Quarterly Review 2012.06

21 December 2012
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FMF

Quarterly review

April – June 2012

New FMF Board

In the latter part of 2011, Herman Mashaba approached the Executive Committee of the Free Market Foundation with the following proposal: With the approval of FMF members, he was prepared to form and chair a Board of Non-Executive Directors whose primary goal would be to raise the funds required to allow the FMF to reach a wider audience and thus have a more significant influence on national policy decisions. Herman made the proposal for three reasons: he was, and remains, very concerned that South Africa is in crisis; he believes the FMF is the only organisation with the necessary knowledge and ability required to persuade government to choose economic freedom; he does not want to look back in years to come and say “I did nothing”.

On 15 May 2012, at a Special General Meeting, FMF members elected nine non-executive board members. This authoritative group of individuals reflects expertise, diversity, enthusiasm and commitment. Their mandate is to persuade government to embrace the ideas and implement the policies of proven free market economics and to adopt personal and economic freedom as the fundamental basis for living and doing business in South Africa. Since then a tenth member has been added to the board’s ranks. (See list and brief CVs at the end of this review.)

The new board has three key initiatives for 2012:

  1. To challenge the current labour laws which are destroying jobs and employment prospects in South Africa, especially in the small business sector.
  2. To educate the general public about the merits of free market principles via the Citizen’s Empowerment / Your South Africa project.
  3. To bring international experts in governance and economics to South Africa to share their experiences through seminars, workshops and lectures.

In the meantime, the Executive Committee continues to manage the day-to-day activities of the Foundation, some of which are reported on below.

The FMF’s projects for 2012 include: energy, job creation / labour, growth, land reform / property rights, health, nationalisation, good law, and red tape, as well as ad hoc issues as they arise (this quarter, tobacco has been a high priority addition which has proved rather controversial).

Tobacco

The extract below, from an article written by Leon Louw for The Star, explains why the FMF has taken on this contentious issue:

Freedom, property rights, choice, and smoking

In a free society, individuals are free to smoke tobacco, ingest sugar, eat meat, or do whatever it is they believe will give them satisfaction provided they do not harm others…

Governments of countries that have attained freedom are entitled to attempt to persuade citizens to avoid habits they consider injurious to their health. They are not entitled to bludgeon citizens…

By the end of June, the Minister of Health may succeed in instituting new anti-smoking regulations that will prevent anyone from smoking in any building, outdoor venue, public or private beach, outdoor drinking or eating area, park, walkway, parking area or within 10 metres of any doorway or window. This measure will include the abolishment of existing designated smoking rooms.

These proposed regulations raise legitimate concerns about constitutionality, feasibility and enforceability…

The problem … for all freedom-loving people is that these proposals go far beyond the need to protect passive smokers to the point of extreme erosion of lifestyle choices, freedom of association, property rights, basic liberty and personal dignity.

The debate around tobacco is not the one-dimensional issue portrayed by the Department of Health. Its stance is that as some people harm their health by smoking, and allegedly cause peripheral harm to others, the Department has the right to determine where and when people smoke. The Free Market Foundation’s focus in the tobacco debate is on fundamental rights in a free society, namely freedom, property rights (including ownership of your body), and choice. These rights underpin a democracy and are tampered with to the detriment of ordinary people.

Freedom is complex... How does one deal with “conflicts” of rights in a free society? In a free society, it is the property owner who should decide whether people are allowed to smoke or not…

These proposed new regulations further undermine our already severely curtailed freedom of choice, and are going to impact disproportionately on the poor. Imagine trying to get 10 metres away from a spaza shop door in Khayalitsha without encountering another door? Impossible.

We are also deeply concerned about government’s inability to enforce the proposed new regulations and the fact that bad laws, like this one, will be ignored, not only by the public, but also by the police who surely have more pressing duties in our crime-ridden country. Societies that ignore bad laws, become societies that also ignore good laws.

As a lifelong anti-smoker, my concerns have nothing to do with legitimate and complex disagreements amongst toxicology experts about tobacco and health, nor do they dismiss the rights of non-smokers at all…

The thin edge of the wedge has already been hammered home by a government ready and willing to split you and your freedom apart. Picking on an issue such as smoking that raises eyebrows and passions, allows the state to take the steps that eventually lead into your home to determine what you eat, what you buy (Local is Lekker), and perhaps with whom you sleep (remember the bad old days of apartheid?).

