Business Day column: Capitalism raised the alarm about Steinhoff — and did so instantaneously

04 January 2018
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Socialists like Dali Mpofu dance ecstatically around the witch’s cauldron whenever "corporate corruption" occurs, because it is so rare.

He tweeted recently: "Corporate corruption of Naspers, Steinhoff etc is far WORSE than govt corruption. We can vote out a corrupt govt but Capitalism = Corruption!"

Their latest ecstasy comes hot on the heels of Naspers being seduced into government corruption by the offer of a broadcasting monopoly. Another of our biggest companies, Steinhoff, is under investigation in Germany for "accounting irregularities" and "nondisclosure", as opposed to "corruption".

Why Mpofu’s view matters is not that it typifies the tyranny of twaddle, but that he is a respected intellectual, senior counsel, businessman and activist. He is regarded as a man of integrity. When he says something, it should be taken seriously.

A few Steinhoff executives, perhaps just one, allegedly falsified data, and concealed acquisitions to hide debt and avoid retarded forex controls. The rare misconduct of few individuals who misallocate private wealth leads salivating socialists to the bizarre conclusion that "corporate corruption" is "far worse" than the endemic misappropriation (not misallocation) of public (not private) wealth, and the extortion of bribes from millions of victimised civilians that government corruption entails.

Paradoxically, that socialists expect zero private corruption while indulging government corruption, means they hold capitalism in higher esteem than do capitalists.

What CEO Markus Jooste did is not yet known, notwithstanding premature blabber. The resignation and investigation unleashed the usual chorus of antiwhite racists singing the "white monopoly capital" song, and antimarket fundamentalists singing the "market failure" song.

Decent people lament rather than celebrate the demise of SA’s best corporate story and the effect on millions whose fund managers invested so recklessly in Steinhoff that they should be personally liable.

Hysteria within government has less to do with benevolence than their Public Investment Corporation (PIC) losing billions thus leaving them with less to loot. Their rage should be directed at the failure of their fund managers to analyse Steinhoff properly.

Are antiwhite racists and antimarket fundamentalists right? Are "white monopoly capital" and "corporate corruption" blameworthy? Is there "market failure"? Is there "capitalist greed"?

No. Virtually all facts contradict the rhetoric of salivating socialists.

The Steinhoff story is a glorious example of the market’s unique propensity for rapid and ruthless error-correction: share prices fell and capital markets adjusted within hours. Shareholder democracy caused heads to roll. The best geniuses were enlisted for damage control overnight. Conversely, government corruption is addressed at a snail’s pace with the efficiency of bureaucrats and integrity of scoundrels.

Because most corruption, especially bribery, occurs between government officials and civilians, the government is what most people think of when the word is used. They envisage corrupt politicians, officials and police, not employees in company A bribing counterparts in B, or consumers bribing shop assistants.

"Capitalist greed" is a myth. Individuals, not systems, may be greedy. Everyone is a complex mix of greed and generosity. I find no evidence of corporate executives being more "greedy" than politicians, professionals, workers, bureaucrats or beggars.

We are never told in which sense corporate corruption is meant to be "worse". Is it more common, unethical or harmful, on a larger scale, or less efficient? We have one government and over 500,000 companies. If we assume that companies perpetrate a quarter of all corruption and that government representatives perpetrate three-quarters of it, corruption is 1,500,000-times more common in government than in the average company. If this is exaggerated 1,000%, the government average is 75,000-times more than the company average.

That government corruption by every criterion far exceeds corporate corruption, is widely recognised. According to Prof Patrick Lumumba, of Kenya’s Anti-Corruption Commission, "30%-40% of Africa’s GDP is lost in corruption-related practices".

On the control of corruption index, South Africa fell from 0.8 to below zero between 1996 and 2014 while Botswana rose from 0.6 to 0.8 and Singapore remained near the top with 2.2. Our government fell on the Government Effectiveness Index from 0.9 to 0.3 while Singapore maintained 2.2.

On all relevant indices, corporations win hands down. On IIASA’s corporate governance index our government has the lowest sectoral score (2.7) while listed companies have the highest (3.1). Likewise, ethics (36 vs 78), compliance (30 vs 69), leadership (35 vs 50) and performance (25 vs 49).

Apologists for government corruption ruminate about corruption having two sides: governments and companies. Not so. Governments are typically the common denominator on one side. On the other, we find everyone else: companies, civilians, consultants etc. Furthermore, many corrupt acts are unilateral: spendthrift ministers and officials lavishing funds on themselves, insane South African Airways bailouts, and the like.

As for which is "worse", corporate corruption targets primarily the private wealth of rich and middle-class investors. Government corruption targets primarily public wealth at the expense of the poor.

The assertion that "capitalism = corruption" is contradicted by the fact that, as always, "capitalism", not the government, raised the alarm. German regulators, like our regulators, are always Johnny-come-latelies awakened from their stupor by private "sources".

Failed bureaucratic empires like our Financial Services Board (FSB) demand bigger empires supposedly to protect us from real or imagined corruption and crises. They use their perpetual failure to get ever-more power and money. Government agencies never prevent or expose corruption timeously.

However, unconscionable Jooste might have been, more heads should roll outside Steinhoff than in it. The unanswered question is why fund managers and analysts who are paid to interrogate true value failed regarding Steinhoff. I was told by a big cheese in a big bank that they avoided Steinhoff because values attributed to attests and debts were unconvincing. Thus, Darwinian markets exterminate bad analysts.

"We can vote out a corrupt govt." Really? In theory, perhaps. And then only after five years of corruption with only a few amorphous alternatives for which to vote. Corporate democracy is instantaneous. Every rand spent or invested is a vote cast. Shareholders vote whenever and on whatever they wish in scheduled or special meetings.

The rational conclusion to be drawn for the Steinhoff story is that corporate corruption is rarer and less destructive than government corruption. By a gigantic margin.

• Louw is executive director of the Free Market Foundation.

This article was first published in Business Day on 22 December 2017

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