Full text of speech by Michael Spicer, Business Leadership CEO, at SAICA breakfast, July 28 2011

THE ROLE OF BUSINESS IN BUILDING SOUTH AFRICA'S FUTURE

When I was contacted by SAICA to speak at one of its breakfasts some weeks ago, I initially thought of speaking about my 25 years in business leadership from the middle of the 1980s. I was then contacted by SAICA to ask if I could comment more extensively on the Nationalisation debate.

As a result of extensive reflection over recent weeks about the state of the country and the role that business can and should be playing in helping us attain the national vision of a high growth, high employment and inclusive economy, I have decided to change track somewhat and to spend most time reflecting on what business needs to do to get its own house in order though I will say something on Nationalisation.

To slightly miss quote the famous French philosopher Voltaire, in Candide" "we must cultivate our own garden before we worry about and change the world".

As a historian however, you will permit me at least some reference to the past as I think it is pertinent to the current challenges we face and how we address them. I joined Anglo American in March 1985 and the first thing I did for the company was to travel down to the Durban City Hall to sit in the front row and listen to PW Botha deliver his infamous Rubicon speech.

Those of you old enough to remember will know that the darkest days of apartheid, isolation and domestic conflict ensued. Yet it was my conviction born out of my experience, helping write with Clem Sunter the famous Anglo American scenarios in 1985/1986, that contrary to the apocalyptic vision of the international media that a bloody revolution was inevitable if not in three weeks, then at most three months, actually the two options South Africa faced were either the High Road of a negotiated settlement or the Low Road of or a downward trajectory over years into a Latin American tango of coups, economic decline and heightened conflict.

It was our assumption that one of the key differentiators for South Africa was its strong civil society, free press, independent judiciary, strong business sector, churches and NGOs that, together with the fact that the military were not politicised, stood in the way of revolutionary outcomes, but also promoted a peaceful negotiated path.

It was precisely the strength of these forces, interacting with the extraordinary leadership of Nelson Mandela and FW De Klerk, and including a key role that business played in the transitional years of 1990 to 1994, that ensured that the transition was successful.

South African has weathered many storms since those heady days of our first democratic election. We have retained a tradition of often averting disaster only when we step right to the brink, but the good sense of South Africans, together with the strong institutions I have mentioned, has always allowed us to pull back and continue on a more sensible course.

Yet I suspect that many in this audience find themselves in the year 2011 in a state of heightened anxiety about the future of the country. In part this is because the global context is so uncertain, with one crisis and tragedy pressing hard upon another - whether it is the serial inability of the leadership of Europe and America to chart a course out of their debt crisis and the potential implications for the global economy, the hope of the Arab Spring in Tunisia and Egypt, followed by the continued repression and conflict in Libya, Yemen and Syria, the Japanese tsunami, and the impact that it has had on nuclear power as a potential solution to climate change, the Norwegian tragedy of the past week and so on.

At home, the tenor of South Africa's public life seems to have been poisoned by a witch's brew of radical racist populism, an unending tale of corruption permeating every corner of the nation, violent strikes, the perennial crime stories, political factionalism and leadership drift.

To many in this audience not only the nature of the challenges, but also some of the changes necessary seem reasonably self-evident. All analyses of the South African economy over the past few years - ranging from the ten year governmental review in 2004, the so called Harvard panel of 2008, the OECD study of 2008, the ASGISA of the latter Mbeki years, the International Growth Commission of 2008-9, the New Growth Path of 2010 and the National Planning Commissions diagnostic released in June this year - all have a similar thrust: that despite the many achievements since 1994, the South African economy is growing at too slow a rate to meet the urgent aspirations of its people.

In particular, they all identify one feature that sets South Africa aside from its peer economies around the world and that is the low proportion of the potential work force that is in employment. It is this high level of unemployment particularly amongst young South Africans that is the major cause of poverty and inequality. In turn it is the failure of our ability to include a much higher proportion of the South African population in the formal economy where they can benefit from the fruits of freedom that provide such a fertile ground for populist demagoguery.

Therefore, all of these studies and growth plans broadly point to the need to raise growth rates to levels of 6% or higher per annum and to substantially raise employment levels. The question is how? One approach is for the business sector which shares this analysis and the vision of a high growth inclusive society to continue to argue ever more stridently for the need of both government and labour to change their ways.