Freedom, as the saying goes, is indivisible, and people who want freedom for themselves must defend freedom for all. Freedom means, if nothing else, the right of others to do what you disapprove of. One could be deeply offended by The Spear, yet vigorously oppose censorship. If we wish to retain our freedom, we have to defend the rights of those with habits we dislike or with ideas with which we disagree. As Voltaire said: “I disapprove of what you say, but I will defend to the death your right to say it.”

During the past two weeks, Leon has spoken at two media briefings on the issue, been interviewed on radio and TV on approximately 20 occasions, and been quoted in the print media many times.

FMF also made a substantial submission to the Department of Health on the proposed regulations, which can be read here: Comment on proposed tobacco regulations.

Energy

The FMF remains very concerned about the energy crisis in South Africa, which continues to impact negatively on economic growth with mines, manufacturers, property developers and others having to rein in potential expansion.

On May 8, the FMF’s Energy Policy Unit (EPU) held a workshop with a key member of the Energy Intensive Users Group (EIUG). Two issues dominated the agenda: fleshing out the FMF’s energy vision for 2030, and preparing FMF’s oral evidence to the Portfolio Committee on Energy on the proposed Independent System and Market Operator (ISMO) Bill. (To understand the ISMO, read Eustace Davie’s excellent article: What is the electricity transmission grid and why is it important to you?)

Oral evidence was led by Leon Louw, Temba Nolutshungu and EPU member Doug Kuni on May 22. The FMF had originally been assigned 50 minutes, but our team was asked questions by committee members for over two hours. The committee had clearly read the FMF’s written submission (which can be read here: Comment on the Independent System and Market Operator Bill), and were obviously interested in our arguments for a truly independent grid.

Job creation / Labour

Unemployed People’s Movement

On June 14, FMF economist Jasson Urbach gave the opening address at the Unemployed People’s Movement (UPM) behaviour change seminar at the Mangosuthu University of Technology in Umlazi. It was well-received with participants asking if they could have a copy of Jasson’s speech translated into isiZulu. Here is an extract from the subsequent coverage of the event in the isiZulu paper Isolezwe: “Bathe sebezolandela imigudu efanele uma kukhona abakudingayo ngoba basebenzisana nezinhlangano ezahlukene okubalwa kuzo ne-Free Market Foundation.” (Roughly translated as ... They say they must now follow the path because they work together with different organisations such as the Free Market Foundation.)

The UPM is hoping to persuade government to adopt Eustace Davie’s idea of exempting the unemployed from labour legislation. Here is an extract from a letter written by UPM’s chair and published in Business Day: “The government must understand that labour unions are not the friends of the unemployed. Their job is to look after their members and it is the government’s job to protect us when what they want to do is harmful to the unemployed people. We plead for our members to be given job seekers’ exemption certificates that exempt them from the labour laws so that they can make their own arrangements with employers, and decide for themselves what wages and other conditions of employment are acceptable to them. That way the employers will not be afraid to give the unemployed jobs.”

FMF in-house event

Following the FMF’s Special General Meeting on May 15, Herman Mashaba (Executive Chairman of Lephatsi Investments (Pty) Ltd and Non-Executive Director of Black Like Me (Pty) Ltd, which he co-founded in 1985; he won the 2004 FMF Free Market Award for his exceptional contribution to the cause of economic freedom) presented Labour laws exploit the unemployed!

Herman argued that…

  1. labour policy should not favour 2 million union members at the expense of 7 million unemployed
  2. unions are normal and desirable in the labour space, not in politics;
  3. current labour laws are destroying job opportunities;
  4. you cannot force employers to pay salaries that they cannot afford;
  5. making firing difficult makes hiring unattractive;
  6. growth not legislation will result in full employment, “decent” jobs and higher wages.

Media policy briefing on minimum wages

On June 21, Temba Nolutshungu briefed the media on FMF thinking about minimum wage policies and the real impact on South Africa’s unemployed citizens. Temba covered the following points:

  1. To make a serious dent in SA’s unemployment levels, a critical review of labour policies is required.
  2. Minimum wage laws were originally intended to protect white labour from black competition.
  3. The net economic effect of minimum wage laws is to make less skilled, less experienced, or otherwise less desired workers more expensive … thereby pricing many of them out of jobs.
  4. Minimum wage laws protect the employed at the expense of the unemployed.
  5. The reason why calls for minimum wage laws are so persistent and vociferous in developing countries.
  6. Minimum wage laws restrict the growth of jobs and result in the moral disintegration of the providers and protectors of households.
  7. Alternatives to minimum wages.

