The quiet life of a Monopoly – the shadow of the shadow government
- Oscar van Heerden
- 31 May 2017 (South Africa)
For too long have we laboured under the illusion that we live in a liberal democracy and by extension a liberal market. The latter cannot be further from the truth though. One of the basic tenants of such a market is competition among industry players and yet in Mzansi it seems, this at best, gets ignored or at worse, flouted.
The business culture in South Africa over many decades it seems is one of no competition and instead a mentality of saam mekaar (we are together).
Over the years the apartheid state shielded and protected businesses as long as they propped up the government. So when the democratic government stepped in and a more rules-based environment was created in order to facilitate transparency and lower prices this presented many businesses with serious challenges.
So where the government deregulated such as the case with the Maize Board, the private sector simply re-regulated the industry to suit them. The idea from the government’s perspective was to encourage competition throughout the value chain of maize production. But alas, the private sector guys had other plans.
There are two types of collusion behaviours; the first is what is referred to as co-ordinated conduct (collusion) the second being unilateral power (abuse of dominance).
Allow me to elucidate further: the first type of behaviour means certain individuals sit in a smoke-filled room and agree to price fixing. Instead of the bread price being R5 as it should be, let’s agree over the coming months we will collectively fix the price at R14 and to hell with the poor consumers. We will also decide on the conditions of entry for other industry players, so that they do not mess up our collusion plans. Finally, we also have to divide up the market, in other words, you will get this segment of the market and I will get the other. That way we are all satisfied with the plans.
The second type of collusive behaviour is what is referred to as unilateral power, meaning a big industry player abusing its dominance to muscle other industry players out of the game.
In the example above, with regards to bread, industry players decided on the one hand that they would collude in price fixing and the only reason they were caught eventually was because of certain players’ abuse of dominance, which in turn set off some alarm bells. Basically, as it stands, most of the value chain of bread is owned by a few industry players. Tiger brands, Pioneer and Premier Milling are such a close group. They not only source the maize from farmers, where there is intense competition, they also own the transport to and from the various silo’s, where such maize is stored. Some of them own the millers where the maize is produced and in fact some of the bakeries where the bread is finally baked before setting off to the various retail stores. These vertically integrated firms are common place in the South African market. This means that what Tracy Ledger refers to in her book An Empty Plate – the farmers’ dilemma as well as the farm workers’ dilemma is commonplace indeed.
Our state-owned enterprises also operate as if they are monopolies. They remain adverse to competition to say the least. One only has to take a cursory look at the SAA and its handling of small, low-cost airlines to get the picture. SAA’s abuse of dominance goes unabated in the industry and airlines come and go. Similarly, Eskom and Transnet also behave in such a way that independent power suppliers and other industry players are frequently taken for a ride. Livelihoods, I might add, gone because of unilateral power in the industry. Again, who suffers the most? Us, the consumers.
In the banking sector, four banks dominate the market in retail banking. Charges and all manner of hidden costs are determined by them. Again the value chain is owned by these banks. Admittedly, there exists some competition in the Investment and Merchant banking sectors but this too did not prevent them all from colluding and manipulating our currency for their benefit, at the expense of consumers.
The latest collusion behaviour on the part of DSTV is yet again another blatant example of how we the consumer gets the raw deal. I mean, it seems to me that private sector players, simply decide to collude, factor in the the possible fine associated with such behaviour and Bob’s your uncle, we're in business. We make a cool billion and the competition commission will fine us two-hundred-million and it’s all done and dusted. Most people are never the wiser.
Over the last few years in our democratic dispensation, we have had collusion in several industries to the tune of billions:
- The bread industry;
- The construction industry leading up to our 2010 soccer world cup;
- The bicycle industry, affecting all our active citizenry;
- The banking sector, manipulating our currency and exchange rates;
- The telecommunications industry, with DSTV.
These are but a few collusion activities that must be condemned in the strongest terms.
It does beg the question whether what we do to punish these perpetrators is sufficient to stem such behaviour in the future? Are the fines imposed by the competition commission enough to deter these industry players from becoming repeat offenders? Is there sufficient allowance for breaking down the barriers of entry into markets? Should we introduce, as so many argue, an industrial policy that would regulate prices and barriers to entry? A rather blunt instrument if you ask me.
How does one begin to break up vertically integrated firms? And finally, how does one deal with the retail sector and their ridiculous payment schedules that so obviously kill the small and micro players attempting to break into the market?
There have been some notable successes in the past, here one thinks of how the cement cartel was broken up and the fact that diesel prices are now more competitive. So it can be done, and yet our government is in many ways complicit to these atrocities.
What I’m trying to convey with this article is the fact that while State Capture certainly must be uppermost in our minds and must be exposed for what it is and how it negatively impacts on society at large, we cannot lose focus on broader societal matters.
It is not only the moral bankruptcy so pervasive amongst our political elite that should concern us but also the moral bankruptcy of our economic elite as outlined above. The pressure on capitalism in the 20th century means taking short cuts and becoming increasingly short termism. This means, collusive behaviour becoming commonplace and a general disregard for the rules and in most cases, the law.
Perhaps the political elite such as the ANC NEC this past weekend as well as the economic elite this past few years must remember, by coming together in your decision making, you act as a monopoly.
If indeed as I assume, we are concerned not only with the political polity in our country but our entire Mzansi, then you will agree with me, that our gaze must not be limited to only the political elites.
For such short-sightedness will result as one so eloquently puts it, things falling apart, the centre not holding, mere anarchy is loosed upon the world, the blood-dimmed tide is loosed, and everywhere, the ceremony of innocence is drowned, the best lack all conviction, while the worst, are full of passionate intensity.
Let us not only be concerned with the shadow government but also the shadow of the shadow government. DM
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