The buck starts here
26 July 2014 17:00 (South Africa)
Opinionista Ivo Vegter

No Gravy: a label for sustainable business

  • Ivo Vegter
In the fight against corruption, crony-capitalism and profiteering, I’d like to propose a new label for companies that don’t suck on the government teat. Brand your products “No Gravy”, to tell customers you’re in the honest, job-creating, profit-making business.

The perfidious relationship between government and its corporate cronies grows ever stronger. 

Motor manufacturers, having been promised a seven-year subsidy to kick-start a local export industry known as the Motor Industry Development Plan (MIDP), have been on that taxpayer-funded drip for 17 years now. They have just bought themselves more taxpayer-funded largesse with the Automotive Production Development Plan (APDP), which replaces the MIDP with tax credits and tariff protection until at least 2020. Nice wicket, if youre on it.

The Bombela Concessions Company bid to build and operate the Gautrain, and as if that monopoly opportunity wasnt enough, managed to swindle the Gauteng government into offering them an aptly-named “patronage guarantee” worth several hundred million rand. If the train, for whatever reason – like confiscating water bottles and ordering passengers to spit out after-dinner mints – cant attract the numbers of passengers Bombela requires to make money, the government will pay these bloodsuckers the difference. Nice racket, if you can get it.

Green energy ventures are chomping at the bit to provide inefficient and expensive power to the national grid under a generous programme of subsidies and price guarantees. The last thing they want is to price their products in relation to their costs, or to take any of the commercial or technical risk themselves. In the state-owned electricity giant Eskoms “Independent Power Producer” programme they have exactly the guarantees theyd like. Independent? Hardly. But nice deals, if you can swing them.

Hitachi has a lovely little multi-billion rand contract to supply boilers to the southern hemispheres largest civil engineering project, the R120-billion Medupi coal-fired power plant, as well as to another, known as Kusile. It has been unable to deliver on deadline, which makes it unlikely that the plant will fire up in 2012, as we were promised when we all suffered rolling blackouts because the government failed to maintain sufficient generation capacity to supply a growing industrial economys most basic need, electricity. But thats no great problem, because the ANCs “investment arm”, Chancellor House, has a 25% stake in the Hitachi Power Africa joint venture, so it is in the ruling partys best interests to give highly profitable contracts to Hitachi. Nice leverage, if you can buy it.

Thousands of companies exist purely because of profligate government spending, generous subsidies and protective tariffs. Each of these uses taxpayer money to support a business that might otherwise not be sustainable. And each of these ends up enriching well-connected private investors for providing a product or service that costs more to produce than customers are willing to pay for it.

In an ideal world, one would hope that politicians who grease the palms of their cronies, bribing them to deliver votes and maintain their power base, would be howled out of office by angry mobs. One would hope that voters would see through the sham of politicians spending other peoples money to appear as though they are “bringing home the bacon”, “creating jobs”, “investing in the future”, or “supporting development”. 

They do no such thing. They waste money on projects that no sane investor would touch if they were subject to generally accepted accounting principles.

Few are the companies that proudly stand on their own, declaring that they are profitable, dependent on nobody but their customers, and beholden to no power-drunk politicians.

Yet these are the companies that create truly sustainable development. In fact, their profitability is the very definition of sustainability: producing more value than it cost to do so, in order to fund a brighter and better tomorrow.

These are the companies that do an honest days work for an honest days pay. These are the companies that make money not because they have politicians in their pocket (or vice versa), but because they produce the goods and services we want at a lower cost than we think theyre worth. These are the companies that create jobs that have value and improve our quality of life. These are the companies that profit by making us all a little better off.

These companies ought to brand themselves. They should proudly carry a logo, declaring not that they are part of some contrived protectionist cartel, but that theyre independent. Proclaiming that they dont burn public money, and wouldnt accept it even if it were offered by politicians seeking to enlist cronies to their cause. Stating that their business is sustainable because it is profitable, or because investors acting of their own free will are prepared to risk their own capital in the belief that it will become profitable. Assuring customers that their company is self-sustaining, and not dependent on a little extra help from public money.

Label them “No Gravy”, to declare proudly that theyre not on the gravy train of crony-capitalism, unsustainable subsidies, political hand-outs and protectionist tariffs. An independent business association can establish equitable rules and should audit the claims of member companies, in a similar way that other labels – such as Fair Trade or Proudly South African – are audited for integrity.

Its a radical idea, and the person who raised it with me said so up front. The email that prompted this column read as follows: “I search for why we have succeeded against all odds, and one of the things that struck me was that we have – starting in the Apartheid era – always refused any government grant even when we qualify for them. We have consistently never taken money from government. This was intuitive on my part simply because of my dogged need for independence and at an early age learning that so often when someone gives you something there is an inherent cost involved.”

Many entrepreneurs will recognise the truth of this when they consider accepting investment from a larger, established firm. Financial support always has strings attached.

Likewise, the person who wrote this to me believes that refusing to take the governments patronage denies the government the power to manipulate him. 

The man who deserves a hat tip for this idea is Hugh Glenister, whom you may recall as the applicant before the Constitutional Court in the case that declared the dissolution of the Scorpions to be unconstitutional. The government is heading for contempt of court allegations on this point, it would appear, and Glenister has demanded a probe into the way the court order is being carried out.

He, like all ordinary South Africans, has good reason to distrust the good faith of the government, and to disapprove of the blatant cronyism that characterises the relationship between big business and politicians. This “generally corrupt relationship” undermines the competitive strength and productivity of a free market, by dispensing patronage to favoured but inefficient companies. It institutionalises unemployment and poverty, by concentrating wealth and power in the hands of politically connected special interests. It is this reliance on political patronage, rather than independent productivity, that lies at the heart of the failure of a democratic South Africa to deliver “a better life for all”.

Honest entrepreneurs, traders and businesspeople ought to be proud to dissociate themselves from the state-capitalist mob. Customers should be ashamed to support companies that cant cut it without political patronage.

The “No Gravy” label should be a rebel movement, declaring a revolutionary zeal to live free and independently. We should want to see it on every product and service we buy, and proudly display it on every product or service we produce.

There ought to be only one exception. It is a small but important one. Makers of actual gravy should probably get a free pass. DM

PS. A reader alerted me that I somewhat misstated the nature of the Scorpions case. The Constitutional Court did not rule against the dissolution of the Directorate of Special Operations (the Scorpions) as such, but that the Directorate for Priority Crime Investigations, the Hawks, which replaced it, was insufficiently independent from the police itself to act as the effective anti-corruption body that the Constitution envisaged. My apologies for the error.

  • Ivo Vegter
IvoVegterBW

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He approaches issues from the perspective of individual liberty and free markets. He grew up in the deep south of Johannesburg, and learnt his politics reading the Weekly Mail and Vrye Weekblad at Wits University during the early years of the country's transition to democracy. He recently left the city for the lower cost of living of Knysna, where he continues to write about everything under the sun. He is always right.

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