Do we tolerate private sector corruption?

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

The media has been tireless at exposing one public sector corruption scandal after another. The most high-profile, lately, surrounds the president’s private residence at Nkandla, but it is far from the only one. But what about private sector corruption? Do corrupt captains of industry get off too lightly, and if so, does that reveal an anti-ANC bias in the media?

Recently, a chap by the name of Jim Smith – anyone know him? – wrote a letter to Amandla!, which publishes under the snappy tagline: “South Africa’s new progressive magazine standing for social justice”.

“The private sector is corrupt too!” the headline shouted.

“When one reads through any of our nation’s major newspapers one is bombarded with endless stories of corruption in government, the civil service and of those in power pillaging state resources,” Smith writes. “But these stories are overwhelmingly confined to investigations of ‘corruption’ in the public sector; in comparison the private sector is seen as the epitome of effect, honesty and productivity.”

He adds: “This is not only a misleading depiction of our nation’s private sector, but also puts forward a rather limited and racialised definition of corruption. Also in the mix is the assumption that blacks in government and the public sector are more prone to nepotism, tender related hijinks and taking advantage of the taxpayers’ money.”

This distinction between private and public sector corruption, inevitably cast in racial terms by assuming that the private sector is mainly white and the public sector mainly black, crops up again and again.

Mashomane ‘a Dipheta, who may not exist anywhere except on Twitter, directed a lengthy tirade at me a couple of weeks ago, concluding with “what is standard practice in the private sector is corruption in the public sector”.

I promised him a column on the difference between private and public sector corruption, which would debunk the notion that private sector corruption is tolerated by the media. This is that column.

First, let’s establish the essential differences between private and public sector corruption.

In the private sector, the consequences of fraud and corruption are borne, in general, by two parties: investors in a company and clients of a company. In the public sector, the consequences of fraud and corruption are borne similarly, except that for investors, read taxpayers, and for clients, read citizens.

This essential difference is very important. All taxpayers have a right to complain about wasteful spending or outright fraud involving the money they entrust to the government. And all citizens have a right to expect delivery on political promises of services, infrastructure, and welfare benefits.

Moreover, investors are free not to invest in a suspect company, and clients are free to place their funds elsewhere. This is not true in the public sector analogue. Taxpayers cannot choose to withhold their taxes, or pay them to another entity they trust more. Citizens cannot choose to rely on a party other than the government for government services. The coercive monopoly nature of the state has special implications for government corruption that do not apply to private sector corruption.

How does this translate to media coverage? The general, mainstream news media is likely to focus on public sector corruption, because its readership consists of the taxpayers that are defrauded, and the citizens that don’t enjoy the benefits of public expenditure. By contrast, in the case of private sector corruption, the issue is likely to be carried on the business pages, or even in the trade press, where investors, clients and other interested parties get their industry news.

Think about it: does it make any difference to you whether an insurance company executive embezzled company funds, or accepted a bribe to influence a quote? Not unless you happen to be a client of that insurance company, a competitor, or a shareholder. The same is not true for government corruption. Most government corruption affects us all, in our roles as taxpayers or citizens, or both.

So the notion that the media covers public corruption any differently from private corruption might be simply an artifact of which media covers it. If you only read the mainstream press, aimed at the general population, you’re likely to see a bias towards covering government corruption, because that is of interest to the general public. If you read industry press, aimed at industry investors and customers, you’re likely to see no public corruption except as it affects that industry, but a lot more about private corruption within that industry.

We’re probably all aware of the public sector corruption scandals that made our headlines in recent years. Most recently, the president’s private residence at Nkandla has been in the spotlight. For most of the last decade, the arms deal has dominated the media. On the part of the public sector, the auditor-general recently reported a loss of some R30 billion in wasteful and irregular spending.

Have those scandals truly overshadowed private sector corruption?

Did the media not cover the fall from grace of Fidentia boss J Arthur Brown? And did the media not deplore the insignificant punishment of a R150,000 fine that was ultimately awarded by the courts?