You can read Temba’s article on minimum wages here: Moral bankruptcy of minimum wage laws.

 

Growth

National Development Plan submission

The National Planning Commission’s National Development Plan (NDP2030) aims to “eliminate poverty”, “reduce inequality”, and “change the life chances of millions”. The 444-page plan covers the following in 15 chapters (FMF submitted comments on the chapters highlighted in blue): Key drivers of change; Demographic trends; Economy and employment; Economic infrastructure; Transitioning to a low carbon economy; Inclusive rural economy; Positioning South Africa in the world; Human settlements; Improving education, innovation and training; Promoting health; Social protection; Building safer communities; Building a capable state; Promoting accountability and fighting corruption; and Transforming society and uniting the country.

Below are a few of the issues raised in the FMF’s submission on chapter 3, Economy and employment.

Growth

  1. If you want employment, you must have growth.
  2. If you want growth, you must understand the determinants of growth and you must implement pro-growth policies regardless of whether they meet, in the short term especially, developmental goals.
  3. Growth requires economic freedom. The cornerstones of economic freedom are: personal choice, voluntary exchange, freedom to compete, and security of privately owned property.
  4. Aim high: 10% growth is better than 5.4%, and is achievable.

Jobs

  1. Growth results in full employment, which in the long run ensures “decent” jobs, increased wages, and improved living conditions. Focus on growth, growth, growth (and therefore jobs, jobs, jobs), not income gaps and decent jobs.
  2. Job creation should be left to the private sector as government is a net consumer of wealth and can only “create” jobs at taxpayers’ expense.

Labour legislation

  1. First prize: Abolish inflexible labour legislation.
  2. Alternatively: Exempt the unemployed and SMMEs from inflexible labour legislation; review existing labour legislation.

Government’s role

  1. Government’s primary economic role is to create an environment in which the private sector can flourish. This includes less government intervention, legislative certainty, lower taxes, low inflation, sound money, rule of law, security of property rights, an independent judiciary, and impartial courts.
  2. Stop causing unemployment with inflexible labour legislation, excessive red tape, proposed legislation to zone townships (which could put 1 million informal traders out of business); stop harassing street traders who are trying to feed their families by doing an honest day’s work.

Lowering costs in the economy and of government

  1. Lower costs in the economy by abolishing red tape and subjecting all existing and proposed legislation to cost-benefit analyses.
  2. Union excesses are costing South Africa billions and ensuring the unemployed remain unemployed: repeal the power to extend statutory bargaining agreements to non-parties; abolish the general unfair dismissal regime; introduce mandatory polling (balloting) to limit strikes and, in particular, strike violence; impose union liability, albeit circumscribed, for injury and loss caused by striking.

State owned enterprises

  1. First prize: Privatise SOEs by giving “democracy dividends” to the poor.
  2. Alternatively: End statutory monopolies and allow the private sector to compete on equal terms with SOEs, resulting in lower prices, greater choice, and greater efficiency; make it clear to SOEs that there will be no more bailouts.

Freedom Zones (Special Economic Zones)

  1. First prize: Turn South Africa into a Freedom Zone.
  2. Alternatively: Introduce “offshore” Freedom Zones as opposed to mini-South Africas masquerading as Special Economic Zones.

Taxes

  1. Understand that ALL taxes are paid by individuals; company tax is paid via lower wages to workers, higher prices to consumers, lower dividends to investors.
  2. First prize: Do away with all taxes except income tax, which should be low and flat with a generous allowance that excludes the poor.
  3. Alternatively: Lower and simplify ALL taxes.

Mineral resources

  1. State intervention in the mineral sector, in the form of special taxes and forced beneficiation, is nationalisation in disguise.

Monetary policy

  1. Governments and central banks are not in a position to create wealth directly – creating money is not creating wealth.
  2. Abolish exchange controls.
  3. Make the rand strong by backing notes and coins in circulation 100% with gold.