The failures of policy and governance in government and the self defeating consequences of the current wage and strike strategy of the Unions, if this were merely a matter of rational discourse delinked from political power and interest considerations, would not need much debate. However, the problem is that this is not a clean slate and the burden of the past looms large. Business's house is not in order. Relatedly the global financial crisis has undermined the trust in and the creditability of business and particularly big business both internationally and in South Africa.

In this environment amidst all the frustration caused by government's inability to "deliver" services and to stimulate both growth and employment and particularly amidst all the factional power plays amongst the ruling alliance, it is only too easy to scapegoat business as one of the major, if not root causes, of the country's problems, and to ignore its policy proposals, however soundly they may be based.

To escape the seemingly vicious circle of finger pointing between business, government and labour, it is necessary for business both to put its own house in order as well as to speak to the policy agenda. Hence, to take the nationalisation debate as a starting example, business needs to deal with it not just in IQ but in EQ terms.

Of course business should and must speak out frankly about nationalisation and get all the abundant empirical evidence of the disastrous track record of nationalisation internationally onto the table. But it also needs to explain this in terms which don't seem self-interested and which seek to understand the focus and reasons behind the debate.

The reality of shareholder capitalism is that 80-90% of the stocks of most companies are held by institutional shareholders representing the pensions and savings of workers. Given that South Africa saves far too little, it is dependent on foreign investors to provide much of the capital needed for companies to grow and so international institutional investors are part of many companies equation. But of the South African institutional investors black workers' pension and provident funds now represent the majority.

Additionally, to take the example of the mining industry, the share of revenue that goes to employees, providers of services and goods, taxes, reinvestment and the providers of capital show that the last category receives a relatively small share. So the purported purpose of nationalisation which is to provide additional benefits to South Africa and its communities could only occur at the expense of workers' pensions and if the state had surplus capital to take over the role of institutional investors. This is aside from the insuperable Constitutional issues. The old business habit of preferring to speak behind closed doors and to shy away from robust public engagement creates a public vacuum which is filled by those shouting loudest.

But it is also imperative to address this issue in EQ or emotional understanding terms. The time is ripe for a reassessment of Anglo-Saxon capitalism particularly in its early new millennium excesses phase.

The South African context makes that reassessment even more appropriate. This does not mean abandoning the core precepts of markets and the capitalist system, but rather suggests a return to the earlier phase of values driven, what one might call Puritan capitalism with its future orientation, its emphasis on savings, investment, long-term horizons and benefits of economic endeavour accruing not just to the individual but to the community as a whole. Such a form of capitalism is much more congruent with traditional African values and what has been referred to as ubuntu. But it also has elements of Asian capitalism and European capitalism.

Also part of such Puritan values was a moderate lifestyle and executive remuneration that was truly performance based, rested on long-term horizons and was sensitive to the ratio of highest to lowest earners. This ratio seems to have cut adrift from the levels which obtained for many decades in the US and UK and which still obtain in market economies such as Germany and Japan, and cannot be explained in terms of supply and demand of scarce skills.

Such a values based capitalism is in contradistinction to a focus on ever higher short term returns for shareholders at the expense of other stakeholder considerations and all the unsustainable financial engineering that went with that. A values approach to capitalism would also help deal with the short term, consumption orientation of society and the emphasis on shallow materialism as exhibited in bling lifestyles, supercars and the kind of Mac-mansions that one sees illustrated in the property sections of our newspapers.

There are two sides to the employment coin. In order to make the essential argument about changing the policies and incentives in the labour market which inhibit the expansion of employment, not to mention the counterproductive behaviour of trade unions, it is equally necessary for business to examine its attitude and approach to its employees.

Whilst generalisation is invidious, there are far too many South African businesses whose words and actions relating to employees are completely at odds. Whilst their vision and mission statements are replete with all the rhetoric of their most important asset being their people and their aspiration to be the best place for employees to work and so on, the practice of too many is still to treat employees as units of cost, to be ruthlessly excised at the drop of a hat.

Equally, in terms of investment in training, while there are many honourable exceptions, South African companies in aggregate have missed many opportunities to make their contribution to the creation of the seed corn for future growth in terms of human capacity, preferring to excuse their own non performance in this area by pointing to the manifold failures of the educational system, of the SETAs and the disincentives provided by the behaviour of other social partners. At BLSA we have tried to deal with this with a CEO Commitment that binds all our 85 members to report publicly on what they are doing in the skills field.

