AFTER THE BELL
The Zondo Commission was fabulous, but it failed in one crucial respect
Now that the final report is in, what do we all think about the Zondo Commission? I think we are in a bit of a blur: sad, angry, doubtful about the future, thankful for the commission, thankful it’s over, angry it didn’t go further, and irritated that so few arrests have taken place. It’s a whole mishmash.
Despite the incredible job the Zondo Commission did, some of my colleagues feel the commission lacked one crucial aspect: it failed to provide an overarching analysis of why the corruption happened. And consequently, the commission’s recommendations are kinda haphazard, from suggesting a permanent commission of some sort, to suggesting a directly elected President.
Perhaps the real problem is that at least some of the suggestions might overlap with political programmes that are the domain of the political system. Or maybe, after spending more than R1-billion and four years on the job, they were keen to finish up and head out to the bar.
Because I like to blunder in where angels fear to tread, allow me to try, in an off-the-cuff way, to suggest some aspects that an overarching analysis might contain.
There were so many different parts of this investigation and so many different situations, it’s hard to bring them all together. But, in essence, I think it’s kinda simple. Although the types of corruption were different, they had one overriding thing in common: state-owned enterprises (SOEs). The South African Social Security Agency, Eskom, Transnet, Prasa, Alexkor, Denel. There is almost no major SOE that didn’t appear somewhere in the commission’s work.
And the question is this: Why are SOEs so prone to corruption?
A long time ago, I agreed to debate an up-and-coming member of the ANC Youth League by the name of Julius Malema. The league had taken the controversial position of recommending the forced nationalisation of mining companies, and I had disagreed in a newspaper column. I had, by chance, met some of the youth league members on a radio show debating the issue, and they invited me to go one step further and participate in a debate on the issue at a public gathering.
Like an idiot, I agreed. The meeting took place at a hall around the corner from Wits, and as we approached the hall, the entire hall broke into freedom songs that may or may not have suggested the appropriate action would be to disembowel the traitor from the “anti” camp. That would be me. There was dancing and singing and all the usual political meeting stuff. Because I’m observant by nature, I remember thinking this was not going to be an easy crowd, and there was in fact a good chance I would end up being an ex-human.
I shouldn’t have worried. Malema himself was considerate to a fault and set the rules in such a way that, for one, disembowelment would not be considered a legitimate debating tactic. We had a fractious but fruitful discussion. There was a vote at the end. Shockingly, I lost.
Ever since then, I have wondered how to convincingly argue the issue, particularly since I had so humiliatingly failed, albeit at a gathering where minds were definitively made up. And, you know, I just don’t think there is a logical argument that wins here. What has to happen is experience; deep, personal, painful experience.
The logical argument is really simple: the accountability systems in SOEs are geared towards the political process and not the sustainability of the business. In the end, the business fails. It’s obvious. Sometimes, the accountability systems coincide, but never for long, and never completely. Senior positions in SOEs are almost always handed out to friends or family of some party official. And that would qualify as a “good” outcome. The “bad” outcome is that senior positions are handed over to charlatans from another country.
Yet, voters around the world, in country after country, just somehow feel that SOEs can do things private companies cannot or will not do. And you can shout until you are blue in the face that this has never worked, except in the most exceptional circumstances, but it doesn’t help.
Almost every country on Earth has tried it, including the UK, France, Germany and China of course, and many continue to try it. It’s worth noting that Brazil has just come through a huge corruption scandal that ousted an enormously popular government. And the company at the centre of the corruption was – hold on to your hats – an SOE.
There are countries in a certain band that are very susceptible to the deceptive lure of SOEs and corruption, and they have much in common: often, they are one-party states or single-party dominant states, they are often middle-ranking countries economically, and they are almost always run by left-wing governments. SA ticks all those boxes.
Consequently, the recommendation that the Zondo Commission should have come up with is precisely the recommendation that possibly it could not come up with. And that is a strongly worded recommendation that the government should urgently and immediately get out of the SOE business.
The commission does have a recommendation that SOE board appointments should be selected by a non-politically partisan organisation, with representatives from business, trade unions, Nedlac, etc. Not a terrible idea, but there is a logical conundrum here. If your board is going to be non-political, what is the actual point of the SOE being owned by the state?
Some tentative steps have been taken by this government to at least change the structure of SOEs. But, to be honest, it’s only situations where the SOE in question is already a parrot. But there is no wholesale move by the government to decisively restructure the 500-odd SOEs it notionally runs. And Zondo does not recommend the government should.
But, actually, it should. Because history. And logic. It would have been helpful if the commission had said that. DM/BM
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Well said, Tim. . . . Government’s should be in the business of governing, not in the business of business. . . . BTW, I believe that there are ~ 730 SOEs, not 500. Either figure is way too many.