Media Policy briefing on the FMF’s NDP030 submission

On June 5 FMF hosted a full day media briefing on its NDP2030 submission, attended by several journalists and a couple of corporate regulatory affairs representatives.

Presentations

  • On April 20 Leon addressed the SA National Defence Force College on The world economy and global market trends, a topic he tackles for them two or three times a year.
  • On May 21 Leon addressed an historic Economic Indaba at which the following opposition parties met “to identify key issues and discuss possible solutions”: African Christian Democratic Party, Congress of the People, Democratic Alliance, Inkatha Freedom Party, Pan Africanist Congress of Azania, and United Democratic Movement. Input was given by six economic experts and the workshop was facilitated by an independent facilitator. The purpose of the workshop was to discuss the faltering economy and “possible solutions to set it on a path to inclusive and sustainable growth”.
  • On June 20, FMF economist Vivian Atud presented her research findings to a select group at the FMF offices. Her recent study reveals that, contrary to popular belief, black advancement in South Africa has been increasing since 1994. Until now, there was no standard way to measure this advancement, which led to opposing anecdotal opinion being accepted as fact. Vivian’s new Dependency Index reveals that, despite the advancement that has been made, general dependency on government has also increased and this has some serious negative implications for the South African economy.

    The eight indices used in the preliminary Black Advancement Index are: government, financial sector, education, land, professional, housing, income, and employment. There has been significant, although not equal, black advancement in all measurement variables.

    On the Dependency Index, Atud's research shows that dependency on the government has increased since 1994. Today, more than 16 million South Africans depend directly on government for one type of grant or another. Dependency costs taxpayers millions and if not checked will have a devastating impact on the South African economy.

    For more detail: Black Advancement Index & Dependency Index.

    Following her presentation on the above indices, Vivian was invited by the SABC to attend and comment on the ANC’s policy conference – a real feather in her cap, and, by association, in ours!

Land reform / Property rights

The FMF remains concerned about the slow pace of land reform, especially as the solutions that exist require only political will to implement. In our submission on the NDP, we made the following points:

  1. Secure property rights represent one of the most important requirements for the protection of both economic freedom and civil liberties.
  2. Free black South Africans from house arrest (allowing them to move from one area to another in search of jobs) by removing the pre-emptive clauses (which, for example, prevent recipients from generating an income via their biggest asset) from all RDP title deeds thereby giving 3.4 million black families parity with whites in respect of property rights and transforming “dead capital” into “dynamic capital”.
  3. Think housing vouchers for the indigent rather than building houses for the poor. Recipients could spend their vouchers on upgrading existing shacks in squatter camps (the state could supply infrastructure to shack cities), building their own houses on site-’n-service plots allocated to them, renting accommodation from the private sector. This would ensure choice, diversity, and better “spatial transformation”.
  4. By statutory decree, convert all lawfully occupied council-owned urban plots (no-one knows how many, but the number could be as high as 10 million) to full freehold title, thus granting black South Africans the same land rights as whites and releasing around R1 trillion into the economy (assuming 10 million properties worth R100,000 each). While recipients may not qualify for mortgages, as the owners of an asset they will qualify for many other benefits from financial institutions.
  5. Accurately and honestly identify state owned land, especially “reserve land”, and liberate it into the economy by giving it to poor families.

“Perryville”

FMF continues to make slow progress in converting 33,000 council properties to full freehold in “Perryville”. The local municipality recently underwent a management change, but following a meeting this month with the municipal manager, the project is back on track and the next 175 properties ready to be processed.

Health

Article

Garth Zietsman’s excellent article (Your life at stake: False assertions about hospital costs) in response to Dr Aaron Motsoaledi’s claim that private health care is substantially more expensive than public, was republished in The Star and the Mail & Guardian.

Your hospital plan at stake

Did you know that the Department of Health is hoping to nuke your hospital plan? Watch this space for more information.

Nationalisation

Jasson Urbach’s article (State intervention in mining is not good for SA) on the State Intervention in the Minerals Sector (SIMS) report, was republished by several online media.

Gail Day, FMF Projects Manager, emailed the following suggestion to NUM after they came out in support of a super tax on mining:

Knowing that nationalisation is bad for the economy and therefore workers, I was pleased when NUM first came out against mine nationalisation.

