Analysis of the third kind
28 May 2017 18:42 (South Africa)
Opinionista Iraj Abedian

The Business Case for the Ethics Project SA

  • Iraj Abedian
    iraj-abedian.jpg
    Iraj Abedian

    Iraj Abedian, CE: Iraj holds a PhD in economics from Simon Fraser University, Canada. He was professor of economics at University of Cape Town (UCT) before joining Standard Bank as Group Chief Economist in 2000. He was extensively involved in economic and financial policy as well as institutional restructuring of South Africa’s public policy after 1994.

    In 2005, he founded Pan-African Capital Holdings (Pty) Ltd. In addition to growing the company’s investment portfolio, Iraj was centrally involved in the conceptualisation and capital raising for a KZN Infrastructure Growth Fund (R1,5 billion), and the establishment of South Africa’s first environmental clean tech Fund (US$ 94 million fund), as well as the design and establishment of a housing finance fund called Housing Investment Partners (HiP). Within the Pan-African Capital group, he has helped establish two private equity funds, totalling R650 million.

    Iraj currently serves as a non-executive director on the board of Munich Re of Africa and Capital Fund Properties Ltd. He maintains an active interest in public policy discourse (macroeconomic policy, mining policy and infrastructure finance) and is an extraordinary professor of economics at Graduate School of Business Sciences (GIBS) of University of Pretoria.

    Over the past five years, he has also served as a member of the National Spiritual Assembly of the Baha’i’s of South Africa- a not-for-profit religious body with focus on the promotion of spirituality within the society at large.

In the recent past, SA political economy has been awash with a flood of unethical cases of abuse of public office, patrimonial practices, misuse of fiscal resources, manipulation of procurement processes, and the lack of accountability by government officials across all spheres of local, provincial and national government. The consequences are far-reaching, and there’s more than enough room for intervention.

Dr. Abedian is the Co-Leader of the MISTRA Ethics Project.

Associated with public sector inefficiency, abuse and misuse of public resources is the wider issue of corruption. It may not be an exaggeration to suggest that the two interrelated phenomena of corruption and crime have been the topmost blights on the face of an otherwise successful, if not wondrous, democratic transition in South Africa. Increasingly, it is evident that the South African liberation movement’s social democratic revolution is tripped up by corruption. There is a growing danger that not dealing effectively with corruption could lead to the institutionalisation of corruption, the rationalisation of corrupt practices and the taking root of a culture of greed and self-enrichment at all costs.

Much less publicised and emphasised is the role of business, both by commission and omission, in the propagation of unethical conduct. Of course generalisation and broad-brushing are incorrect and misleading. However, in the business sector the majority of executives and corporations formally subscribe to the ‘codes of good corporate governance’. Their annual ‘glossy’ reports are decorated with “impressive evidences” of their socially responsible citizenship. Yet operationally, they do not hesitate to collude and/or abuse their market powers. Evidences of price fixing amongst pharmaceutical companies, construction companies, cement manufacturers, bread producers and steel manufacturers have been high profile cases over the past few years in South Africa. Sasol, South Africa’s most celebrated petrochemical corporation, has been heavily fined, both locally and internationally in the EU, for its extensive anti-competitive practices.

The country’s banking sector is also accused of malpractices and a report in this regard is yet to be made public by the Competition Commission. The cellular phone companies are likewise accused of collusion to fleece the consumers in the country. The latest case has just been made public by Competition Commission’s imposition of a massive R1.5 billion penalty against ArcelorMittal SA – the country’s largest steel manufacturer – on account of price fixing. Meanwhile, debates, suspicion and speculations surround the possibilities of tax evasion and illicit financial flows involving business firms, global financial institutions and a number of high net-worth individuals.

More broadly, in South Africa, as in many other countries, over the past decade, a gradual but tangible rift has emerged between the country’s socio-economic ‘formal (professed)’ as opposed to ‘informal (practised)’ ethics. Duality of the values is equally prevalent in labour unions, the media sector and other social structures and organisations. Sporting personalities, businesses and organisations likewise have been proved to be infested by value inconsistencies.