Whilst many companies have made a genuine effort in terms of an inclusive transformation that tries to offer opportunities for employees across the racial spectrum, it is also clear that there are all too many who have approached this critical issue with a purely compliance mentality, ticking the boxes in a manner that accords with the letter of regulations but not with the spirit.

Having experienced the challenges of managing the fears and aspirations of a diverse workforce during my corporate life, I in no way underestimate the challenges involved or the strong incentives of BEE regulation to behave that way, but there are sufficient examples of companies that have made good progress on transformation, yet have been perceived as offering a future for talented South Africans from all communities for us to know that with sufficient will and commitment it is possible.

Let me say something, too, about anticompetitive practices. The essence of capitalism is competition and free markets, yet we know that if offered the opportunity companies can and do collude in order to increase profits and rents by reducing competition. The artificial environment of an isolated apartheid economy provided many opportunities, indeed direct incentives for oligopolies and anticompetitive practices.

Opening up to the international economy in the 1990s and the liberalisation polices pursued by government in those days provided fresh competitive breezes which have been strengthened by the country's Competition Legislation and Authorities. Yet South African business has been slow to adapt and in recent years there has been far too much evidence of collusion, market rigging and sharp practices, whether in the bread industry, in construction, telecommunications and many other fields.

The Consumer Protection Act was the direct consequence of the many devices that too many companies utilised to pull the wool over consumers' eyes, to keep prices artificially high, to confuse consumers with unintelligible contracts that bound consumers in ways that they would not want or would not accept if they understood them. Equally, the irresponsible extension of credit to consumers who it was clear like their counterparts internationally, would not be able to cope with the debt burdens in any realistic scenarios, was also part of this scenario.

At BLSA we recognise that we need to be active in these fields and so have a Code of Good Corporate Citizenship which includes provision for naming and shaming and even expulsion of members. Such proactivity makes it easier to argue for the need for competition for all sectors of the economy particularly in the public sector.

In many respects, therefore, the formal economy in South Africa with its privileged insiders of business and unionised workers looks more like the consumption and debt oriented societies of Europe and America than the fast growing savings and investment societies of Asia. It is clear that we are close to living beyond our current means.

The national focus must be more on saving and investing in order to grow the national cake, so in turn as to be able to include much more of the population in the productive economy with all the benefits that that brings, rather than pretending that we can re-divide the existing cake in a way that will meet current needs of all on a sustainable basis. So just to be clear, I am opposed to the imbalance in the NGP on distributional issues versus growth actions.

So business not only has to subscribe to a high growth, high employment vision of the future and to intelligently address the policy menu that is required to progress towards these goals, but it also has to review its own values and actions. Businesses must do the right thing and do it under their own impetus without waiting to be coerced by undesirable state intervention.

Business must lead and have the confidence to make the changes that are necessary and desirable and which will lay the foundation for a more productive engagement with government, labour and civil society. Change in these terms will not be a sign of weakness but a sign of strength and confidence and will help underpin the essential arguments for a business friendly, market oriented democracy.

Let me add one word about the idea of an economic Codesa which is now becoming quite fashionable in many quarters. This seems to me to be the product of rather superficial thinking. As Barney Mthombothi in his usual eloquent way has put it recently, the circumstances are now radically different to those obtaining in the transitional years of 1990 to 1994 where the contesting political forces were clear and unified in their objectives and were lead by strong leaders with good strategic understanding. In the current highly factionalised and weak leadership environment where there is a high propensity for and indulgence of political theatre, it would seem to me that the circumstances and framework required for a constructive outcome are almost completely absent.

In conclusion, my own approach is to have faith and keep the faith in our Constitution and the sound institutions of our democracy, to defend them where necessary and to make our own contribution by doing the job that we are all required to do with a new sense of values and future orientation. To me, one of the great paradoxes of the so called Nationalisation debate is the sense of personal liberation I feel to speak out on what needs to be done.

I believe there is more than enough talent and goodwill for South Africa to get through these undoubtedly difficult days. I am especially impressed with young South Africans who are full of energy, hope and aspiration and are unburdened by the contestations of the past. Business is already playing a solid role in sustaining the national life and could do more if it makes some of the changes that I have mentioned.

Source: www.businessleadership.org.za An edited version of this speech appeared in Business Day on August 18 2011

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