- Jerry Schuitema
The wealth distribution obsession.
To the point of Incapacitating wealth creation itself.
It’s a cliché, I know, but one can only imagine the positive change that is possible if South Africa, or any economy for that matter, switches focus from wealth distribution to wealth creation. No matter which way one looks at it, one cannot share what has not been created. Eventually all the intangible vapour that has been created through debt, financialisation and asset appreciation, will have to find some anchor in the production of goods and services.
That means being market driven, serving customers and creating a link between meaning and money. In my first article (see here) on following meaning in wealth creation, I argued that our customer focus is in an appalling state as shown by poor service delivery, customer neglect, streams of cases before the Competition Tribunal, lack of competitiveness, and poor levels of innovation.
One could argue further that all of that is due to a very narrow focus on wealth distribution; on reward rather than contribution, which translates into exploitive behaviour by the key “internal stakeholders” of labour, capital and state in the form of wages, profits and taxes. It spawns a relationship between them that is inherently antagonistic. That is highly counter-intuitive to wealth creation: detracting from the only common purpose that those stakeholders can have and which gives not only meaning to their involvement but fosters the source of all rewards.
No amount of stakeholder management, concessions and tolerance will be effective if each maintains a narrow self-gain purpose without swearing full allegiance to a common serving purpose. That will only happen when each appreciates that they all also have a common fate in the enterprise.
Given the unprecedented re-examination of macro-economic theory, the time has never been better to extend that to the micro; to companies and organisational theory itself. That world has been changing even more profoundly since the early 80’s, with South Africa in some respects ahead of the pack, and in others trapped in outdated theories and ideologies as well as onerous demands for transformation. When these externally driven forces translate into a tug of war between the main internal stakeholders of labour, capital and state trying to maximise their own benefit, the biggest loser is service delivery and customer focus. That has a far bigger impact on wealth creation than global economic conditions or the external economic environment.
There are laudable attempts at a national level, through organisations such as BLSA, Nedlac and others, to create greater economic cohesion between the three economic estates. But this is mostly in the form of a haggle around trade-offs, and often gets derailed by political rhetoric, distrust and exaggerated demands. Stalemating can only be broken by facing an existential reality: all have a common purpose in serving markets and creating maximum wealth, and all are dependent upon the value added for their respective rewards. That distribution can at the very least be pegged to some broad principles: it has to meet legitimate expectations and it has to encourage continued contribution.
That, in a nutshell, is the base of meaningful relationships between the contributors or beneficiaries of wealth creation in business. Those critical relationships, as I have argued before, are destroyed by having absurd theories, abstracts, metrics and aggregates define them. That demeans the entire venture to a mechanical money making process, away from its true nature as an eco-system of people serving people.
Largely through its own doing, labour has commoditised itself as an institutional abstract, priced according to supply and demand for skills and qualifications, and accommodated as a “cost to production”. That crass understanding simply disappears when one argues that labour has made a contribution to the market through the company structures and processes, and then receives a legitimate share of the value that has been added. In my consulting and training days, I was constantly struck by the extent to which the true meaning of all work, that of creating something of value for others, is simply lost in conventional expression. But more encouragingly, attitudes become far more flexible when the link between task and contribution is made, incumbents are involved in customer and productivity improvement processes, information is shared more openly and fortune sharing incentives are introduced.
The hard nut to crack, is the dogmatic approach to capital interests, and the absolute holy cow of shareholder supremacy. A good example of this can be found in an attempt by BLSA research (see here) to debunk the corporate cash hoarding “myth”. Apart from some magic with metrics that can be challenged, the key trap that the researchers fell into is the assumption of a “generic capital model” that applies to all investment in business and that has unshakeable and invariable expectations. Even if that were true, the whole construct of investment in business has changed dramatically in the past few decades. It is simply impossible for normal ventures with even acceptable risk profiles to compete in financial markets with quadrillions of dollars incestuously looping around for quick and lucrative returns. American author and columnist, Rana Foroohar estimates that only 15% of the money in the financial sector is invested in business.
That demands a review of old paradigms around enterprise funding and even some of the dogmatic expectations captured in key measurements such as EVA, ROI, ROCE and the plethora of others. It may even need a new approach to capital formation in productive capacity generally, including more partnerships between capital and state, like we have seen in Asia and specifically the South Korean Chaebols. But let’s be clear: no-one can accuse these nations and their companies of not being truly market- and customer driven. That is a non-negotiable and it virtually rules out the South African government with its SOE track record as a trustworthy partner.
Most psychologists and life skills experts argue that meaning is to be found in having an external focus and making a difference to others. Business is the ideal and most inclusive platform to do that. But, if business is simply about making profits, it has little true meaning. If work is simply about earning a living, it has little true meaning. And if government sees companies simply as a means of generating revenue, that too has little meaning.
And because enterprise and work is such a significant part of most of our daily lives, it renders a significant part of those lives meaningless.
#wealthcreation #wealthdistribution #Chaebols #innovation #competitiveness #SERVICE