! Like a old radio with two tuning knobs, lets get the fat knob moving before fine tuning!(ie. talking a lot of nonsense about why? Heck, throw in “is there a God” why don’t you?)
U can only create DIGNITY, sense of purpose, SELFWORTH, social stability with Jobs, Jobs, Jobs, Jobs and more Jobs! Do u understand that? Do u understand what a job does for people? Idle hands are the devils hands! Heck people with jobs are too tired to blinking protest!(well, Im an accountant, personally my mind is fizzled by the end of the day)
Any Job is better than NO Job! Fat Knob first, then fine tune for better job, better pay, better benefits on an individual level. U want it, work for it, here is a job!

And how many jobs? To the point where individual persons have a choice for whom to work for! Government does not have to do much, just give the private sector the room and confidence to invest and then leave the private sector to do its JOB of creating sustainable jobs!(I thought that was cute…anyway)

We have an official rate of 27% of unemployed people, unofficially 35% in South Africa.
Let that sink in, out of 100 people, 35 people are without jobs!
This government must stop being the enemy of this country and create an atmosphere for business to do business! So forget Land expropriation, unrealistic mining charters, concentrate on RDP houses and Jobs! That will bring DIGNITY by the bucket full!

The triumph of the Stakeholder over the Shareholder.

Jerry you’re a good fellow and we agree on a lot more than we disagree. I, however, still maintain that a Chaebol exists with a captive market (within the conglomerate itself, of course) and that there is absolutely such a thing as a labour market subject to the vagaries of supply and demand. Using accounting principles to highlight the wealth created and how this was shared is laudable, but does not solve the problem of how to share it in the future i.e. what is the split.

Life is a game. There are rules and there are undercurrents. Nobody said anything about being fair. Your personality, genes, opportunities and upbringing determine who you are. To make the best of the hand you are dealt, the first thing to do is the learn the rules of the game. The first lesson is to know unto whom or what you are beholden.

It is a very valid and reasonable question to ask why South Africa is becoming de-industrialised. The SA clothing industry employed in excess of 200000 workers a few decades ago. Now it employs about one tenth of this figure. Surely there are armies of the unemployed who would welcome a job making clothes to feed and house their family? Surely an entrepreneur with access to capital for the requisite plant and equipment can see an opportunity? Surely there is ample industrial real estate for factories in SA to make this a reality?

Contribution accounting cannot answer all these questions. Only a consideration of the interplay between interest rates, the marginal productivity of capital, the mobility of capital, sovereign risk, the labour market and statist intervention (deviation from free markets in all spheres) can answer these questions.

The state can legislate wage rates but cannot coerce employers to employ. The existence of productive enterprise is there for shareholders only because of the consumer. Consumers, by their purchasing preferences determine the wealth created. Nobody buys over-priced poor-quality goods. Even workers exhibit the same buying preferences when shopping. Wage rates are ultimately determined by the consumer. Investment decisions are made by projecting forward returns based on current and future labour costs. Only a free market can determine labour’s share in the wealth created. Rule number one: there are powers and forces stronger than you, especially if you are labour.

End of comments.

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