There is convincing and growing evidence that the facts as well as the allegations of corruption in the society have gradually tarnished the internal and external perceptions of the country’s brand, and the state operations as well as the political authority of the governments (national and sub-national). As a result, social trust in governments has been considerably undermined. Whilst the economy and the society at large suffer the consequences of widespread corruption and corporate abuse, the poor within the society bear the brunt of its impact. After all, the poor are far more dependent on the performance of the public sector and wage-price abuses by the corporates and business enterprises. The growing gap between the rich and the poor over the past decade is, largely, due to the growing spread of corruption, and more broadly the duality of values, unethical conduct across all sectors and spheres of the economy. This applies as much to the public sector as to the business sector. For, it is the business sector that has operational control over the lion’s share of the national resources. And, at the local level, it is the business sector that exercises choice over the primary distribution of income in the form of the split between wages, salaries, and profit. An ethical basis for such micro-distributional framework will go a long way to deal with maldistribution of income and its resultant social inequities.

The duality of values has been accentuated by the processes of socio-political globalisation. In general, it is much easier to create convergence of values in homogeneous societies as opposed to communities where tribal, cultural, religious and ideological differences prevail. Interestingly enough, for the classical economists the consistency of values was almost axiomatic. For example, on the socio-economic significance of honesty, Adam Smith in his Theory of Moral Sentiments (1759) argued that a well- functioning society was dependent on compliance with what he termed a “code of honour”. The absence of a code of honour ultimately leads to inefficiency, under-performance, and corruption in one or the other form. Corruption in the society acts much like cancer in the human body – if not stopped, for sure it will spread! Most significantly, corruption erodes the moral authority of the state, the business entities and social cohesion.

SA’s constitutional democracy has reached an ethical T-junction. An environment filled with a duality of values is conducive to operational inefficiency and ethical inconsistencies, as well as social distrust and instability. In the absence of an agreed ethical code of honour and practice, the poor suffer, the elite benefit materially, but their welfare remains at risk. The society’s instability persists, and the environment for investment, prosperity, and development stays fragile, vulnerable to wild swings, whilst uncertainty pervades.

Whilst various legislative measures are in place to combat unethical conduct in business, and whereas entities such as Corruption-Watch, OUTA, Ethics Institute of SA and the like remain active in the field, these have proven ineffective in matching the gravity and the scale of unethical conduct in business practices. Much more is needed in both legislative and other supplementary fields.

In the light of this reality, there is an urgent business and social imperative for a meaningful dialogue on our national ethics. As Prof. Mosala, Project Leader of the Mapungubwe Institute for Strategic Reflections’ (MISTRA) Ethics Project, asks: “Morally, who are we, what characterises and distinguishes us”? (Sunday Independent, 21 Aug.2016) The answer to this simple, but foundational question, cuts deep into the core of our society. The business sector, alongside all other role players within the political economy sphere, needs to recognise the severity of our political economy’s systemic fault-line, partake in the dialogue, and take a position in the reconstruction of the society whose success will require systemic ethical conduct. DM

Join the Mapungubwe Institute (MISTRA) in a Conference on Seeking the Ethical Foundations of the South African Nation at the Development Bank of Southern Africa (DBSA) on 15 – 16 September 2016. The Conference is a major milestone in a MISTRA project that is geared towards revisiting challenges of ethical indifference and unearthing solutions that would place South Africa on a much improved ethical trajectory based on commonly shared values, norms and virtues consistent with the promise espoused in the founding of democratic South Africa. Information about the conference is available on the MISTRA website at www.mistra.org.za.

  • Iraj Abedian
    iraj-abedian.jpg
    Iraj Abedian

    Iraj Abedian, CE: Iraj holds a PhD in economics from Simon Fraser University, Canada. He was professor of economics at University of Cape Town (UCT) before joining Standard Bank as Group Chief Economist in 2000. He was extensively involved in economic and financial policy as well as institutional restructuring of South Africa’s public policy after 1994.

    In 2005, he founded Pan-African Capital Holdings (Pty) Ltd. In addition to growing the company’s investment portfolio, Iraj was centrally involved in the conceptualisation and capital raising for a KZN Infrastructure Growth Fund (R1,5 billion), and the establishment of South Africa’s first environmental clean tech Fund (US$ 94 million fund), as well as the design and establishment of a housing finance fund called Housing Investment Partners (HiP). Within the Pan-African Capital group, he has helped establish two private equity funds, totalling R650 million.

    Iraj currently serves as a non-executive director on the board of Munich Re of Africa and Capital Fund Properties Ltd. He maintains an active interest in public policy discourse (macroeconomic policy, mining policy and infrastructure finance) and is an extraordinary professor of economics at Graduate School of Business Sciences (GIBS) of University of Pretoria.

    Over the past five years, he has also served as a member of the National Spiritual Assembly of the Baha’i’s of South Africa- a not-for-profit religious body with focus on the promotion of spirituality within the society at large.

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