Did the media not follow the travails of Dave King, in his 13-year dispute with the taxman, and express dissatisfaction at the ultimate settlement?

Did monopoly or cartel abuses, such as the bread price fixing scandal, not feature in the media?

Some of these stories were more prominent in the business pages, rather than in mainstream newspapers, but that doesn’t mean that the media or the business sector ignores them. A survey commissioned by Business Against Crime for the National Anti-Corruption Forum tried to evaluate how common corruption is in the private sector.

It found that fully three quarters of surveyed businesses found that corruption occurs because of a poor ethical culture within the South African business community and that corruption is a deterrent to doing business and investing in South Africa.

If you look beyond the business media to the trade press, which covers specific industry sectors, you’ll find many more examples of private sector corruption exposed. Perhaps most infamously, the Internet boom and its subsequent crash revealed widespread fraud and corruption in the technology sector. At the time, I worked for a trade publication, ITWeb’s Brainstorm magazine, under the editorship of Branko Brkic (who is now, of course, the editor of the Daily Maverick).

We frequently focused on industry scandals and corruption, such as the collapse of CS Holdings and disappearance of its CEO, Annette van der Laan. We ran a feature, The Class of ‘98, listing the gallery of rogues who starred in the scandals surrounding such companies as Computer Configurations, Usko, Brainware, Metropolis, and Spicer.

What happens with many such characters is simply this: readers – be they investors or clients – know not to trust them again in business. Many skip the country. Few are ever rehabilitated in the eyes of the business world. The perpetrators of private sector corruption face exactly the same consequences – loss of power, loss of wealth, and sometimes loss of freedom – as the consequences demanded for corrupt public sector officials.

Like with public sector criminals, it is true that too few private sector fraudsters are brought to book. Though it does happen, it is more common for investors and customers to hold them responsible in other ways, by firing them or suing them for damages.

One of the biggest sources of corruption is in the interface between the public sector and the private sector, however. Because of the government’s control over such a large part of our economy, so-called “rent-seekers” abuse the tender process, collude on contracts, jockey for subsidies, and bribe officials for favourable decisions.

A new anti-corruption bureau will explicitly focus on private sector players who “lure” public servants into “unholy alliances”, according to minister of public services and administration Lindiwe Sisulu.

Examples are thick on the ground. Every story containing the words “tender corruption” or “tenderpreneur” points to a potential case. And it’s not just the media that warns about this. Even the Young Communist League is worried that tenders promote corruption in government, and Julius Malema’s Economic Freedom Fighters also wants to scrap the tender system.

A classic example is the scandal over Chancellor House, which raised questions about how a private entity established by ANC members to raise funds for its election coffers benefited from massive government tenders such as the boilers for Medupi power station.

The media crucified the construction industry when their apparent collusion over World Cup tenders was revealed, and an attempt by Peter Bruce to defend the industry met with public derision in other newspapers.

The long drawn-out battle about e-tolling in Gauteng also implicated private sector players in corruption involving public sector projects, and I’ve written scathingly about the cosy arrangement between the company that runs the Gautrain and the Gauteng Provincial Government.

But those who insist that the media is a racist counter-revolutionary agent opposing the ruling party aren’t quite done yet.

“It is almost as if our previous authoritarian regime wasn’t even more accomplished and looting state funds in bizarre paranoid scams,” adds Smith in his letter to Amandla!

It is almost as if this is a revelation. I’ve debunked this notion myself, in a column entitled ‘The myth of the competent Apartheid government’: “The truth is that the Apartheid government was just as crony-capitalist and corrupt as the government of today. The economic policies of the ANC and the Apartheid state’s National Party government are almost identical, and have a lot in common with national socialism.”

There is no truth in the allegation that private sector corruption gets off lightly, while the media focuses its attention only on government corruption.

There is a significant difference, however. Unlike private sector corruption, government corruption, or corruption at the interface between government and the private sector, costs taxpayers money, and denies the poor infrastructure and basic services. Investors and customers are right to be outraged about private sector corruption, but in the case of government, we should all be outraged. DM