I was subsequently distressed to hear NUM supporting the SIMS report and the super tax on mining as this is nationalisation in disguise.

Denigrating “profits” is a popular pastime. It is easy, and fun, to equate “profits” with “greed”, and thus to belittle profit-seekers. It is easy to forget that profit-seekers are people who seek to earn profits by providing goods and services to customers, and who rely on the excellence of their service for their rewards.

More importantly, it is easy to forget that without profits there will be no dividends with which to reward investors for their risk-taking; there will be no investments from which owners can improve working conditions for their employees, expand their businesses or employ more workers; there will be no “company” taxes through which owners contribute to the welfare of the poor; and there will be no excess monies from which wage increases and employee benefits are garnered.

By calling for a “super-tax” on mining companies, the State Intervention in the Minerals Sector (SIMS) Report, and NUM, are effectively calling for a reduction in mining profits and therefore a reduction in wage increases.

Here’s my idea on how to increase miners’ wages: NUM should call rather for a reduction in taxes and suggest to the minerals sector that any concessions made by the state as a result of NUM’s intervention should be split 50/50 between the company (increased investment for expansion, better safety measures, etc) and the workers (increased wages).

A positive spin-off might prove to be a collaborative relationship between business and unions rather than a combative one.

Good law

In-house event

On April 18, Robert Vivian, Professor of Finance and Insurance, School of Economic and Business Sciences, University of the Witwatersrand, presented Guilty! Exploring the constitutionality of competition policy via cases brought before the competition tribunal to an FMF audience.

Robert discussed recent competition cases and argued that:

  1. “Due process” requires a trial before an impartial judiciary adhering to historically established procedures, and the imposition of an appropriate sentence.
  2. Chapter 2 of the Competition Act is used to garner billions of rands for the government without meeting the constitutional requirements of due process.
  3. All laws in the competition regime emanate from the regime itself and are endorsed by parliament, violating the “separation of powers” requirement.
  4. Accusations of wrongdoing against firms by the competition regime are never proven by the production of evidence tested in a court of law.
  5. Instead, adjudication is carried out in-house by the Competition Tribunal, which does not form part of the judiciary.
  6. Since the Tribunal is not a court of law the requirement that the punishment fit the crime is not properly met.
  7. A frightening procedure has evolved during which an accused is persuaded to admit guilt and pay an enormous fine, in some cases in excess of R1bn, or face an even bigger fine!

Article

On April 23, Leon Louw wrote an article for the newly formed NGO, Good Governance Africa (GGA), on the rule of law in which he made the following points:

  1. The rule of law is a component of the larger concept of “good law”.
  2. The principal contexts in which laws may be good or bad are jurisprudence, economics, politics, public administration and ideology.

Other

In-house event

On June 13, Digby Ricci, one of South Africa’s top film critics and a columnist for NewsTime, presented Tarnishing the iron: How not to depict Thatcher and Thatcherism on screen to an FMF audience. He discussed:

  1. Whether The Iron Lady film does justice to Thatcher, the free marketeer.
  2. Why film producers are generally anti free markets.
  3. Whether this anti free market bias is evident in The Iron Lady.
  4. Thatcher’s unsung economic and social successes.

What you might not know about the FMF: A blast from the past

1975–1994

FMF was responsible for over 200 regulatory reforms including increased shopping hours, abolished control boards, and deregulated transport.

1986...

The book, South Africa: The Solution, and the speeches that the authors Leon Louw and Frances Kendall gave on its main thrust of a peaceful transition to democracy under a constitution protecting the rights of all citizens, influenced and encouraged the parties concerned to enter into the negotiation process that ended apartheid. The FMF made numerous submissions at the Convention for a Democratic South Africa (CODESA) and the negotiating parties took note. They did not accept all its proposals but included enough of them to substantially influence the final constitution and the checks and balances that protect South Africa’s citizens today. For their role in the transition to democracy, Leon and Frances were twice nominated for the Nobel Peace Prize.

1987: Dakar Conference

FMF played a leading role in the famous Dakar conference, which is regarded by experts as having made a decisive contribution to the abolition of apartheid. It brought leading white and black South Africans together to consider how to end apartheid and with what to replace it. The conference was attended by most of the ANC’s top leadership in exile – including former president Thabo Mbeki – many of whom became ministers in the post-apartheid cabinet. One of the four days was devoted to Leon Louw’s presentation on a constitutional model for how South Africans could live together democratically and peacefully. The model, based on The Solution, advocated a federal system with limited government, devolution of power and a bill of rights.