State Owned Enterprises are indeed very vulnerable and therefore prone to corruption. Stamp it out here and it will simply reappear there. However the article falls into the trap that so many other countries have fallen into and that is the belief that the choice is between a SOE or a Private Company. The late Elinor Ostrom’s work (for which she got the Nobel Prize in Economics) showed that there is a third option: To treat SOEs as Common Pool Resources. She identified 8 principles that, if met by the CPR would ensure that, rather than suffer the Tragedy of the Commons, the resource would be managed sustainably and more effectively than any government program or any resource that was leased to a private company. She gave many wonderful examples. If I take ESKOM as an example. What if the Board were elected by the Stakeholders – Agriculture, Mining, Commerce, Industry, Civil Society, Employees. ALL the costs of these directors to be met by their constituencies NOT by the SOE. Being public entities ALL financial income and expenditure and all board minutes to be posted monthly on the Internet and ALL contracts can only be ratified 4 weeks after the full TandCs have been posted on the Internet. There would then be nowhere for corruption to hide and the relevant stake holders would be fully informed of the challenges involved. There would be no need for NERSA as the need for a tariff increase will have been fully discussed in the public domain. Bruce Danckwerts CHOMA Zambia
I agree. SOE’s can be very successful and meet needs that cannot be met by private enterprise. I need only refer to the history of our own SOE’s before 1994. SOE’s are oriented in the first instance to deliver a service to the nation as a whole, a service that would not be economical to meet for a business that is focussed on the bottom line, i.e. profit. That is illustrated by the history of the South African railways. It served outlying areas and brought economic benefits to communities that would otherwise have been left to rot and decline, much as they are now. The whole idea that SOE’s are inefficient and should be privatised is part of the neoliberal dogma, an economically devastating ideology not founded upon, or supported by any empirical evidence. The empirical evidence is actually to the contrary.
Not to mention that SOE’s are mostly government enforced monopolies (Eskom) and gets bailed out at taxpayer’s expense only to see more viable businesses take the fall (SAA v Comair). The lack of competition is a conduit for general sloppiness and unsustainable behaviour.
As I understand it SOEs are created to carry out necessary functions of government “outside of the bureaucracy” and adopting business principles. Most of them, SANRAL for example could not have all its activities carried out in a fashion which would yield acceptable profits to private sector enterprises. For example road toll income at an acceptable level to meet costs is only possible for roads with 10 000 vpd, and only a small percentage of national roads carry that traffic volume or more.
I have the idea that voters think that socialism, government managed enterprises will help them. In capitalism the people doing the work are payed less than the value of what they do. That surplus is used to buy technology to replace the worker. In a socialist enterprise you have to do exactly the same thing or the will be no increase in productivity and social improvement.
Perspicacious comment, Tim. I agree. There are the SOEs and then the ordinary government departments which bear many of the SOE markings.
Good point! A point that the DM should make again, repeatedly. The international experience is worth laying out clearly as evidence of the inherent weaknesses of SOEs. On the other hand, the repeated failures of communism don’t appear to deter South African politicians either.
Finally I understand the reasons.. now let’s close every SOE and completely privatize fire the same if the Country…or is that a dream to far..
The starting point for this disaster was the establishment of the department of state enterprises into which all SOE’s were transferred from their more appropriate departments i.e Eskom from energy, Transnet from transport. Industry drivers and governing legislation affecting Eskom are completely different from those affecting Transnet and it is mpossible for a single minister, even one as talented as Barbara Hogan, to grasp these complexities and the ministers following Hogan were to put it politely, less talented. Far worse still is it created a beautifully packaged gift for the gangsters to corrupt a single minister in order to plunder SA’s entire portfolio of SOEs. spot the mistake
The theory that the private sector is best placed to provides jobs with the government responsible for the environment for this to happen is a polarised political minefield.
An SOE for every conceivable government intervention seems to be the ideologically ‘left’s’ enduring hope to prove Smith, Keynes, and Friedman wrong and Marx, Piketty et al right and the hope for unfulfilled universal egalitarianism.
Is it a case SOE’s simply a yes or no? Possibly not. A business case for SOE’s to provide critical services in the most efficient way possible i.e., water, electricity, basic infrastructure, education, etc. is difficult to argue. The problem comes when SOE’s seem to inevitably default to grotesquely bloated sheltered employment schemes for incompetent loyalists to prop up political control via vote ‘buying’ and campaigns funded by their systematic corruption.
What Zondo has shown is that the South African political system is more Pablo Escobar and Lord of the Flies than a legitimate democracy.