Training

The FMF has a long history of training. In the 1980s, over 1,000,000 workers in 2,000 companies were introduced to basic free market concepts through the FMF’s With Justice for All training program. Many now hold positions of power within the African National Congress (ANC).

In the 1990s, an FMF associate continued the worker training using the Business and Economic Principles course, which emphasised the importance of economic literacy and an enterprising attitude in the workplace.

Also in the 1990s, the FMF established the Liberty School to introduce students to the fundamentals of liberty, human rights and the free market. During each five-day school, university students were exposed to classical liberal ideas in the fields of law, politics, economics and history. Students were introduced to thinkers such as Von Mises, Hayek, Hutt, Friedman, Buchanan and Rand and thoroughly debated tough issues such as land reform and property rights, freedom of speech, education and affirmative action.

Board of Non-Executive Directors

Chairman

Herman Mashaba is a Non-Executive Director of Black Like Me (Pty) Ltd which he co-founded in 1985. He is Executive Chairman of Lephatsi Investments (Pty) Ltd, Leswikeng Group of Companies and Phatsima Group of Companies and holds several other directorships. In 2004 Herman won the FMF’s Free Market Award for his exceptional contribution to the cause of economic freedom.

Deputy Chairman

Brand Pretorius began his business career at Toyota South Africa in March 1973 and ended it as Chief Executive Officer of McCarthy and as an Executive Director of the Bidvest Group in March 2011. He currently serves as a non-executive director on several boards and as a member of the advisory board of the Motor Industry Ombudsman.

Board member

Brian Benfield is the founder and former Chairman of Clientele Life, and currently Chairman of SA Motor Loans, and Chairman of Prime Meridian Direct. He is Professor of Insurance and Risk Management at the University of the Witwatersrand and Chairman of the Board of Examiners of the Insurance Institute.

Board member

Nic Frangos is Chairman of investment companies Global Equities and Ashford International. He is a Director and Partner of Lephatsi Financial Services, Smartec, and US based Qorval, a corporate rejuvenation and renewal corporation.

Board member

Eddie Keizan is the Non-Executive Chairman of TiAuto Investments Pty Ltd, founder of former Tiger Wheels Ltd group of companies, a Director of Aviation and Property companies, and was a motorsport competitor from 1967 to 1979.

Board member

Ayanda Khumalo has extensive experience in financial management, auditing and corporate finance, with an interest in models of economic development for the developing world. He is a chartered accountant and has held executive positions in various commercial and professional entities. He became a member of the Executive Committee and Council of the FMF in 2002.

Board member

Johanna Mcdowell is a marketing professional with more than 30 years’ experience in advertising, public relations and marketing communications in South Africa and the UK. She has been a company director for more than 20 years and has sat on boards in both countries over those years including more than 10 years on the Institute of Directors board. For the past six years she has been Group Chief Executive of Mazole Holdings (Pty) Ltd, a group of marketing related companies, and is world President of the International Public Relations Association, a voluntary global organisation.

Board member

Don Ncube is an entrepreneur in the coal mining and energy sectors. He is the Executive Chairman of Badimo Gas (Pty) Ltd, Chief Operating Officer of Vula Mining Supplies (Pty) Ltd, and a Non-Executive Director of GoldFields Ltd.

Board member

Bronwyn Nielsen has been with CNBC Africa since its launch in 2007 and is best known for her weekday evening program Business Tonight. Bronwyn has over 14 years in the South African broadcasting industry with numerous accolades to her name including the 2006 Telkom ICT Journalist of the Year. For CNBC, she hosted the live CNBC Africa Debate at the World Economic Forum on Africa in 2007, and presented Captains of Industry, a program that features interviews with the leaders of African companies.

Board member

Jeremy Sampson is Founder and Group Executive Chairman of Interbrand Sampson which has offices in over 20 countries. Interbrand Sampson was Finweek’s branding and design agency of the year 2009 and 2010, and Jeremy is currently the Financial Mail’s AdFocus Lifetime Achiever. He is a visiting Professor at the University of Cape Town Graduate School of Business.

 

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